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Article June 1, 1995

<CR><RD><BR><CS:BOLD>ONE-TIME GAIN LIFTS TIMBERLAND QUARTER<BR><BR>Byline: </CS>Valerie Seckler<BR><BR>NEW YORK -- Bloated inventories, rising costs and a harsh retail climate battered Timberland's bottom line, but a one-time pretax gain of $7.4...


ONE-TIME GAIN LIFTS TIMBERLAND QUARTER

Byline: Valerie Seckler

NEW YORK — Bloated inventories, rising costs and a harsh retail climate battered Timberland’s bottom line, but a one-time pretax gain of $7.4 million lifted first-quarter earnings to $900,000, or 8 cents a share.
The pretax gain stemmed from the appointment of Inchcape PLC as its exclusive distributor in Asia and the Pacific and the related sales of Timberland’s Australian and New Zealand subsidiaries to Inchcape.
Among the negative factors was interest expenses of $5.1 million, up from $1.9 million a year ago.
In the first quarter of 1994, the marketer of apparel and footwear lost $1.6 million.
Timberland’s operating loss widened to $797,000 from $512,000 despite sales that surged 30.8 percent in the quarter ended March 31 to $141.4 million from $108.1 million.
As financial analysts call for stricter controls, the firm with one of the hottest labels in rugged footwear and clothing is seeking to boost profitability and sales by paring stockkeeping units and capitalizing on its strength in basic outdoor products.
“There will be less drama and more appropriateness to basic ruggedness,” said a Timberland spokesman from the firm’s Stratham, N.H., headquarters in the wake of the weak earnings report.
Timberland, which got about 20 percent, or $28 million, of its first-quarter sales from apparel, hopes the category can “represent a growing part of our revenue stream,” said the spokesman.
While noting that sales of fall apparel to retailers have been “very good,” the spokesman acknowledged the category “still is a start-up business for us.”
By taking this approach, Timberland may tame the high inventories that have mauled its results in recent quarters. In the first quarter, inventories ballooned 54 percent to $229.3 million from $149.2 million.
“Timberland’s problem is that their inventories are outrageously high, and they’ve got to get it under control,” said an analyst who asked not to be named. “Their selling, general and administrative (SG&A) costs are also too high and their gross margins are out of line.”
The Timberland spokesman did concede: “Our problem has been managing supply and demand, and forecasting.”
SG&A costs shot up 38 percent in the quarter to $45.6 million, or 31.9 percent of sales, from $32.8 million or 30.4 percent of sales.
Despite the 30 percent increase in sales, gross margin only improved to 31.7 percent from 30.1 percent.
Timberland expects to boost margins with the closing of its factories in Boone, N.C., and Mountain City, Tenn., and cutbacks in production in the Dominican Republic. The moves are expected to result in a onetime, pretax charge of about $16 million in the second quarter.
In the last 52 weeks, Timberland’s stock has ranged from 47 3/8 to 19 7/8 on the New York Stock Exchange. In 1994, it traded as high as 61.