The Timberland Company recorded first-quarter net income of $9.3 million, down 64.5% from $26.1 million in the year-ago quarter. Diluted earnings per share were 15 cents, after 40 cents last year. Net revenue decreased 3.9% for the quarter to $336.3 million from $349.8 million in the first quarter of 2006. Excluding restructuring costs related to previously announced decisions to license the company's North America wholesale apparel business and globally restructure its organization around key consumer markets, first quarter diluted earnings per share were 22 cents.
- First-quarter revenue was down 3.9% driven primarily by declines in boots and kids' footwear, which were partially offset by gains in SmartWool and in Timberland PRO. Foreign exchange rate changes increased first-quarter 2007 revenues by approximately $11.8 million, or 3.3% due to the strength of the Euro and the British Pound, and increased operating income by approximately $7 million.
- International revenue increased 4.1%, but declined 2.1% on a constant dollar basis, driven by weakness in Europe as a result of anticipated declines in boots and kids' sales which were partially offset by strong growth in Asia. U.S. revenues decreased 13.2%, impacted by unseasonable weather trends which added to anticipated pressures on boots and kids' sales.
- First-quarter results reflected declines in global footwear sales which were partially offset by modest global gains in apparel and accessories revenue. Apparel and accessories revenue grew 4.4% to $95.4 million, as gains in SmartWool and the addition of Howies offset declines in Timberland® brand apparel. Global footwear revenue fell 7.2% to $235.6 million as declines in boots and kids' sales as well as modest declines in casual footwear and outdoor performance were partially offset by gains in Timberland PRO® series footwear.
- Global wholesale revenue decreased 7.3% to $259.0 million reflecting the anticipated declines in boots and kids' footwear sales. Worldwide consumer direct revenue increased 10.0% to $77.3 million, reflecting comparable store sale gains in the U.S. and Asia, along with the benefit of new store openings globally, which offset a comparable store sales decline in Europe.
- Operating profit for the quarter was $13.6 million, down from $40.1 million in the prior year period. Operating profit excluding restructuring costs was $20.1 million, down $20.4 million versus comparable prior year levels. Profit declines were driven by anticipated pressures on gross margins and increased costs related to investments in support of growth strategies, including global business expansion and development of Timberland's brand portfolio.
- Timberland repurchased approximately 348 thousand shares in the first quarter at a total cost of $10.0 million. It ended the quarter with $119.7 million in cash and no debt. Inventory at quarter end was $183.5 million, up 4.9% versus 2006 first-quarter levels, primarily reflecting increased product costs and inventory associated with new brands such as Howies® and GoLite®. Accounts receivable increased 4.0% to $199.7 million, impacted by later timing of sales in the quarter.
- The Company remains committed to improving performance in its boots and kids' businesses, supported by a disciplined product supply and distribution strategy that is aligned with the premium position the Company seeks to maintain with consumers. The Company continues to expect to see significant sales declines in boots and kids' sales in 2007, likely in the range of $100 million globally and believes that revenue levels will be flat to a low single digit percentage range decline compared to the prior year. Lower boots and kids' sales and impacts from higher relative product costs will place continued pressure on operating margins, with expectations for full-year declines of approximately 300 to 350 basis points compared to prior year levels excluding restructuring costs. In the second quarter of 2007, the Company anticipates that margin pressures will contribute to a decline in operating profits of approximately $12 million and will result in a net loss in the range of $18 to $20 million excluding restructuring costs.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, “While near-term hurdles remain, we are committed to our strategy for the long-term growth of the Timberland brand and enterprise. We continue to broaden our portfolio with acquisitions such as SmartWool, GoLite, Howies and IPATH so that we can reach more consumers than ever before; we are more focused than ever on creating authentic and relevant product for our targeted consumers; and we are streamlining our business operations in order to drive greater efficiencies. While I am not satisfied with where we stand today, I am encouraged by the strength of our new management structure, our strategic focus and the resolve of our employees and believe that we are positioning ourselves to make important progress in the future.”
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
For the Three Months
March 30, March 31,
Revenue $336,329 $349,811
Cost of goods sold 174,750 175,881
Gross profit 161,579 173,930
Selling 110,083 104,749
General and administrative 31,351 28,634
Restructuring and related costs 6,526 481
Total operating expense 147,960 133,864
Operating income 13,619 40,066
Interest income, net 1,130 1,105
Other, net (623) (571)
Total other income 507 534
Income before provision for income taxes 14,126 40,600
Provision for income taxes 4,873 14,535
Net income $9,253 $26,065
Earnings per share:
Basic $.15 $.41
Diluted $.15 $.40
Weighted-average shares outstanding
Basic 61,099 63,583
Diluted 61,995 64,996