The Timberland Company today reported record fourth quarter net income of $45.0 million and diluted earnings per share (EPS) of $1.29, compared with fourth quarter 2003 net income of $39.5 million and diluted EPS of $1.10. Timberland's record results capped a year of outstanding performance for the Company, with double-digit revenue gains, significant improvement in operating margin and strong cash flow generation. For the full year, Timberland posted revenue of $1,500.6 million (+11.8% versus prior year, or +8.2% in constant dollars) and operating profit of $233.9 million (+26.9% versus prior year) – both records for the Company. Disciplined asset management enabled Timberland to generate $184.7 million in net operating cash flow.
Fourth quarter revenue increased 9.4% to $454.7 million, driven by gains in both U.S. and international markets. U.S. revenues grew 5.2%, reflecting solid footwear gains – and balanced growth across wholesale (+5.2%) and retail channels (+5.3% on a 3.6% comparable store sales gain). International results (+19.3% or +11.9% in constant dollars) were driven by double-digit constant dollar sales gains in Europe and Asia and continued progress in building key expansion markets such as Canada. Overall revenue growth benefited from favorable foreign exchange rate changes – which added $9.2 million (or 2.2%) to fourth quarter revenue. Sales results were also impacted by the timing of the Company's fiscal calendar which resulted in five fewer retail selling days in the fourth quarter of 2004, which were estimated to lower overall sales growth by approximately 1%.
Fourth quarter results were supported by strong global footwear sales. Global footwear revenues expanded 10.0% to $352.3 million, driven by growth in boots, kids' and Timberland PRO Series categories. Global apparel and accessories revenue grew 7.5% to $97.9 million, reflecting gains in international markets.
Operating profit for the quarter increased 9.4% to $68.0 million. Operating margin remained flat at 15.0%. Profit gains reflected solid revenue growth and disciplined cost management which offset a slight deterioration in gross margin impacted by higher levels of promotional activity in the U.S. For the quarter, foreign exchange rate changes contributed approximately $3.8 million to operating profit.
EPS for the quarter expanded 17.3% to $1.29, reflecting profit gains and continued benefits from share repurchases. During the quarter, the Company repurchased 899 thousand shares at a total cost of $56.7 million. For the year, Timberland repurchased 2.2 million shares at a total cost of $131.7 million. The Company currently has 2.4 million shares remaining under its existing share repurchase program.
Timberland ended the quarter with $309.1 million in cash and no debt outstanding. Timberland drove improvement in annual inventory turns, supporting an increase in return on capital from 30.4% to 32.2%.
The Company also established a Hong Kong procurement company and international treasury center in Switzerland to better align its organizational structure with its expanding global presence. In addition to providing enhanced support to its global sourcing operations and international business, Timberland anticipates benefiting from tax savings on foreign earnings, which it estimates will reduce its 2005 tax rate by 1.5 percentage points to 34.0%.
Implementation of the new organizational structure dictates the modification of certain sourcing arrangements, resulting in earlier transfer of title for a portion of the Company's third party sourced product. While this change will have no impact on profit or cash flow, it will result in earlier recognition of an inventory asset and associated payable. If similar sourcing arrangements had been in effect in 2004, the Company estimates that quarter end inventory and accounts payable would have increased in the range of $15 million in Q1, $35 million in Q2, $45 million in Q3 and $45 million in Q4.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, “Timberland delivered record 2004 results, reflecting continued progress in developing the Timberland® brand portfolio, with a significantly enhanced global reach and a diversified presence across a range of product categories spanning utility, casual and outdoor usage occasions. We also continued to benefit from our focus on delivering superior customer service, leveraging a strengthened value chain that supported stronger growth and improved operating efficiencies.”
“We are pleased to have delivered strong financial results in 2004. For 2005, we are targeting double-digit gains in earnings per share on low to mid single-digit revenue growth – leveraging strategies focused on delivering innovative and purposeful products, expanding Timberland's global presence and executing with distinction to capture the full potential we see for the Timberland brand.”
Note that comments made by Mr. Swartz are Timberland's performance targets, based on current expectations and do not include impacts from the implementation of new accounting requirements related to stock option costs. These comments are forward-looking, and actual results may differ materially.
As previously announced, Timberland will be hosting a conference call to discuss fourth 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) 786-2962 and providing access code number 71614976. Replays of this conference call will be available through the investor relations section of the Company's website.
Timberland (NYSE: TBL – News) 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® products 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® 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. Various factors could cause the results of The Timberland Company to be materially different from any future results expressed or implied by such forward-looking statements. Such factors include, but are not limited to the Company's ability to: (i) 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) procure a majority of its products from independent manufacturers; (iii) manage its foreign exchange rate risks; and (iv) 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 a discussion of constant dollar revenue growth, a non-GAAP measure. As required by SEC rules, we have provided a reconciliation of this measure on an attached table that follows our financial statements. Additional required information is located in the Form 8-K furnished to the SEC on February 9, 2005.