The Timberland Company is hoping that steps taken during 2007 will set the foundation for future growth and healthier profit margins. The results for the 2008 first quarter reveals a weak top-line that did see some sequential improvement, but the bottom line was able to shrug off weaker gross margins to post considerably stronger results. The company was able to post a small increase in revenues for the first quarter as foreign currency changes, “strong gains” at SmartWool and Timberland PRO products, as well as “more moderate gains” in casual footwear, “offset declines in boots and Timberland apparel revenue in North America.”
The increase in global retail revenues was a reflection of a 5.7% increase in global comparable store sales as the company focused on supporting better doors while closing others. TBL closed 24 company-owned retail stores during the quarter.
Currency-neutral revenues were down 3.6% for the quarter as foreign exchange rate changes increased first quarter revenue by approximately $16 million, or 4.8%, due to the strength of the euro and the British Pound. FX rate changes provided a $6 million benefit to operating income.
Global footwear revenues remained somewhat flat compared to the prior year, as declines in boot sales offset strong growth in PRO footwear, moderate gains in casual footwear and benefits from the addition of IPATH. The decline in boots sales was said to be “somewhat misleading,” as management pointed to a significant decrease in sales through off-price channels in North America as a key contributor to the decline.
The company no longer breaks out the U.S. business separately into wholesale and retail divisions, instead creating a North America unit. North America sales fell 5.1% on a constant dollar basis, reflecting declines in both the U.S. and Canada. North America wholesale revenues fell 6%, as “planned declines” in Timberland apparel — reflecting the transition to a licensing arrangement with Phillips-Van Heusen — and reductions in off-price footwear sales offset double-digit gains at SmartWool and Timberland PRO and the inclusion of the acquired IPATH business. The company will cease sales of in-house North American casual apparel product in the second quarter of 2008 but will continue selling its own line of apparel in International markets.
North America retail revenues were relatively flat in Q1, as a 2% increase in comp store sales offset a decrease in door count related to the closure of underperforming stores over the past two quarters.
European revenues decreased 1.6% on a constant dollar basis, as declines in boots and casual footwear offset growth in outdoor performance footwear and apparel and accessories. Declines in kids' and women's boots offset an increase in sales of men's boots. Constant dollar sales declines in Spain, France and the Benelux region were offset by growth in distributor markets, primarily in Eastern Europe and the U.K.
Asia sales fell 6.3% on a constant dollar basis, due primarily to declines in Japan and Hong Kong, which offset growth in key distributor markets, including China.
TBL now has over 60 Timberland-branded distributor-operated stores open in China, and is on track to add an additional 50 doors this year.
Timberland is maintaining its full year outlook, with favorable FX rate benefits expected to offset “continued challenges” in global retail markets. They anticipate mid-single-digit revenue declines, due in part to the closure of owned-retail stores, and operating expenses of approximately $550 million, resulting in “flat to modest” operating margin improvement, excluding restructuring costs.
For Q2, TBL sees mid- to high-single-digit revenue declines and an operating loss — excluding restructuring costs — in the range of $30 million to $35 million. The company is planning for an additional $4 million in restructuring costs in Q2 associated with owned-retail store closures.
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