ii view: investors give Dr Martens shares the boot
24th November 2022 11:42
by Keith Bowman from interactive investor
Shares for this iconic British brand have about halved during 2022. We assess prospects.
First-half results to 30 September
- Revenue up 13% to £418.6 million
- Adjusted profit (EBITDA) flat at £88 million
- Pre-tax profit down 8% to £44.7 million
- Interim dividend up 28% 1.56p per share
- Cash up 18% to £133 million
Chief executive Kenny Wilson said:
"Although there are economic challenges ahead, we are well positioned for future growth. We will continue to drive growth investment to deliver the DOCS strategy, mainly in new stores, marketing, people, technology and inventory.”
ii round-up:
Dr. Martens (LSE:DOCS) today detailed results below City forecasts, with the iconic boot maker lowering its full-year profit expectations given the increasingly more challenging conditions for consumers.
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Despite sales growth across all its channels and regions during the first half to the end of September, the FTSE 250 company now expects slowing sales growth and currency factors to weigh on its full-year profit outcome.
Dr Martens shares fell by more than a fifth in UK trading having hit a nine-month high earlier this week. They'd come into this latest announcement down by a third year-to-date and comfortably below their 2021 IPO listing share price of 370p. Shares for fellow personal goods company Watches of Switzerland Group (LSE:WOSG) are down by a similar amount in 2022, while the FTSE 250 index has fallen by close to a fifth.
Dr Martens flagged strong second half trading for its wholesale business, but slower than expected Direct-to-Consumer (DTC) trading with the warm October weather in the US, accounting for around two-fifths of overall sales, potentially hindering.
Management continues to expect high teens revenue growth for the full year, although now on an actual rather than adjusted basis, effectively a slight reduction. It also forecasts adjusted profit margin to be up to 2.5% lower than last year.
Broker Morgan Stanley retained its ‘equal weight’ stance on the shares post the results, flagging an estimated long-term fair value price target of 276p per share.
A third-quarter trading update is scheduled for 26 January.
ii view:
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 USA, Japan, and China. Its strategic focuses include pushing its DTC sales in order to enhance its brand engagement and improving its operational and IT infrastructure. It currently sits alongside Burberry Group (LSE:BRBY) and Superdry (LSE:SDRY) in the personal goods sector.
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For investors, an uncertain economic outlook and a cost-of-living crisis for consumers is likely impacting sentiment. As with business generally, rising costs and supply chain challenges cannot be overlooked, while the high fashion nature of the company’s product continues to warrant high consideration.
On the upside, sales did continue to grow during this latest half year, with full-year management growth expectations remaining. Investment in new stores, marketing and people is being made, while confidence in the future has arguably been expressed via a 28% hike in the interim dividend payment.
On balance, and while room to expand sales globally persists, the sharp drop in share price demonstrates concerns about the business and its valuation. As such, investors might be inclined to await signs of profit recovery before taking action.
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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