Investors slam Dr Martens after yet another profit warning

Investors who had invested in Dr Martens were forced to leave the company after the “accident prone” bootmaker announced that its profits missed expectations.

The FTSE250 company’s shares fell 18 1/4p or 11.7% to 138p after its US sales were hit by a costly move of its distribution center and “mistakes”.

Boots from the British brand have become a global symbol of counterculture fashion after being originally designed to assist a German soldier with a broken leg.

Klaus Martens designed the air-cushioned sole of the boot to cushion his foot following a skiing injury. The Griggs Family in Northamptonshire bought the license for the boot, and then built the business up into the cultural icon it is today. The company has 204 shops worldwide and operates from 29 concessions.

Kenny Wilson – Dr Martens chief executive – had hoped the boots’ international appeal would insulate the company from the downturn of the UK economy. About half of Dr Martens’ revenues are generated in the US.

He told The Times in November: “We’re a British company, but we have a global footprint and a wide range of products.”

In recent US marketing, Dr Martens has chosen not to focus on the most popular product. In its advertising, the company emphasized its sandals and shoes. Dr Martens doesn’t disclose the margins of individual products. However, Wilson notes that a pair of boots costs about £159 compared to £99 for sandals.

The US business also suffered from the accumulation of inventory that it could not sell, and by “weak” footfall at three stores which contributed to a charge for impairment of £3million. The backlog of inventory forced the company into temporary warehouses which impacted wholesale revenue and increased supply chain costs. US revenues fell by 1% on a constant-currency basis, to £428.2 millions. They also declined by 13% in the last three months of the year.

The FTSE 250 firm informed investors yesterday that its profits before taxes had dropped by 26 percent for the fiscal year ending March 31, to £159 millions. The company’s total revenues increased by 10% to £1 billion, but sales of its signature boot had decreased by 10% year-on-year. The company said that margins for the next year will be “held back by” the investments needed to avoid future operational issues.

Dr Martens has launched a review to determine its operational issues and overhauled its reporting system in order to better understand how its business is doing.

Wilson stated: “We’re fixing the problems in America. We have strengthened the team and are returning America to a good growth. This is our top operational priority.”

Analysts at Barclays Richard Taylor and Pallav mittal said that the outlook for the company’s margins would be “disappointing” news, which will weigh on the stock price.

The company said that the current trading was in line with expectations and the revenue guidance for 2024 has not changed. However, investors may still be skeptical about it given the weakening macroeconomic backdrop.

Dr Martens, who has provided optimistic advice, has a history of investing in a way that has led to failure.

Piral Dadhania is an analyst with RBC Capital Markets. He said that the bootmaker’s revenue targets may prove too optimistic.

Taylor and Mittal stated that investors will be looking to Dr Martens “stabilise the margins and establish a track-record” in order to improve share prices. Stocks have fallen following a series of profit warnings over the last six months.

Dr Martens was listed on the London Stock Exchange in January 2021 at 370p and rose initially to 500p. Permira is the private equity firm behind the listing. It has sold its stake down from 75 to 36 percent.

Wilson announced yesterday a £50m share buyback to return capital to investors. Kate Calvert, a Investec analyst, cautioned that “better US performances [are] needed before sentiment can improve”.

Dr Martens is hiring new employees in the US for digital, marketing, and human resources. They are also looking to hire a head of operations.

Wilson said: “This team is stronger and will help the president of America turn around his performance. . . We are confident in our plans for correcting and revitalising the marketing program, as well as improving our technology implementation and our website trading. Improvements should be expected by the second half 2024.