On 30 May, the man in charge of the numbers at this FTSE 250 legend, purchased almost £64k of the company’s stock. Giles Wilson had only been in position at Dr Martens (LSE:DOCS) for three days before deciding to demonstrate his confidence in his new employer.
Such transactions always make me sit up and take notice.
As Peter Lynch, the American investor, once said: “Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise“.
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However, since making its stock market debut in 2021, Dr Martens has issued five profits warnings. Wilson’s purchase suggests he’s confident there won’t be a sixth.
And I agree. That’s because on 16 May, the company issued the gloomiest of trading updates.
For the year ending 31 March 2025 (FY25), it said that under a “worst-case scenario”, its profit before tax could be around one-third of its FY24 level.
Although sales are down in all regions, the company’s struggling most in the US. During FY24, revenue in The Americas was 23.9% lower, than in FY23.
| Region | FY23 (£m) | FY24 (£m) | Change (%) |
|---|---|---|---|
| Europe, Middle East and Africa | 443.0 | 431.8 | -2.5 |
| The Americas | 428.2 | 325.8 | -23.9 |
| Asia Pacific | 129.1 | 119.5 | -7.4 |
| Total | 1,000.3 | 877.1 | -12.3 |
But I wonder if the company’s decided to be overly cautious in an attempt to avoid having to issue yet another profits warning. It sounded more optimistic when it said: “There are also scenarios where the profit outturn could be significantly better than this”.
Perhaps it’s a case of under-promising and over-delivering?
Doom and gloom
However, with both sales and earnings falling, its gross profit margin in decline and net debt rising, it’s hard to make a compelling investment case.
And there’s no guarantee that the company’s turnaround plan will work.
Also, income investors will be disappointed that the company recently slashed its dividend. Going forward, it hopes to return 35% of profits to shareholders. At the lower end of expectations, this could mean a payout of less than a penny a share.
Reasons to be optimistic
However, I remain positive about the company’s prospects. With its distinctive design and long heritage, the Dr Martens brand remains a valuable one. And the company claims brand recognition’s increasing in its key markets.
According to Straits Research, the global footwear market will be worth $568bn by 2031. With FY24 revenue of £1bn, there’s plenty of scope for the British icon to expand internationally. To do this, the company plans to spend heavily on marketing and promotional activities.
It also has a new chief executive, Ije Nwokorie, a former director at Apple, who will be keen to demonstrate his credentials.
But as tempted as I am to invest, I think I’m going to wait before reviewing the situation in a few months’ time. That’s because the company has historically performed better during the second half of its financial year.
The directors have warned that the first half of FY25 will see a fall of 20% in group revenue plus “cost headwinds”. It says earnings for the year will be “very second-half weighted”. If this proves to be correct, investors might not react when its results for the six months ended 30 September are published.
I’m therefore going to keep Dr Martens on my watchlist and take another look later in the year.
