Wow! Nobody saw that coming. The share price of Dr Martens (LSE:DOCS), the FTSE 250’s iconic fashion bootmaker, fell 28% during the week ended 19 April. The company warned that its profit before tax for the year ending 31 March 2025 (FY25) could be one third of its FY24 level. Not 33% lower, but 67% less!
I’ve lost count of the number of profit warnings the company’s issued since it made its stock market debut in 2021. Some say it’s five.
No wonder its chief executive has decided to stand down. Or was he given the boot? His successor, the company’s Chief Brand Officer, has only been in position since the start of February. Ije Nwokorie’s most recent experience was undertaking a similar marketing role for Apple. In seeking to turnaround the fortunes of Dr Martens, I hope he hasn’t bitten off more than he can chew.
One person’s trash is another’s treasure
Despite the company’s woes, I’m tempted to take a position. The latest profits warning was heavily caveated with phrases like “worst-case scenario” and “could be significantly better than this”.
Whenever someone new takes over, it’s always good to under-promise and over-deliver.
The company has a great reputation across the world — its products are sold in 60 countries. Also, according to YouGov, it’s the second most popular fashion and clothing brand among UK adults.
But it has identified three areas that are going to impact its results this year. Firstly, because it’s unable to shift its stock, it’s having to lease additional storage for longer than expected (£15m).
Secondly, wholesale orders in the US are lower than forecast (£20m). And finally, an investment in talent retention, coupled with inflation, are expected to take their toll (£35m).
I bet the company now regrets ‘wasting’ £50m buying back its own shares — at an average price of £1.25 — during the second half of 2023.
Mixed messages
I find it sad that the company appears to have lost its way. To counter the impact of rampant inflation, it’s significantly increased the prices of its boots, shoes and sandals. This means its margins are closer to that of a luxury fashion brand than a product originally designed for the working classes and latterly as a streetwear label.
The firm’s origins lie in durable workwear but with clever marketing and celebrity endorsements, its products have become a fashion item. But do trends lovers really want something that’s going to last a lifetime? Or would they rather change their look more often and buy other cheaper brands more frequently?
For many it’s the former so it may be too early to write off Dr Martens. It’s been popular for decades and may continue to be so.
But despite the fall in the share price, the company’s still valued at around £650m. If its FY25 results do end up at the lower end of expectations, it means it’s valued at 15 times earnings. That’s still higher than, for example, Next’s.
I take no pleasure from putting the boot into Dr Martens. It’s a British icon and I hope it does well. However, I don’t want to invest at the moment. I need to see a turnaround in its fortunes before parting with my hard-earned cash.
