The Timberland Company reported that revenue and earnings for the third quarter came in lower than last year’s levels, as expected, but also experienced some better-than-expected results in the gross margin line related to reduced close-outs and the tightening of retail inventories, primarily in its urban business. The addition of new brands and gains in Timberland apparel, casual footwear, and Timberland PRO series product were offset by declines in boots and kid’s sales.

While third quarter revenues declined slightly from the year-ago period, the decrease would have been more pronounced when excluding the acquired SmartWool business or foreign currency exchange benefits. SmartWool contributed about $12 million in sales to the U.S. wholesale business and FX rate fluctuations contributed about approximately $7.9 million to the top line, thanks to the strength of the Euro and the British Pound.

Excluding the upside from SmartWool and foreign currency, total revenues would have decreased approximately 4.5% for the quarter.

Total International revenue increased 6.9%, or 3.6% on a constant dollar basis, supported by growth in southern Europe, distributor markets, Canada, and Japan, but offset a bit by declines in key northern Europe markets such as Benelux, France, and the U.K. Overall, European revenues were said to be “relatively flat” on a constant dollar basis in Q3, reflecting strong gains in casual footwear and apparel that offset declines in boots and kid’s product in northern Europe.

Asia sales increased 13% in the quarter, or approximately 15% in constant dollars. TBL said it benefited from “strong gains” in Japan where they posted “solid” comp store sales gains at retail. The company opened six new owned-retail doors in Asia in Q3 and plan to add a total of 15 new company-owned stores for the year across the region. They also opened three distributor-owned stores in China.

Total U.S. revenues decreased 7.2% for the period, but would have fallen nearly 12% without the SmartWool contribution. Wholesale sales would have been down more than 14% without SmartWool, which accounted for 6% of the wholesale growth. TBL was mostly affected by double-digit declines in boots and kid’s sales.

U.S. owned-retail was apparently lower due in large part to the decision to remove Timberland classic boot product from the outlet stores. Timberland’s U.S. specialty stores saw “solid” comp sales gains for Q3, reflecting improved sales of casual and outdoor performance product.

Global wholesale revenue decreased by 1.0% to $416.2 million, while worldwide consumer-direct sales increased by 1.3% to $86.8 million.

The company sees more moderate single-digit revenue growth in the fourth quarter and low single-digit growth globally in the first half of 2007. The company is targeting “solid gains” in Europe in Q4.

TBL expects that softer sell-through in boots and kid’s products in the back half of this year will lead to lower overall U.S. sales in the first half of next year, while constraining European growth over the same period.


>>> This turnaround may take more than a little while. The new brands on the outdoor side are certainly relevant, but contribution will take time to grow to levels that offset weakness elsewhere. As for the urban business, it will take more than controlled distribution and Gene McCarthy to turn this around — the consumer will have to swing back to boots as fashion…

The Timberland Company
Third Quarter Results
(in $ millions) 2006 2005 Change
Total Sales $503.0  $505.9  -0.6%
U.S. Direct $45.9  $46.6  -1.6%
U.S. Wholesale $202.1  $220.7  -8.4%
Int’l Direct $41.0  $39.1  +4.7%
Int’l Wholesale $214.1  $199.5  +7.3%
Total Footwear $368.0  $399.0  -7.8%
Total App./Acc. $129.4  $101.5  +27.5%
Gross Margins 47.1% 48.9% -180 bps
SG&A Expenses 31.0% 27.6% +340 bps
Net Income $51.9  $69.2  -25.0%
Diluted EPS $0.82  $1.02  -19.6%
Inventories* $250.5  $242.6  +3.3%
Accts Rec.* $330.4  $298.2  +10.8%
US Retail Comps -4.5% -7.1%  
*at quarter end