- Full year profits plunge
- 2025 year of transition
- Cost savings of £20 million to £25 million
Investors in Dr. Martens (DOCS) have endured a torrid time since the iconic footwear firm’s 2021 IPO (initial public offering), with the shares booted around 80% lower following a slew of profit warnings.
Results for the year ended 31 March 2024 revealed another drop in profits after a challenging year, mostly driven by issues in the US, the FTSE 250 company’s largest market, where it has encountered weaker wholesale order books.
Nevertheless, shares in the boots, shoes and sandals seller rallied 6% to 89p on Thursday after Dr. Martens said it will cut costs and invest in marketing to revive its struggling US business.
SUBDUED US DEMAND
Pre-tax profits plunged 43% to £97.2 million last year amid continued weak consumer demand in the US, where Dr. Martens has seen a fall in boot sales.
The profit decline also reflected investments in new stores and IT projects as well as a higher interest bill. Turnover fell 12.3% to £877.1 million as wholesale revenue plunged the best part of 30% to £344 million.
Dr. Martens bemoaned a ‘challenging year’ with a difficult trading environment, notably in the Americas, where revenue fell by 24%. In EMEA (Europe, Middle East and Africa), revenue softened 2.5% while in Asia Pacific, it was down 7.4%, albeit with Dr. Martens delivering good growth in Japan.
YEAR OF TRANSITION AHEAD
Full-year 2025 is being framed as a year of transition for Dr. Martens, with management expecting a particularly weak first half from a profit perspective. Management is doing what it can to support the bottom line whilst revenues remain subdued with a target of delivering £20 million to £25 million of cost savings.
At the same time, the company plans to invest in marketing to rebuild its US business. ‘We are clear that we need to drive demand in the USA to return to growth in full-year 2026 onwards and are executing a detailed plan to achieve this, with refocused and increased USA marketing investment in the year ahead,’ said Kenny Wilson, who’ll soon hand over the CEO baton to chief brand officer Ije Nwokorie.
EXPERT VIEWS Dan Coatsworth, investment analyst at AJ Bell, said it is surprising to see the company continue to pay dividends. ‘It’s only natural to pause the shareholder reward when profits are falling, net debt is rising, trading is volatile and ongoing investment is needed in the business. Perhaps Dr Martens took the view that without the dividend, shareholders would have nothing to cling on for.’
Coatsworth added that Dr. Martens looks like a ripe takeover target. ‘One of the classic scenarios for takeovers is when a company is down on its knees, it’s going through a leadership transition and there is a major shareholder who has been hanging around for longer than expected. That’s Dr. Martens all over.
‘Permira still owns 38.46% of the business despite selling some of its holding at IPO. A decent bid premium from an opportunistic bidder could persuade the private equity group to support any offer that comes along.’
Begbies Traynor’s (BEG:AIM) Julie Palmer said: ‘ Dr. Martens management is doing all the right things and focusing on what it can control - costs. The announcement of a group-wide cost cutting programme will hope to remove tens of millions of costs from the business, so it’s more streamlined and better positioned in a few years’ time.
‘For the time being, the fortunes of this cobbler remain in the balance, but if it can successfully execute the operational turnaround and the US starts to show some signs of recovery, the retailer should be able to put its front foot forward in periods to come.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Martin Gamble) own shares in AJ Bell.
