Timberland has set up a procurement company in Hong Kong and an international treasury center in Switzerland. These measures should improve the company’s organizational structure and generate tax savings on foreign earnings, leading to a reduction in its 2005 tax rate of 1.5 percentage points to an estimated 34.0 percent.
Timberland’s European revenues increased by 19 percent in dollars to $103 million in the 4th quarter of 2004, but in terms of local currencies they were up by only 10 percent, with strong growth in the UK, Benelux and Scandinavia. While the apparel business began to improve as far as reorders are concerned, footwear was again the growth driver, particularly in boots and children’s segments.
Overall, the company’s sales outside the USA rose by 19.3 percent in dollars and by 11.9 percent on a currency-neutral basis during the quarter, with wholesale revenues jumping by 28.7 percent. In the USA, total revenues increased by only 5.2 percent, due in part to unseasonably mild weather last Fall, and while year-end orders are higher, the management expects its US revenues to remain relatively flat in 2005, due to strong competition in the boot sector. Orders from foreign countries are up in the double digits, contributing to an overall 16 percent increase in the total backlog and giving rise to more promising prospects abroad.
Globally, Timberland’s revenues grew by 9.4 percent in the 4th quarter to $454.7 million, with the weak dollar contributing 2.2 percentage points to the growth rate. Footwear sales were up 10.0 percent to $352.3 million. For the full year, the company recorded an 11.8 percent sales increase to $1,501 million, with footwear sales up 13.2 percent to $1,153 million and apparel and accessories up 7.6 percent to $333.3 million. On a constant currency bases, global sales went up by 8.2 percent.
The gross margin increased to 49.3 percent for the year from 46.5 percent in 2003, but higher markdowns in the USA during the 4th quarter pushed it down by 0.2 percentage points to a level of 47.1 percent of sales in that period. New products accounted for 60 percent of Timberland’s seasonal offerings in 2004 and about half of the volume was on allocation.