ii view: rare good news for Dr Martens investors

First-half results to 29 September

• Currency adjusted revenue down 16% to £325 million
• Pre-tax loss of £29 million, up from a loss of £27 a year ago
• Net debt including leases down 27% to £349 million
• Interim dividend down 45% to 0.85p per share

Chief executive Kenny Wilson said:

"Our first half performance was in line with expectations and we remain confident in our ability to deliver on our plans and the targets we set for FY25. 

“As we shared in May, this is a year of transition and we have made good progress with our four main objectives: pivot our marketing to a relentless focus on our product, turn around our USA DTC performance, reduce our operating cost base and strengthen the balance sheet. 

“The early success of our new product ranges provides a strong foundation as we enter the important peak trading period and as I prepare to hand over the reins to Ije in the new year."

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ii round-up:

Boot maker Dr. Martens Ordinary Shares (LSE:DOCS) today flagged ‘encouraging’ current trading across all regions, with a new CEO set to start in January and cost savings for next year now expected to come in at the top end of management’s £20-£25 million estimate.  

Currency-adjusted sales for the first half to 29 September fell 16% to £325 million, but that was better than the 19% retreat predicted by analysts. The interim pre-tax loss was £29 million.  

Shares in the FTSE 250 company rose 12% in UK trading having come into these latest results down by just over a third year-to-date. That’s similar to fellow high-end goods sellers Burberry Group (LSE:BRBY), Watches of Switzerland Group (LSE:WOSG) and Hugo Boss AG (XETRA:BOSS) and in contrast to a near 6% improvement for the FTSE 250 index.

Aside from selling millions of pairs of iconic boots, Dr Martens also sells shoes, sandals, and accessories such as leather bags, via either its Wholesale division and other retailers or Direct-to Consumers (DTC) through its own store network and online channels.

Brand director Ije Nwokorie will start his new role as chief executive on 6 January, with current head Kenny Wilson stepping down from the board the same day but remaining available to assist until 31 March. 

Trading since the end of September had been driven by good DTC sales of new products, supported by the boot makers new product-led marketing approach.

DTC sales for the first half to late September on a currency adjusted basis fell 5%, with Wholesale sales dropping 27%, although in line with management’s expectations.

Doc Martens' net debt as of 29 September was £349 million, down 27% from a year ago. An interim dividend of 0.85p per share fell from last year’s 1.56p interim payment. 

A third-quarter trading update is scheduled for 27 January. 

ii view:

Started in 1960, Doc Martens today operates in more than 60 countries. Europe, the Middle East and Africa generated its biggest slug of sales over the group’s last full financial year at almost half, followed the Americas at 37% and Asia Pacific the balance of around 13%. Wholesale to other retailers provides its biggest avenue of sales at 39%, with DTC sales split relatively evenly between its own stores and e-commence. 

For investors, the high fashion nature of the company’s products warrants high consideration. Sales in the US remain particularly pressured, falling 22% in this latest period. A push to reduce net debt has seen the dividend cut, while a forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap. 

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On the upside, new strategic drives to focus marketing on products, improve DTC sales in the US, cut costs and strengthen the balance sheet are being pursued. Spending on marketing has increased, the group’s debt facilities have been refinanced, while net debt has been reduced.   

For now, management turnaround action does look to be having some impact. That said, given falling sales and a first-half loss means cautious investors are likely to demand further evidence of recovery.

Positives: 

• Geographical diversity
• New CEO

Negatives:

• Pressured consumer spending
• Exposure to currency movements

The average rating of stock market analysts:

Hold