On a year-over-year basis, Earthkeepers’ worldwide sales were up more than threefold in the third quarter, and up more than fourfold in North America alone, according to Jeffrey Swartz, president and CEO of Timberland.
“At retail … the product is falling off the shelf,” he said in a conference call, adding that retail revenue from the segment is growing at nearly twice the rate of its wholesale business and also helping to drive positive comp sales in all regions.
However, Susquehanna Financial Group analyst Christopher Svezia said Earthkeepers is not the only thing driving growth for Timberland. Other bright spots are the firm’s success in penetrating new doors and the improved performance of its technical outdoor product.
“The classic boot business is what is the drag, but we’re nearing the bottom here,” Svezia said. “I wouldn’t go so far as to say next year [they will] grow this business, but I’m hard-pressed to see it getting worse.”
Timberland continued its turnaround with better gross margins, fewer and more profitable closeout sales, and a more favorable store mix, all of which improved operating income by 14 percent in the third quarter.
But Carrie Teffner, VP and CFO of Timberland, warned that rising costs may be a stumbling block to improved margins, which the firm expects to be down going forward.
“Obviously, the input costs are real increases that we are expecting. [The] leverage we have to pull [is] really around the value chain, so [we continue to look for] opportunity to drive cost out from there,” said Teffner.
“We’re being very thoughtful about pricing and we are not just taking it right up with the spring business. [Higher] pricing will come later in the year, and it won’t fully offset the higher input costs,” she added.
For the period ended Oct. 1, the Stratham, N.H.-based firm reported a net income of $52.2 million, or $1 a share, up from $37.8 million, or 68 cents, in the year-ago period.
Revenue increased 3 percent to $432.3 million, reflecting growth across Europe and Asia, but partially offset by a decline in North America. The results surprised analysts, who were looking for earnings per share of 77 cents on revenue of $441 million, as polled by Yahoo Finance.
By region, Timberland saw a 20 percent sales surge in Asia, driven by continued expansion in China and Taiwan, and 5 percent growth in Europe. North America slipped 4 percent. Timberland ended the quarter with $108.8 million in cash and no debt.