One FTSE 250 stock I’ve been bearish on over the years is Dr Martens (LSE:DOCS). Since its IPO exactly five years ago tomorrow (29 January), the bootmaker has lost around 85% of its value.
Yet this remains a legendary brand that’s on course to generate nearly £800m in sales in FY26. With the stock falling 12% to 66p yesterday, is Dr Martens a strong turnaround candidate staring us in the face?
Mixed-bag quarter
The culprit for yesterday’s slump was a Q3 FY26 trading statement. In the 13 weeks to 28 December, the firm reported that quarterly sales fell 3.1% to £251m (or 2.7% on a constant currency basis). This included a 7% drop in direct-to-consumer (DTC) revenue.
A key part of CEO Ije Nwokorie’s turnaround strategy has been to cut back on discounts and promotions to improve profitability. If successful, this could rebuild margins over time.
In the meantime though, inflation-weary consumers appear to be hunting for deals. During the period, which covered the run-up to Christmas, wholesale revenue was up across all regions. In Europe, the Middle East and Africa, DTC revenue fell by 12% while wholesale revenue jumped 13%.
We have continued to improve the quality of our revenue through a disciplined approach to promotions and this represents a headwind to overall revenue, particularly in e-commerce.
Ije Nwokorie.
On a positive note, there was a return to growth in the firm’s troubled Americas division, where revenue rose 2%. Year to date (April to December), Americas growth was 4.5%, which is encouraging.
Also, as part of its plan for capital-light expansion into new markets, the bootmaker extended a distribution agreement with Latin American partner Crosby to include Colombia, Costa Rica, Peru and Uruguay.
For the full year ending March, Dr Martens expects revenue to be “broadly flat” (about £788m). That’s lower than the £800m that analysts were previously anticipating.
Yet pre-tax profit growth will still be “significant“, according to management. Last year, it was £34.1m on an adjusted basis, and this year’s figure should be in the £50m-£60m range.
All in all, this quarter was definitely a mixed bag.
Huge comeback potential?
Dr Martens clearly possesses an iconic brand that’s known worldwide. However, it can be dangerous as an investor to assume that a strong brand translates into a good stock market investment. For evidence, look at Aston Martin and Nike over the past few years.
Based on current forecasts, Dr Martens stock is trading at around 18 times FY26 earnings. The multiple could fall as low as 11 by FY28, though a lot could happen between now and then.
For example, President Trump could suddenly slap higher tariffs on Vietnam, where most Dr Martens boots are made these days. And inflation remains problematic, keeping pressure on consumers’ wallets.
Given these risks, and the early stage of the company’s multiyear turnaround, I don’t think the stock is an obvious bargain. I need to see evidence that management’s strategy can produce a rebound in sales and sustainable earnings growth.
Until that happens, I still view the stock as a bit of a risky gamble. I think there are better turnaround candidates to consider in the FTSE 250.
