Dr Martens shares tumble as bootmaker warns on margins

Dr Martens has warned that its profit margins will fall this year as the UK bootmaker ploughs investment into a business that has been beset by distribution problems in the US, sending its shares down by as much as 12 per cent on Thursday.

The company, which started life in 1901 in a small town in Northamptonshire, has faced a series of marketing and distribution issues in the US over the past year, as well as lacklustre demand for its shoes in the region amid surging inflation.

It revealed on Thursday that the problems had driven pre-tax profits down by a quarter to £159mn and said there would be more pain to come, despite a 10 per cent increase in revenue to more than £1bn for the first time in the company’s history.

Chief executive Kenny Wilson, who joined the retailer in 2018 when it was owned by private equity group Permira, said it was paramount to “invest in our future”.

Margins at the level of earnings before interest, tax, depreciation and amortisation dropped 4.5 percentage points to 24.5 per cent in the year ended March 31. Dr Martens expects them to drop another 1 to 2 percentage points in the current year.

“When I joined we were doing £348mn [in sales]. The new ambition is to go from being a £1bn brand to a £2bn brand. The reason why we’re making those investments [in stores and systems] is because we still see huge opportunities to grow,” Wilson said. “Short term, this year is dilutive, but it won’t be dilutive long term.”

The shares dropped 12 per cent in early trading in London before they recovered some losses in the afternoon. The stock has almost halved in value over the past year, leaving it down 68 per cent since its flotation in 2021.

“The issue is not the numbers for the year to March, but the guidance for the coming year . . . That is the latest in a string of disappointments and one which could feed the prejudice that private equity firms squeeze costs and investment too hard when they own a business and then leave the next owners to pick up the tab,” said Russ Mould, investment director at AJ Bell.

Wilson dismissed the suggestion on Thursday: “We invested before the IPO when we were a private company, we invested since the IPO and we will continue to invest.”

He added that he expected inflation “to be tamed next year” and that consumers would be under less pressure, “but this year is still going to be tough”.

He also admitted that Dr Martens had too much inventory, predominantly in the US, “but there is no way I’m going to mark down core black iconic product because in December, just like it was 59 years ago, it will be highly relevant and therefore I can sell it at full price” as discounts typically erode profit margins.


Business Asia
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