ii view: why Dr Martens is on the back foot

First-half results to 28 September

• Currency adjusted revenue up 0.8% to £327.3 million
• Pre-tax loss of £9.4 million, improved from a loss of £16.6 million in H1 last year
• Net debt including leases down 13% from a year ago to £302 million
• Interim dividend unchanged at 0.85p per share

Guidance:

• Continues to expect full-year adjusted profits of £53-60 million before the impact of US tariffs - potentially up from last year’s £34 million

Chief executive Ije Nwokorie

“Our brand is strong, as evidenced by the 33% increase in shoes volumes and the successful launch of new products such as the Zebzag Laceless boot and the 1460 Rain boot. 

“While the marketplace remains uncertain and consumers are cautious, and our biggest trading weeks are ahead, we are confident in our plans for the year. I am laser-focused on execution and setting the business up for growth in the coming years.”

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ii round-up:

Boot maker Dr. Martens Ordinary Shares (LSE:DOCS)was founded in 1960 in Northamptonshire. 

Today it operates in more than 60 countries selling products from boots and sandals to bags and accessories.  

For a round-up of these latest results announced on 20 November, please click here.

ii view:

The FTSE 250 company employs around 3,700 people worldwide, including at its original Northamptonshire factory as well as across multiple production sites in Asia. Dr Martens sells either direct to consumers (DTC) via its own store network and online channels or through its Wholesale division via other retailers. Internet sales made up a quarter of revenues during this first half. 

Geographically, the wider European or EMEA region (Europe, the Middle East, and Africa) accounted for most sales at 49%. That was followed by the Americas at 36% and Asia Pacific the balance of 15%.

For investors, US trade tariffs now offer profit headwinds. A one-year forecast price/earnings (PE) ratio above the three-year average may suggest the shares are still not obviously cheap. The high fashion nature and relatively high price tag of the company’s products cannot be overlooked in a tough environment for consumers, while group net debt of £302 million compares to a stock market value of £749 million. 

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More favourably, a reinvigorated strategy under a relatively new CEO now includes focus on product innovation, full priced product sales and expanded geographical locations. Cost savings are expected to counter some trade tariff impacts. A failure by management to inject a recovery could see the group’s brand potentially attract the attention of a major fashion house. A focus on lowering group debt is being pursued, while a forward dividend yield of over 3% is not to be ignored.  

For now, a consensus analyst estimate of fair value above 100p per share suggests the City believes the stock has potential. That said, more cautious investors may demand firmer evidence of a sustainable recovery before taking an interest. 

Positives: 

• Geographical diversity
• Refreshed strategy

Negatives:

• Pressured consumer spending
• Exposure to currency movements

The average rating of stock market analysts:

Strong hold