ii view: Dr Martens cutting costs as profits plunge

Full-year results to 31 March

• Currency adjusted revenue down 9.8% to £877 million
• Adjusted profit (EBITDA) down 19.4% to £197.5 million
• Net debt up 24% to £357.5 million
• Final dividend of 0.99p per share
• Total dividend for the year of 2.55p per share, down from 5.84p the year before

Guidance:

• Expects a first-year revenue decline of 20%
• Remains a wide range of potential year ahead outcomes for both revenue and profit

Chief executive Kenny Wilson said:

"Our FY24 results were as expected and reflect continued weak USA consumer demand.

“We are clear that we need to drive demand in the USA to return to growth in FY26 onwards and are executing a detailed plan to achieve this.”

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ii round-up:

Boot maker Dr. Martens Ordinary Shares (LSE:DOCS) today maintained its guidance for the year ahead as well as outlining plans for a new £20-25 million cost saving plan. 

Sales for the year to 31 March fell by a tenth, impacted by ongoing challenges at its US wholesale business, taking adjusted profit (EBITDA) down by a fifth to £197.5 million. Management estimates for revenue and profit for the year ahead remain wide, with revenue expected to fall by around 20% in the first half and profit generation weighted towards the second half. 

Shares in the FTSE 250 company rose 4% in UK trading, having come into these latest results down by close to half over the last year after plunging last month following a downbeat trading update. That’s similar to fellow high-end goods chain Burberry Group (LSE:BRBY) and in contrast to a near 10% improvement for the FTSE 250 index itself over that time.

Aside from its icon 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.

The group sold 11.5 million pairs of boots during this latest fiscal year, down from 13.8 million the year before. Wholesale related sales dropped 28% to £344 million, hit by a series of factors including weak US consumer demand and previous overstocking. 

A 17% rise in own store numbers over the year helped retail related sales improve 6% to £256.8 million. Ecommerce sales rose 1% on a currency adjusted basis to £276 million. 

Single-digit sales declines across Europe, the Middle East and Africa (EMEA), as well as for Asia, were outpaced by a 20% drop in the Americas. 

Group net debt climbed by almost a quarter to £357.5 million, fuelled by the ongoing dividend payment, lower profits, and increased lease liabilities. The group’s Annual General Meeting is likely to be around mid-July.  

ii view:

The famed boot maker was started in 1960 in Northamptonshire. Today it sells in more than 60 different countries with its home EMEA region generating its biggest slug of sales at almost half, followed the Americas at 37% and Asia Pacific the balance of around 13%. Wholesale provides its biggest avenue of sales at 39%, with DTC split relatively evenly, although just favouring e-commerce sales.  

For investors, challenged US sales and the difficult spending backdrop for consumers given high interest rates cannot be ignored. Group net debt is up and the dividend cut, costs for businesses generally remain elevated, while the high fashion nature of the company’s product continues to warrant consideration. 

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More favourably, management actions to reduce costs are being pursued, new store openings continue, marketing spend in its challenged US market is being increased, while guidance is that the current year's dividend will be unchanged. 

In all, and while management actions and hopes for US rate cuts should help, more cautious investors are likely to await a profits recovery and proof that the turnaround plan is working.  

Positives: 

• Geographical diversity
• Targeting costs

Negatives:

• Pressured consumer spending
• Exposure to currency movements

The average rating of stock market analysts:

Hold