On the future, Dr Martens goes with lead combat boots
Uncertainty reigns in the fashion sector and even a historic brand like Dr Martens is cautious about economic forecasts. And the stock market doesn't forgive… Facts, numbers and comments
From the working class to rock stars, Dr Martens boots have been and continue to be on the feet of people of all generations and with different tastes in fashion. Yet the outlook for business is darkening, according to the British company, and the stock plummets on the London Stock Exchange.
DR MARTENS TITLE DOWN
At 10.30am on 16 April, the shares of the manufacturer of the iconic amphibious footwear fell by 29.2% to 67.22 pence, while the Ftse 100 index fell by 1.6%. The collapse came after Dr Martens shared a warning about the ongoing exercise and announced the replacement of the CEO.
In a performance update, the company confirmed that the results for the 2024 financial year, ending in March, will be in line with analysts' forecasts and consensus and will be communicated on May 30, and then "shared" with investors “the prudent opinion” of the board of directors on the current 2025 financial year.
PREDICTIONS THAT WORRY
Revenues, Dr Martens reported, are expected to fall by a single-digit percentage and in the worst-case scenario gross profit would fall “to around a third of the 2023 level”.
According to the company's forecasts, the main impact will be on the US market, the main one for the group, where wholesale revenues are expected to decline by a double-digit percentage on an annual basis, reflecting the "significant drop in orders". in the face of a cost base that is affected by inflation, increased expenses to "retain and incentivize talent" and significant expenses to store stocks, as in the last financial year.
“The outlook for the 2025 financial year is difficult,” commented CEO Kenny Wilson, explaining that “the nature of the wholesale sector in the US is such that as customers regain confidence we will see a significant improvement in our commercial performance, but we do not expect this to happen in financial year 2025.”
THE WARNINGS
Already at the beginning of April, Reuters had reported the discontent of investors, in particular of one of the 30 largest in the company: Marathon Partners Equity Management, which holds around 5 million shares and which, following the disappointing performances, had denounced in a letter to the management the immediate strategic review, also in view of a sale of the British company.
“The New York study,” the news agency said, “argues that Dr Martens' sluggish earnings growth and sharp 83% drop in its share price since its IPO in 2021 have decoupled its valuation from its intrinsic value".
“Maintaining Dr Martens as an independent publicly traded company is probably no longer in the interests of shareholders,” wrote Mario Cibelli, managing partner of Marathon Partners, who also believed that “although the company has a current market value of approximately $1.1 billion, its exceptionally strong brand could make it attractive to potential buyers who may be willing to spend at least $2 billion to acquire the business.”
CHANGE AT THE TOP
In another press release, Dr Martens then announced that Wilson, who has been at the helm of the company for six years, "has decided that this will be his last year as CEO". Taking his place will be Ije Nwokorie, Apple's former senior director and current brand manager, who will take up the role "before the end of the current fiscal year".
ANALYSTS COMMENT
“We think investors will be surprised by the size of the downgrade, despite the series of declines the company has delivered over the past 18 months,” Natasha Bonnet, an analyst at Morgan Stanley, said in a note. Bonnet, writes Bloomberg , “is one of many who cut price targets on Dr Martens after the profit warning”.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/sul-futuro-dr-martens-ci-va-con-gli-anfibi-di-piombo/ on Tue, 16 Apr 2024 13:33:09 +0000.