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closeTimberland Reports First-Quarter 2008 Results
STRATHAM, N.H. — The Timberland Company (NYSE: TBL) today reported first-quarter 2008 net income of $18.0 million and diluted earnings per share (EPS) of $0.30. First quarter diluted EPS was $0.31 when adjusted to exclude restructuring and related costs. These results compare to first-quarter 2007 net income of $9.3 million and diluted EPS of $0.15, or $0.22 when adjusted to exclude restructuring and related costs.
First-Quarter Results Summary:
-- Revenue grew 1.2% to $340.4 million as foreign exchange rate changes, strong gains in SmartWool(R) products and Timberland PRO(R) series footwear and moderate growth in Timberland(R) casual footwear offset declines in boots and kids' footwear and decreases in Timberland(R) apparel revenue in North America. Foreign exchange rate changes increased first-quarter 2008 revenue by approximately $16 million, or 4.8%, due to the strength of the Euro and the British Pound, and increased operating income by approximately $6 million.
-- North America revenue declined 4.7% to $137.7 million, or 5.1% on a constant dollar basis, reflecting soft consumer spending in both the U.S. and Canada. Europe revenue increased 6.9% to $164.8 million driven by gains in foreign currency, but decreased 1.6% on a constant dollar basis. Asia revenue increased 0.7% to $37.9 million driven by gains in foreign currency, but decreased 6.3% on a constant dollar basis. Geographic results reflect the introduction of new reporting segments, a change that the Company believes will better reflect the way it now manages its business.
-- Apparel and accessories revenue increased 2.7% to $97.9 million compared to $95.4 million in the first quarter of 2007, driven by double-digit growth of SmartWool(R) socks and apparel. These gains offset declines in Timberland(R) brand apparel in North America. In February 2007, the Company announced that it would transition this business to a licensing arrangement with Phillips-Van Heusen, beginning with the launch of men's apparel in time for Father's Day 2008. 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. Global footwear revenue was $236.6 million, up slightly compared to the prior year as gains in casual and the Timberland PRO(R) series footwear offset declines in boots and kids' footwear.
-- Global wholesale revenue decreased 1.5% to $255.5 million. Worldwide consumer direct revenue increased 10.2% to $84.9 million, driven by comparable store sales gains of 5.7%.
-- Restructuring and related charges were $0.6 million in the first quarter of 2008, compared to $6.5 million for the first quarter of 2007.
-- Operating income for the quarter was $23.2 million, up 70.7% from the prior-year period. Operating income excluding restructuring and related costs was $23.8 million, 18.1% above the comparable prior year level. Profit increases reflect benefits from foreign currency translation as well as a 5.4% reduction in operating expenses excluding restructuring and related costs.
-- For the first quarter 2008, the tax rate was 39.0% compared to 34.5% for the first quarter of 2007. This increase in the effective tax rate resulted from a change in the geographical mix of profits.
-- In connection with its continuing stock buyback program, Timberland repurchased approximately 668 thousand shares in the first quarter at a total cost of $9.6 million. It ended the quarter with $134.8 million in cash and no debt. Inventory at quarter end was $180.2 million, down 1.8% versus 2007 first-quarter levels due to the Company's disciplined inventory management in the face of tough market conditions. Accounts receivable increased 1.0% to $201.8 million.
Timberland is maintaining its full-year outlook as favorable foreign exchange benefits are anticipated to offset continued challenges in retail markets globally. The Company is targeting mid-single digit revenue declines, due in part to its decision to close underperforming retail stores. It also anticipates operating expenses in the range of $550 million, flat to modest operating margin improvement excluding restructuring costs, and a tax rate in the range of 40%.
For the second quarter, Timberland anticipates mid to high-single digit revenue declines and an operating loss excluding restructuring costs in the range of $30 million to $35 million, consistent with the first half outlook provided in its fourth-quarter earnings release. The Company also anticipates an additional $4 million in restructuring costs in the second quarter, reflecting its previously announced retail closure plan, which will result in total plan costs in the range of $15 million to $16 million, $1 million to $2 million below its original estimate.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, "I am encouraged by our start to 2008 and pleased with our performance in a difficult retail environment. Over the past year, our management team has taken significant corrective actions to simplify our business and streamline our global operations. While the overall market remains challenging, I am confident that we are on the right path strategically to deliver better, consumer informed products rooted in Timberland's brand heritage, enhance overall profitability and drive improved returns for our shareholders."
