The boot business, especially in the USA, is a major concern for Timberland’s management. This sector is the most profitable aspect of the company but has been under continued pressure, and Timberland doesn’t anticipate it to get better in 2006. Also struggling is the women’s casual footwear in the USA, although outside of the country it is doing well. The company plans to focus some of its energy on these sectors.
Another concern is obviously the imposition of anti-dumping duties on certain leather shoes imported from China and Vietnam in the European Union. Timberland, which sources 6-7 million pairs of shoes from these countries for distribution in the EU, was not clear in a recent conference call about what it would do if the anti-dumping duties are enforced. It indicated that it was waiting to see the actual results of the European Commission’s investigation before commenting.
In the 4th quarter ended Dec. 31, 2005, Timberland’s sales increased by 2.3 percent to $465.3 million, driven in part by an 8.2 percent gain outside of the USA. Gains in children’s shoes, men’s casual styles, the Timberland Pro series and men’s apparel were offset by decreases in women’s casual footwear and boot sales. Globally, footwear revenues rose by 1.4 percent to $357.5 million.
Gross margin increased by 10 basis points to 48.2 percent, while net income reached $46.9 million against $45.0 million in the year-ago period. This figure includes a pre-tax cost of $1.7 million related to the restructuring of manufacturing facilities in Caribbean countries, which cost the company $4.3 million for the full 2005 year and will cost an additional $300,000 in the 1st quarter of 2006.
Timberland’s revenues for the full year increased by 4.3 percent to $1,565.7 million, including a 12 percent rise to $536 million in Europe. On the retail side, the company opened six franchised stores, a specialty store and an outlet store in the EU in 2005 giving it a total of 239 locations in the region at year’s end. The company registered a gross profit of $776.9 million for the year, as compared to $739.1 million in 2004. Net income grew slightly to $164.6 million from $152.7 million.
For 2006, the company expects mid-single-digit revenue growth and modest declines in earnings. In the 1st half of 2006, Timberland’s gross margin will likely be affected by higher oil and labor costs, as well as a less favorable product mix.