It's tough to call the precise bottom in any business cycle - particularly in the fashion realm. If you were to walk into the Research Edge HQ, you'd see quickly that no one here comes even remotely close to having a viable opinion on fashion (except Mick, our eccentric VP-Brand design). Fortunately, we don't make fashion calls at Research Edge. We'll leave that up to the sell-side. We dig deep into industries, companies, balance sheets and business models. That's where we think there are a couple of interesting call-outs on Timberland.
- 1) First, the bad news. Anything remotely resembling strength in the brand is coming at the family footwear channel - hardly a sign of regaining traction with real brand influencers. In addition, with the initial push into more fashion-forward product almost a year ago having fallen flat on its face, our read is that TBL has pulled the good 'ol retail one-eighty. It went from experimental fashion to ultra safe basic product. In that context, TBL is not taking up any prices (because it lacks brand strength to do so) despite higher input costs. There's very little to get excited about here.
- 2) But here's what piques our interest. A) Our read from retail is that inventories are very clean. B) While average selling prices for TBL's boot business is down per NPD, the trend is hitting higher lows. C) Market share is still off, but at a materially lower rate than in at least 8 quarters. D) Surprisingly, the strongest channel aside from the family retailers is the department stores. A brand performing well there has got to be doing something right.
- 3) Gross margins are still under pressure - which is no secret. But what's misunderstood is that TBL's gross margin pressure for the past 3 years has been magnified by a factor of 4 on the EBIT line. In other words, SG&A investment went up instead of down when things got tough, and TBL took it on the chin when it could have otherwise cut muscle to print a better number. We like TBL's course of action. That's a big lever to pull when things get tough. TBL is starting to pull it.