Dr. Martens is down 20% as weak demand and strong dollar weigh on earnings


Doctor. Martens, the iconic British boot brand, directly attributed weaker-than-expected consumer demand to slower-than-expected sales growth. Photo: PA Media

The shares of Dr. Martens (DOCS.L) fell as much as 22% on Thursday after it warned of weak demand ahead of the busy holiday season.

Here are some key figures from the trade update:

revenue: up 13% to £418.6m ($507.5m) – below expectations

Benefit: fell 8% in the half year to £44.7m

Margin: Between 100 basis points and 250 basis points lower.

The cobbler said its annual core profit margin would be lower than last year as it grapples with economic constraints such as rising retail inflation and the cost-of-living crisis.

It now expects core profit margin to remain between 100 basis points and 250 basis points for the full year.

Sales rose 13% to £418.6 million in the six months to the end of September, but it was still slower than analysts had predicted. Pre-tax profit fell 8% over the period to £44.7m.

The iconic British boot brand blamed weaker-than-expected demand after consumer sales growth was slower than expected.

After averting doom and gloom over the summer by reporting an increase in earnings and raising sales expectations, it has now admitted that the strength of the US dollar and its continued investments have knocked it out this year.

It maintained its revenue guidance for teen growth for the full year, but it wasn’t enough to satisfy investors. The stock is headed for its worst daily drop ever.

Shares traded about 35% below their share price of 370 pence per share from their London listing last year.

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“Growth in the lucrative direct-to-consumer sales channel is slowing and that matters because building this part of the business is a common thread of the strategy,” said Russ Mold, director of investment at AJ Bell.

“Hopefully the massive increase in dividends will keep the market sweet, although one item that hits profitability, but what should get Dr. Martens some credit is the investments in the company.

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“Taking a short-term hit now to turn a profit to support future growth is what every company should be doing, and Dr. Martens hopes this will help it put its best foot forward from here.”

Meanwhile, Victoria Schaller, head of investment at Interactive Investor, said: “This is a brand that goes in and out among fickle fashionistas. Until recently, his shoes were a ‘must have’ but that preference seems to be fading.

“Consumer goods brands are facing the problem of a broader sales slowdown as the recession takes its toll on retail. There is no doubt that Dr. Martens is hoping for a boost in sales around Christmas, but the following January could prove more challenging.

He added: “From an investment perspective, the company is still out of favor with analysts with seven buy recommendations, one hold and zero sell of the stock, with an average price target of 61% above the current share price. There may be some downgrades after the update.”

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