Shares of Dr. Martens (LSE: DOCS) plunged today (30 November) after the FTSE 250 bootmaker released its H1 results for the six months to 30 September.
The company’s report opened with the words: “We saw a mixed trading performance in the first half of the year.”
Often, a firm will characterise a difficult trading period as “resilient” before moving on to the bad stuff. But the maker of the iconic chunky boots went with “mixed” from the off and then issued a profit warning.
As I write, the stock has collapsed 26% to 84p.
H1 results
During the first half, sales dropped 5% year on year to £396m while pre-tax profits nosedived 55% to £26m. Wholesale revenues fell 17% to just under £200m.
For the full year, it now expects revenue to decline by about 8% and earnings to drop below the bottom end of the £223m-£240m EBITDA range expected by analysts.
It has also withdrawn its previous guidance of high single-digit revenue growth for next year (FY25).
Management said current trading at the start of the autumn/winter season had been impacted by warm weather in October and weaker overall traffic.
It blamed “unseasonably warm weather” last year too, I seem to remember. But that’s the problem with investing in fashion brands and retailers. Such companies are at the mercy of the weather, although this does at times prove to be a plus point when the climate plays ball.
Anyway, one bright spot was its direct-to-consumer (DTC) business, which recorded 9% growth. DTC, which has higher margins, now represents 50% of group revenues.
The interim dividend was maintained at 1.56p, though that’ll be cold comfort for shareholders today.
US growth problems
One ongoing problem is its business in the US, where revenue was down 18% during the first half. This is the company’s second-largest market, accounting for around 42% of sales.
Beyond waning demand there, it has had a nightmare at its Los Angeles distribution centre, which opened in 2022. In the run-up to Christmas last year, it had to open temporary warehouses after becoming overwhelmed with stock. Costs remain a problem here.
To get US growth back on track, it has brought in a new North America management team and boosted its marketing efforts. Perhaps this could spark a turnaround in its fortunes stateside.
Is the stock worth me buying?
Prior to the report, the company had already issued three profit warnings this year. And now it’s just dished out a fourth. That doesn’t fill me with confidence, I have to say.
This share price collapse means the stock is down 58% in 12 months. It’s trading at just 6.5 times earnings, which looks attractive, but that’s on a trailing basis. The future trajectory of earnings is uncertain at this point.
Overall, I think an investment would be more speculative than contrarian at this point.
Yes, the Dr. Martens brand is well known and popular, and I’m a big fan of the boots myself. Plus, sales are holding up well in Europe and Asia. But there’s a lot of uncertainty here.
I’ve got half a dozen stocks on my buy list at the moment. I don’t see anything here to warrant me putting Dr. Martens shares above them.
