Interactive Investor

ii view: Dr Martens shares step higher

1st June 2022 13:48

Keith Bowman from interactive investor

Shares for this iconic British brand remain below their 2021 IPO price. We assess prospects. 

Full-year results to 31 March

  • Revenue up 18% to £908 million
  • Adjusted profit (EBITDA) up 18% to £263 million
  • Adjusted pre-tax profit up 43% to £214 million
  • Final dividend of 4.28p per share
  • Total dividend for the year of 5.5p per share (previous year: Nil)
  • Cash up 101% to £228 million

Chief executive Kenny Wilson said: Today's strong results have been driven by our proven DTC-first strategy and continue to build on our track record of volume-led growth. Our results were achieved against unprecedented Covid-19 disruption in our supply chain, which our teams navigated with flexibility and dedication.

“Our recent comprehensive brand survey shows that our brand is stronger than ever, with significant growth in awareness, familiarity and recent purchase. Dr Martens remains incredibly under-penetrated globally, giving us conviction in our future growth ambition.”

ii round-up:

Boot maker Dr. Martens (LSE:DOCS) today reported a near one-fifth increase in annual sales as its stores reopened from the pandemic and its push to sell direct to the consumer continued. 

Despite Covid-19 related supply disruption, that helped push adjusted profit (EBITDA) up by a similar amount to £263 million, ahead of City expectations. The gross profit margin rose 2.8% to 63.7%, aided by its direct-to-consumer (DTC) sales. For the year ahead, management upped its revenue growth forecast to the high teens, with product price increases to cover elevated input costs not expected to dent hoped for volume growth. 

Dr Martens shares rose by more than 20% in UK trading, although that still leaves them down by more than a third year-to-date. The FTSE 250 company came to the stock market in early 2021 at a price of 370p per share. Shares for fellow personal goods company Watches of Switzerland Group (LSE:WOSG) have fallen by a similar amount during 2022. The FTSE 250 index itself is down by around 13% year-to-date. 

Dr Martens summarised sales across both its Americas and EMEA (Europe, Middle East, Africa) regions as ‘very strong.’ Sales rose 29% and 19% respectively. Sales for its smallest Asia-Pacific region fell 10%, hindered by ongoing pandemic restrictions. 

Its third-party factories in south Vietnam, accounting for a third of its production, were closed for over three months during the year. It also suffered a near-doubling of global shipping times to the US.

DTC sales now represent almost half of overall sales. Within that, e-commerce sales gained 9% year-over-year, while retail store sales rose 86% given the large lifting of Covid restrictions. Away from DTC, wholesale demand grew by 5% year-over-year. 

A final dividend of 4.28p per share declared adds to the previously paid interim of 1.22p per share. 

ii view:

Boot maker Dr. Martens was founded in 1960 in Northamptonshire. Today, it predominantly focuses its sales efforts on the seven core markets of the UK, France, Germany, Italy, the US, Japan and China. 

It four key strategic pushes are to accelerate its DTC sales, helping it to control brand engagement; improve its operational and IT infrastructure; create deeper connections with more consumers and grow globally on a sustainable basis. The iconic boot maker now sits alongside Burberry (LSE:BRBY) and Ted Baker (LSE:TED) in the personal goods sector. 

For investors, an uncertain economic outlook and a cost-of-living crisis for consumers cannot be ignored. Elevated costs, supply chain disruption and global shipping delays also remain noteworthy. As do fashion trends, which can change quickly, leaving the business open to volatility.

On the upside, robust sales for two of its three geographical regions are clearly positive. Its push towards DTC does look to be bearing fruit, while room for international expansion remains. On balance, and while room for caution persists, long-term fans of the company will be greatly reassured following this latest update. 

Positives: 

  • Geographical diversity
  • Growing direct-to-consumer sales

Negatives:

  • Consumer cost-of-living crisis
  • Exposure to currency movements

The average rating of stock market analysts:

Buy

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