Dr Martens has released its preliminary full-year results, showcasing both positive and negative developments. Despite some areas of weakness, the company maintains a confident outlook for its future growth prospects. One standout positive is that its revenue exceeded £1 billion for the first time, representing a 10% increase compared to the previous year. Furthermore, Dr Martens sold nearly 14 million pairs of footwear. The company has experienced significant growth in its direct-to-consumer (DTC) channel since the beginning of the current fiscal year, and it anticipates mid-to-high single-digit growth for the upcoming year. Although price increases will help offset supply chain cost inflation, the ongoing costs associated with its LA distribution center (DC) will persist until the next fiscal year.
Looking back at the previous year, Dr Martens experienced strong performance in the EMEA and APAC markets, particularly in Japan. However, its performance in the US fell short due to difficulties at the LA DC and softer consumer sentiment. The company admits its mistakes and expresses its commitment to implementing “self-help measures” to address these issues. Gross profit increased by 7% to £618.1 million, but the margin declined by 1.9 percentage points to 61.8%. Operating expenses rose by 18% to £373.1 million due to planned investments in new stores, marketing, and warehouse and labor costs at the LA DC. Earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped by 7% to £245 million, resulting in a lower EBITDA margin. Pre-tax profits decreased by 26% to £159.4 million primarily because of lower EBITDA, increased depreciation, new stores, DC expansion, and impairment charges. Profit after tax also fell by 29% to £128.9 million. Despite these weaker numbers, the board maintains confidence in the future performance and cash generation of the business.
Delving deeper into the figures from last year, Dr Martens celebrates reaching the milestone of £1 billion in revenue, representing a 10% increase on a reported basis and a 4% rise in constant currency. The company saw growth in its DTC, Retail, and E-commerce channels, with DTC revenue growing by 16%, Retail by 30%, and E-commerce by 6%. Wholesale revenue increased by 4% but declined by 3% in constant currency. Lower shipments in America and the decision to discontinue sales to its China distributor were the main factors behind the decline in wholesale revenue. The DTC mix increased by 3 percentage points to 52% as Dr Martens opened 52 of its own retail stores and transferred 14 franchise stores in Japan. The company affirms that its brand equity remains strong, and its slower pace of growth can be attributed to execution and macro factors rather than a weakening of brand momentum. In EMEA, DTC performance achieved 20% growth, and the UK had a very successful year with total regional revenue increasing by 11% to £443 million. APAC revenue rose by 2% but fell by 1% in constant currency to £129.1 million. Japan performed well, providing Dr Martens with a solid foundation for future growth in the region. On the other hand, America had a disappointing year, with revenue reaching £428.2 million, up 12% but down 1% in constant currency. However, DTC growth in America was 15% or 2% in constant currency. The company experienced successful growth in its shoes and sandals categories but saw a decline in boots.
While acknowledging its successes, Dr Martens admits to making mistakes that hindered its performance in America. The poor execution of its DC move from Portland to LA and errors in marketing campaigns, which focused too heavily on shoes and sandals at the expense of boots, were significant factors. Additionally, the company’s e-commerce execution was not strong enough. Group-level price increases did not fully compensate for cost inflation. Dr Martens also admits to ordering excess inventory for America, although most of it consists of best-selling, continuity black boots and shoes, posing minimal markdown risk. To address these challenges and minimize risks for future growth, the company has hired key individuals in America and plans to increase investment in global product and marketing teams, e-commerce development, supply chain capability, and talent development.
In conclusion, Dr Martens’ preliminary full-year results showcase a mixed performance, with areas of weakness in the US market. However, the company remains confident in its future growth prospects, citing strong brand equity and successes in other regions. By addressing its mistakes and implementing strategic measures, Dr Martens aims to overcome its challenges and continue its upward trajectory.
Useful links:
1. Dr Martens Official Website
2. Financial Times Article on Dr Martens’ Performance