Note that comments made by the Company and Mr. Swartz are Timberland's performance targets, based on current expectations. These comments are forward-looking, and actual results may differ materially.
As previously announced, Timberland will be hosting a conference call to discuss first-quarter results today at 8:25 AM Eastern Time. Interested parties may listen to this call through the investor relations section of the Company's website, www.timberland.com, or by calling 617.213.8892 and providing access code number 65983814. Replays of this conference call will be available through the investor relations section of the Company's website.
Timberland (NYSE: TBL) is a global leader in the design, engineering and marketing of premium-quality footwear, apparel and accessories for consumers who value the outdoors and their time in it. Timberland markets products under the Timberland(R), Timberland PRO(R), SmartWool(R), Timberland Boot Company(TM), Mion(R), GoLite(R) IPATH(R) and Howies(R) brands, all of which offer quality workmanship and detailing and are built to withstand the elements of nature. The Company's products can be found in leading department and specialty stores as well as Timberland(R) retail stores throughout North America, Europe, Asia, Latin America, South Africa and the Middle East. More information about Timberland is available in the Company's reports filed with the Securities and Exchange Commission (SEC).
This press release contains certain forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding The Timberland Company's future financial results, are subject to risks, uncertainties and assumptions and are not guarantees of future financial performance or expected benefits. These risks, uncertainties and assumptions could cause the results of The Timberland Company to be materially different from any future results or expected benefits expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to: (i) the Company's ability to successfully market and sell its products in a highly competitive industry and in view of changing consumer trends, consumer acceptance of products and other factors affecting retail market conditions; (ii) the Company's ability to execute key strategic initiatives; (iii) Timberland's ability to procure a majority of its products from independent manufacturers; (iv) changes in foreign exchange rates; (v) Timberland's ability to obtain adequate materials at competitive prices; and (vi) other factors, including those detailed from time to time in The Timberland Company's filings made with the SEC. The Timberland Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
This press release also includes discussion of constant dollar revenue changes, diluted EPS excluding restructuring and related costs, net income excluding restructuring and related costs, operating income excluding restructuring and related costs, and operating expense excluding restructuring and related costs, which are non-GAAP measures. As required by SEC rules, the Company has provided reconciliations of these measures on attached tables that follow its financial statements. Additional required information is located in the Form 8-K furnished to the SEC on May 1, 2008.
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
March December March
28, 31, 30,
2008 2007 2007
-------- -------- --------
Assets
Current assets
Cash and equivalents $134,829 $143,274 $119,695
Accounts receivable, net 201,786 188,091 199,695
Inventory, net 180,177 201,932 183,500
Prepaid expense 42,019 41,572 48,785
Prepaid income taxes 20,196 17,361 16,363
Deferred income taxes 22,749 24,927 15,286
Derivative assets - - 83
-------- -------- --------
Total current assets 601,756 617,157 583,407
-------- -------- --------
Property, plant and equipment, net 86,461 87,919 92,955
Deferred income taxes 19,075 19,451 23,613
Goodwill and intangible assets, net 98,428 99,222 87,147
Other assets, net 10,453 12,596 12,457
-------- -------- --------
Total assets $816,173 $836,345 $799,579
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 63,427 $ 86,101 $ 77,445
Accrued expense and other current
liabilities 95,335 108,903 102,806
Income taxes payable 15,321 19,215 5,115
Derivative liabilities 9,257 3,816 2,600
-------- -------- --------
Total current liabilities 183,340 218,035 187,966
-------- -------- --------
Other long-term liabilities 40,431 41,150 39,690
Stockholders' equity 592,402 577,160 571,923
-------- -------- --------
Total liabilities and stockholders' equity $816,173 $836,345 $799,579
======== ======== ========
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
For the Three
Months Ended
-----------------
March March
28, 30,
2008 2007
-------- --------
Revenue $340,402 $336,329
Cost of goods sold 182,798 174,750
-------- --------
Gross profit 157,604 161,579
-------- --------
Operating expense
Selling 106,122 110,083
General and administrative 27,688 31,351
