Sparked by strong sell-throughs for its Earthkeepers eco-collection and SmartWool brands, The Timberland Co. racked up double-digit wholesale growth in North America and Europe in the second quarter, leading to an overall 5.1% revenue gain for the period. Gross margins jumped 750 basis points due primarily to favorable pricing and channel mix as well as lower input costs.


On the downside, a pre-tax charge of $13.2 million was taken for the impairment of certain goodwill and intangible assets of its IPATH skate brand acquired in 2007; as well as Howies, a Welsh active footwear brand acquired in 2006. That caused a higher loss in the period.
On a conference call with analysts, company President and CEO Jeffrey Swartz said the fundamentals of the business “are solid and improving.” First-half results, he said, “represented a sharp turnaround from where we were just a couple of years ago, when fashion trends were moving away from Timberland's reliable classic boot business. We believe that the progress we made this quarter across all of our product lines is both meaningful and sustainable.”


By region, North America sales increased 6.6% to $92.0 million, driven by apparel and accessories. Footwear revenue in N.A. was up 3% for the period. Wholesale revenue was up 11%, driven by a 15% gain in its Timberland PRO business and whopping 42% growth at SmartWool. Those gains were partly offset by a 15% decline in closeout revenue. E-commerce grew 18% but Timberland's overall N.A. Consumer Direct revenue was down 3%, driven by soft comps in its outlets and the net closure of four outlet doors.


Swartz said SmartWool's strong performance reflects its ongoing evolution from “a sock brand into an outdoor lifestyle brand.” While Timberland's N.A. footwear business saw a slight revenue decline for the quarter, it largely reflected reduced closeouts. Said Swartz, “Combined with improving gross margins, these are exactly the kind of results we are looking for as North America gets on a healthier trajectory.”


Europe revenue increased 1.4% to $66.8 million, and increased 5.7% on a constant dollar basis. Double-digit growth in Italy, Germany, and Scandinavia offset declines in the U.K. and France as well as the impact from the strengthening of the U.S. dollar. Footwear revenue in Europe increased 6%. Improvements were seen in the Earthkeepers, outdoor and classic product. Apparel declined in both wholesale and retail due to fewer off-price sales. Overall, total Europe retail revenue decreased 10%, driven by unfavorable foreign exchange rates and comp declines.


Asia revenue increased 9.6% to $30.2 million, and increased 4.8% on a constant dollar basis. Favorable foreign exchange rates, along with the continuation of significant growth in Taiwan and China offset declines in its Asia distributor business. Asia retail was up 23%, with comps 11% and the net opening of eight stores since Q2 2009. Asia wholesale revenue declined 9% due to both the timing of orders as well as a 78% reduction in closeout sales.


Global footwear revenue increased 3.7% to $131.6 million, driven primarily by increased sales of its Timberland PRO footwear in N.A. and a strong performance by the European wholesale business, partially offset by weakness in European retail stores. A particular success was its Earthkeepers line, which doubled revenues in all regions and across men's, women's and kids'.


A re-launch in Italy and a women's-specific marketing campaign led to 28% revenue growth in women's footwear in Europe for Q2.


Apparel and accessories revenue advanced 10.2% in the quarter to $52.1 million, due to increased sales of SmartWool accessories in N.A. and Timberland brand apparel in Asia retail stores, partially offset by softness in Europe. Royalty and other revenue decreased 3.8% to $5.3 million due to a decline in licensed kids' apparel in N.A.


Global Wholesale revenue was up 8.3% to $117.5 million as double-digit growth in North America and Europe offset declines in Asia. Worldwide Consumer Direct revenue was flat as improved comps in Asia and the net addition of eight Asia retail stores year-over-year were offset by declines in Europe and North America. Overall, comps were flat in Q2.


The operating loss narrowed to $33.3 million from $36.4 million in Q2 last year as better gross margins offset write-downs  About a quarter of the margin improvement reflected better pricing and channel mix while another quarter came from lower product costs. A decline in global closeout revenue, as well as less sales returns and markdown allowances, also contributed to the improved margin.