Footwear and accessories firm Timberland
Timberland recently reported fourth-quarter and year-end 2006 results that showed it is still struggling to sell its boots and children's shoes -- the core of its business -- in domestic markets. Total U.S. sales for the year fell 4% as wholesale sales dropped 3% and direct sales through outlet and other stores shrank 7%, in part because of an 0.8% decline in same-store sales.
International growth improved 5.3% for the year, while store comps were a positive 1.1%. The problem is that global sales make up only 47% of the total, so domestic difficulties are dragging down otherwise decent overseas trends.
Timberland expects overall sales of boots and kids' shoes to remain weak in 2007 and to fall by more than $100 million next year. It also projects higher product costs to hit operating margins by 3% or more. And to cap off a frustrating year, the day after the earnings release, the company announced that its CFO is heading off to Iron Mountain
Fortunately, Timberland has no long-term debt, and cash-flow generation continues to hold up somewhat, so that management can repurchase stock and partially offset plummeting earnings with fewer shares outstanding. The problem is that there's just no telling when domestic sales trends will improve and lead to bottom-line growth once again.
In its earnings release, management touted strong sales in accessories and new brands, but accessories make up less than 30% of total sales, and recently introduced products make even less of an impact on total sales. Until existing product sales improve, Timberland's stock will likely continue to be dead money. It doesn't even pay a dividend, so there is even less reason to hold the shares until a rebound occurs.
Additionally, the shoe industry is crowded and, as a result, intensely competitive. Throw in a fickle consumer known to quickly leave a fashion hit for the newest product fad, and you have a space that is hard to invest in. I've found Nike
For related Foolishness:
- Timberland Goes Timber: Fool by Numbers
- Shiver Me Timberland
- 3 Stocks That Blew the Market Away
- The Worst Stock for 2007: Crocs
If you're interested in finding the companies that DO pay you to wait, take a free 30-day trial to the Motley Fool Income Investor newsletter service. You'll find great companies that pay sustainable dividends and have helped the newsletter beat the market by more than 9 percentage points. Start your free trial today!
Fool contributor Ryan Fuhrmann is long shares of Nike but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.