- Recent trading ‘encouraging’
- Cost savings at top of guidance
- Inventory and net debt down
Hard-pressed footwear company Dr Martens (DOCS) lurched into loss for the half ended 29 September 2024 as higher costs and a slump in wholesale revenue, notably in the US, took a heavy toll on its performance.
Yet despite this swing into the red, shares in the boots, shoes and sandals seller rallied 15% to 67p after it flagged improved trading since the start of the Autum/Winter season and left its year-to-March 2025 guidance unchanged.
The avoidance of another profit warning suggests Dr Martens may be nearing the bottom of its earnings cycle, while the FTSE 250 firm also expects the benefit of cost savings in full year 2026 to be at the top end of previous guidance.
WHOLESALE WEAKNESS WEIGHS
First half results from the iconic British bootmaker revealed an 18% drop in sales to £324.6 million.
This included a 29% plunge in wholesale revenue and a 9% decline in retail DTC (direct-to-consumer) revenue amid a difficult consumer backdrop.
Dr Martens swung from pre-tax profits of £25.8 million to a £28.7 million loss, struck after £9.2 million of exceptional charges largely related to its cost savings plan.
The company, whose chunky lace-up boots were originally made for workers looking for tough, durable footwear before being adopted by youth subcultures and musical movements, has been grappling with a weak North American market.
But management has a plan to return the troubled USA business to growth.
MAKING POSITIVE STRIDES
The positive news for shareholders is that trading since the start of the Autumn/Winter 2024 season has been ‘encouraging, with all three regions positive’.
Though the peak Christmas period is still ahead, Dr Martens insisted its new marketing campaigns are ‘showing encouraging early signs, with strong sales of new product, giving us confidence that we will return USA DTC to positive growth in the second half’.
Investors also welcomed the news that Dr Martens’ cost-cutting measures will now deliver £25 million of savings in full year 2026, at the top end of previous guidance, and there was relief as the company highlighted significant reductions in both inventory and net debt.
Dr Martens also confirmed that chief brand officer Ije Nwokorie will take over from Kenny Wilson as CEO on 6 January 2025.
THE EXPERT’S VIEW
Dan Coatsworth, investment analyst at AJ Bell, said the bootmaker has a recovery plan and it knows what’s needed to fix the business.
‘It’s now a waiting game for the strategy to play out. Half-year results are too early to judge the turnaround efforts, but there is enough to silence the critics and pique investors’ interest,’ commented Coatsworth.
‘Revenue and earnings are falling and the dividend has been cut sharply. That’s not a surprise. The reason why the shares have jumped is new guidance for cost savings to hit the top end of previous guidance, inventory is coming down and the company has reported strong sales of new product. These nuggets are exactly what’s needed to rebuild credibility with the market.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell. Steven Frazer also owns two pairs of Dr Martens boots.
