Timberland’s net income decreased by 33.4 percent to $24,107,000 during the 4th quarter ended on Dec. 31 and by 60.5 percent to $39,999,000 million for the full year. Jeffrey B. Swartz, Timberland’s president and chief executive officer, admitted that the results were below standard and unacceptable.
For the full year 2007, the company made total revenues of $1.436 billion, down from $1.568 billion, and an operating income of $59.179 million, down from $162.636 million. For 2008, the company is aiming for a low-single digit decline in revenues and a flat or modest operating margin improvement excluding restructuring costs.
Timberland admitted that it had lost about $200 million in the highly profitable boot business in the last 30 months. The company believes that the downward cycle for its boot business is at or near the bottom but it is confronting the possibility that its high profitability in the boot business may not bounce back. Consequently, it has lowered its operating budget from $580 million to $550 million, with a $65 million reduction in costs that is being offset by a $35 million incremental investment in marketing for the Timberland brand as well as investment in new brands.
The company plans to invest in a marketing campaign that tells the brand's story, focusing on its outdoor and workplace roots. The turnaround strategy is based on the belief that Timberland has relevant products but has not communicated this strongly to its core customers, whom it has identified as being suburban men of all ages. It is hoping that Legas Delaney, the advertising agency that it has hired and which also works with Reebok now, will make the Timberland brand more attractive. It has been very helpful for Adidas. Timberland is also planning to invest in some of its newer businesses such as Smartwool and Howies.
Legas Delaney’s campaign has much to tackle as Timberland’s revenues fell by 9.3 percent to $442.7 million in the 4th quarter of 2007. This was blamed on declines in the sales of boots and children’s footwear in addition to sales decreases for Timberland apparel in the USA. The drops were offset by strong gains for Timberland casual and Timberland PRO footwear and for SmartWool . Foreign exchange rates changes boosted 4th quarter revenues by around $13 million, or 2.6 percent, due to the strength of the euro and the British pound, and increased operating income by around $3 million.
Revenues outside the USA climbed by 5.0 percent to $184.1 million but were 2.2 percent lower on a constant dollar basis. U.S. revenues slipped by 17.3 percent to $258.6 million, partly due to weak retail conditions added to pressures on boots and children’s sales. Sales of apparel and accessories rose by 2.6 percent to $133.5 million, driven by double-digit growth of SmartWool socks and apparel which offset declines in Timberland branded apparel as the company had experienced a poor retail response while shifting from its North American apparel business to a licensing arrangement. Global footwear revenues dipped by 14.1 percent to $304.4 million as declines in boots and children’s footwear sales offset gains in casual footwear and the Timberland PRO series.
Globally, wholesale revenues fell by 14.9 percent to $289.3 million while retail revenues dipped by 3.4 percent to $153.4 million as global store expansion was partially offset by a 6 percent comparable store sales decline.
Operating income for the quarter fell by 44.2 percent to $32.4 million. Excluding restructuring and related costs, operating income fell by 31.3 percent to $42.0 million. Restructuring and related charges of $9.6 million included $6.7 million for severance and related costs associated with Timberland’s initiative to rationalize its operating expense structure and move to a more efficient global organization.