The Timberland Company Q2 2010 Earnings Call Transcript

The Timberland Company Q2 2010 Earnings Call Transcript
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The Timberland Company (TBL)

Q2 2010 Earnings Call Transcript

July 28, 2010 8:25 am ET


Kaitlyn Bruder – IR

Jeffrey Swartz – President and CEO

Carrie Teffner – VP and CFO


Chris Svezia – Susquehanna

Kate McShane – Citi Investments

Adam Comora – EnTrust Capital

Mitch Kummetz – Robert W. Baird

Jonathon Grassi – Longbow Research



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You are listening to The Timberland Company’s second quarter 2010 analyst conference call. This call is being recorded and is copyrighted material. Therefore, please note that it cannot be recorded, transcribed or rebroadcast without permission of the Timberland Company. Your participation in this event complies – implies consent to these terms. If you do not agree to these terms, simply drop off the line.

Now, for opening remarks, I will turn the call over to Kaitlyn Bruder of Timberland’s Investor Relations Department. Please go ahead, ma'am.

Kaitlyn Bruder

Good morning and welcome to Timberland’s second quarter 2010 conference call. Speaking today will be Jeffrey Swartz, our President and Chief Executive Officer; and Carrie Teffner, our Chief Financial Officer.

Before I turn the call over to Jeff, I would like to remind you that this presentation includes and our responses to your questions may include statements about the company’s future expectations, plans, and proposals which maybe considered forward-looking statements by securities laws.

Any such statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks and uncertainties are discussed in today’s press release and the company’s filings with the SEC. This presentation also includes discussion of constant dollar revenue change, a non-GAAP financial measure. As required by SEC rules, we have provided a reconciliation of this measure in today’s press release and on the Presentation tab found in the Investor Relations section of our website,

Thank you. And now, I will turn the call over to Jeff.

Jeffrey Swartz

Good morning. Overall, we are pleased to report our second quarter results. With solid revenue growth in all regions and notable improvements in our gross margin, we believe our long-term strategy is creating sustainable results for our shareholders.

Thus far, results in the first half of 2010 have 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.

I would like to take a few minutes to highlight several wins from the past quarter and describe strategic growth opportunities for Timberland going forward. The second quarter historically has been our smallest quarter. However, with brand-right top line growth and significant gross margin improvement like we saw in this past Q2, we are proving that Timberland can perform well and serve consumers 12 months of the year.

Disciplined inventory management helped us minimize markdowns and enclose [ph] our revenue decline 31% compared to the second quarter of last year. Our balance sheet is as solid as ever with reductions in inventory and accounts receivable and we finished the quarter with $238 million in cash and no debt.

Results for the quarter were solid in all regions. In North America, SmartWool, historically a cold-weather brand, had a stellar quarter with an increase in revenue of 42%. At the same time, the team made great progress against a growth strategy of evolving from a sock brand into an outdoor lifestyle brand. While Timberland's footwear business in North America saw a slight decline in revenue for the quarter, this was largely driven by a decline in close-out revenue compared to last year. Combined with improving gross margins, these are exactly the kind of results we are looking for as North America gets on a healthier trajectory.

In Europe, the positive results were well balanced across our men's, women's, and kids' footwear lines. We also saw improvements in Earthkeepers, outdoor, and our Classic product. In Asia, revenue in quarter two was up 5% on a constant dollar basis, driven by impressive results in our retail stores.

Though we had several wins during the quarter, quarterly results were adversely affected by a non-cash impairment charge, primarily related to our Howies and IPATH brands. These are small, yet compelling brands, which represent a very small part of our overall portfolio. We had significant expectations for their future growth and operating results and they have now met these expectations. I don't want this charge to mask the fact that the fundamentals of our business are solid and improving.

That said, macro conditions continue to be difficult in some of our top markets. In North America, after seeing signs of an improved retail environment, spending dipped in June. In Europe, consumer confidence remains low and the impact from the weaker euro is very real. In addition, product input cost pressures are beginning to impact our supply chain and will inevitably challenge our margins.

Despite these challenges, we are committed to our strategy of becoming the number one outdoor brand on earth, and our path to number one is all about executing our strategies faster and better. Our commitment is to provide best-in-class product across a range of categories with a particular focus on what we call "big ideas." These are great product stories that represent the best of Timberland's brand equities.

Undoubtedly one of the most important is our Earthkeepers line, outdoor capable product using innovative responsible materials and construction methods. Earthkeepers is an idea that's uniquely Timberland's and it's ours to own. We are excited that consumers across all regions, across our channels and seasons are responding favorably and we are achieving very tangible results. Building on an already impressive growth trajectory, Earthkeepers revenue more than doubled in Q2 over last year in all regions and across men's, women's, and kids'.

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