Restructuring and related costs 552 6,526
-------- --------
Total operating expense 134,362 147,960
-------- --------
Operating income 23,242 13,619
-------- --------
Other income
Interest income, net 568 1,130
Other income/(expense), net 5,762 (623)
-------- --------
Total other income 6,330 507
-------- --------
Income before provision for income taxes 29,572 14,126
Provision for income taxes 11,533 4,873
-------- --------
Net income $ 18,039 $ 9,253
======== ========
Earnings per share:
Basic $ .30 $ .15
======== ========
Diluted $ .30 $ .15
======== ========
Weighted-average shares outstanding
Basic 59,618 61,099
======== ========
Diluted 60,016 61,995
======== ========
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Three
Months Ended
------------------
March March
28, 30,
2008 2007
-------- --------
Cash flows from operating activities:
Net income $ 18,039 $ 9,253
Adjustments to reconcile net income to net cash
provided/(used) by operating activities:
Deferred income taxes 2,554 1,287
Share-based compensation 1,539 1,704
Depreciation and other amortization 8,046 7,656
Provision for losses on accounts receivable 1,389 19
Tax benefit from share-based compensation, net
of excess benefit 151 653
Unrealized (gain)/loss on derivatives (21) (232)
Other non-cash charges/(credits), net 520 90
Increase/(decrease) in cash from changes in
working capital:
Accounts receivable (6,539) 5,500
Inventory 24,086 3,532
Prepaid expense 1,617 (6,355)
Accounts payable (23,644) (33,306)
Accrued expense (18,023) (19,454)
Income taxes prepaid and payable, net (5,379) (27,040)
Other liabilities (1,572) 599
-------- --------
Net cash provided/(used) by operating
activities 2,763 (56,094)
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment (4,116) (5,220)
Other 2,170 (667)
-------- --------
Net cash used by investing activities (1,946) (5,887)
-------- --------
Cash flows from financing activities:
Common stock repurchases (10,152) (11,002)
Issuance of common stock 453 9,922
Excess tax benefit from stock option and employee
stock purchase plans 122 915
-------- --------
Net cash used by financing activities (9,577) (165)
-------- --------
Effect of exchange rate changes on cash and
equivalents 315 143
-------- --------
Net decrease in cash and equivalents (8,445) (62,003)
Cash and equivalents at beginning of period 143,274 181,698
-------- --------
Cash and equivalents at end of period $134,829 $119,695
======== ========
THE TIMBERLAND COMPANY
REVENUE ANALYSIS
(Amounts in Thousands, Unaudited)
For the Three Months Ended
-----------------------------
March 28, March 30,
2008 2007 Change
--------- ---------- --------
Revenue by Segment:
North America $137,730 $144,538 (4.7%)
Europe 164,751 154,136 6.9%
Asia 37,921 37,655 0.7%
--------- ---------- --------
Total Revenue 340,402 336,329 1.2%
--------- ---------- --------
Revenue by Product:
Footwear 236,598 235,637 0.4%
Apparel and Accessories 97,942 95,406 2.7%
Royalty and Other 5,862 5,286 10.9%
Revenue by Channel:
Wholesale 255,521 259,308 (1.5%)
Consumer Direct 84,881 77,021 10.2%
Comparable Store Sales:
Domestic Retail 1.9% 1.9%
Global Retail 5.7% (1.2%)
THE TIMBERLAND COMPANY
RECONCILIATION OF TOTAL AND INTERNATIONAL REVENUE CHANGES
TO CONSTANT DOLLAR REVENUE CHANGES
(Amounts in Thousands, Unaudited)
Total Company Revenue Reconciliation:
For the Three
Months Ended
March 28, 2008
-----------------
$ Change % Change
-----------------
Revenue increase (GAAP) $ 4,073 1.2%
Increase due to foreign exchange rate changes 16,282 4.8%
-----------------
Revenue decrease in constant dollars $(12,209) (3.6%)
North America Revenue Reconciliation:
For the Three
Months Ended
March 28, 2008
-----------------
$Change % Change
-------- --------
Revenue decrease (GAAP) $(6,808) (4.7%)
Increase due to foreign exchange rate changes 557 0.4%
-------- --------
Revenue decrease in constant dollars $(7,365) (5.1%)
Europe Revenue Reconciliation:
For the Three
Months Ended
March 28, 2008
-----------------
$Change % Change
-------- --------
Revenue increase (GAAP) $10,615 6.9%
Increase due to foreign exchange rate changes 13,099 8.5%
-------- --------
Revenue decrease in constant dollars $(2,484) (1.6%)
Asia Revenue Reconciliation:
For the Three
Months Ended
March 28, 2008
-----------------
$Change % Change
-------- --------
Revenue increase (GAAP) $ 266 0.7%
Increase due to foreign exchange rate changes 2,627 7.0%
-------- --------
Revenue decrease in constant dollars $(2,361) (6.3%)
Constant dollar revenue changes, which exclude the impact of changes in foreign exchange rates, are not Generally Accepted Accounting Principle ("GAAP") performance measures. We provide constant dollar revenue changes for total Company, North America, Europe, and Asia revenues because we use the measures to understand the underlying growth rate of revenue excluding the impact of items that are not under management's direct control, such as changes in foreign exchange rates.
THE TIMBERLAND COMPANY
RECONCILIATION OF OPERATING EXPENSE, OPERATING PROFIT, NET INCOME AND DILUTED EPS TO OPERATING EXPENSE, OPERATING PROFIT, NET INCOME AND DILUTED EPS EXCLUDING RESTRUCTURING AND RELATED COSTS
(Unaudited)
RECONCILIATION OF OPERATING EXPENSE TO OPERATING EXPENSE EXCLUDING RESTRUCTURING AND RELATED COSTS
(Dollars in Thousands, Unaudited)
For the For the
Three Three
Months Months
Ended Ended
March March
28, 30,
2008 2007
-------- --------
Operating expense (GAAP) $134,362 $147,960
Restructuring and related costs 552 6,526
-------- --------
Operating expense excluding restructuring and related
costs $133,810 $141,434
======== ========
Operating expense excluding restructuring and related costs is not a Generally Accepted Accounting Principle ("GAAP") performance measure. Management provides operating expense excluding restructuring and related costs because it is used to analyze the operating expenses of the Company. Management believes this measure is a reasonable reflection of the underlying expense levels and trends from core business activities.
RECONCILIATION OF OPERATING PROFIT TO OPERATING PROFIT EXCLUDING RESTRUCTURING AND RELATED COSTS
(Dollars in Thousands, Unaudited)
For the For the
Three Three
Months Months
Ended Ended
March March
28, 30,
2008 2007
------- -------
Operating profit (GAAP) $23,242 $13,619
Restructuring and related costs 552 6,526
------- -------
Operating profit excluding restructuring and related
costs $23,794 $20,145
======= =======
Operating profit excluding restructuring and related costs is not a Generally Accepted Accounting Principle ("GAAP") performance measure. Management provides operating profit excluding restructuring and related costs because it is used to analyze the operating profit of the Company. Management believes this measure is a reasonable reflection of the underlying income levels and trends from core business activities.
RECONCILIATION OF NET INCOME TO NET INCOME EXCLUDING RESTRUCTURING AND RELATED COSTS
(Dollars in Thousands, Unaudited)
For the For the
Three Three
Months Months
Ended Ended
March March
28, 30,
2008 2007
------- -------
Net income (GAAP) $18,039 $ 9,253
Restructuring and related costs, net of tax effect 337 4,275
------- -------
Net income excluding restructuring and related costs $18,376 $13,528
======= =======
Net income excluding restructuring and related costs is not a Generally Accepted Accounting Principle ("GAAP") performance measure. Management provides net income excluding restructuring and related costs because it is used to analyze net income of the Company. Management believes this measure is a reasonable reflection of the underlying net income levels and trends from core business activities.
RECONCILIATION OF DILUTED EPS TO DILUTED EPS EXCLUDING RESTRUCTURING AND RELATED COSTS
For the For the
Three Three
Months Months
Ended Ended
March March
28, 30,
2008 2007
------- -------
Diluted EPS (GAAP) $0.30 $0.15
Per share impact of restructuring and related costs 0.01 0.07
------- -------
Diluted EPS excluding restructuring and related costs $0.31 $0.22
======= =======
Diluted EPS excluding restructuring and related costs is not a Generally Accepted Accounting Principle ("GAAP") performance measure. We provide diluted EPS excluding restructuring and related costs because it is used to analyze the earnings of the Company. Management believes this measure is a reasonable reflection of the earnings levels and trends from core business activities.
The Timberland Company Karen Blomquist, 603-773-1655 Senior Manager, Investor Relations
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