1st Jun 2023 14:24
(Alliance News) - Dr Martens PLC posted a "disappointing" set of results on Thursday, according to analysts at Edison Group, as operational challenges hampered efforts to revive faltering returns.
The Northamptonshire-based footwear and clothing brand posted pretax profit of GBP159.4 million for the year ended March 31. This marked a 26% decline from GBP214.3 million the previous year.
Earnings before interest, tax, depreciation and amortisation were down 7% to GBP245.0 million, from GBP263.0 million year-on-year. Basic earnings per share fell 29% to 12.9 pence from 18.1p.
Dr Martens proposed a final dividend of 4.28 pence per share, level with last year, and declared a total dividend of 5.84p, up 6.0% from 5.50p.
It was operational difficulties that proved to be the bootmaker's Achilles heel.
These were especially pronounced in the US, where a supply bottleneck at the Los Angeles distribution centre led to missed wholesale shipments and incurred costs of GBP15.0 million.
Three main issues drove the crisis, namely that inventory was transferred from Portland to LA faster than planned, that Dr Martens allowed US wholesalers to store direct shipments at the centre, and that inbound shipping times for LA improved significantly, meaning inventory came quicker than anticipated.
The company said it had worked hard to resolve the bottleneck, but analysts remained unconvinced.
Edison's Neil Shah warned that Dr Martens' US outlook is "a concern" for investors, who have watched their peers across the water downgrade estimates on the brand.
They're right to be concerned. As Shah highlighted, even the firm's biggest successes this year - namely hitting a revenue milestone of GBP1 billion - have failed to overshadow its rather dismal profit dip.
"Dr Martens has struggled operationally but also hasn't done a good job of managing expectations. This is a key part of being a public company, where the aim should always be to under-promise and over-deliver," said AJ Bell's Jack Pattinson.
Back in April, Dr Martens said it would miss its annual guidance on weaker wholesale trade and costs from the distribution centre. It approximated Ebitda of GBP245 million, down from already-revised guidance in January of between GBP250 million and GBP260 million.
For the year ahead, Dr Martens maintained its revenue guidance of "mid to high single digit growth". For the medium term, it expects double-digit revenue growth and further margin expansion.
The firm also said that it is planning an initial share buyback programme of up to GBP50.0 million.
AJ Bell's Russ Mould criticised the move, arguing that the guidance "is the latest in a string of disappointments" which stand to 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".
"Even a GBP50 million share buyback is offering little by way of comfort to shareholders, who are responding to the new profit forecast downgrades by giving the shares a fresh kicking, especially as management’s forecast of even a one to two percentage point drop in its preferred profit margin metric relies heavily upon a second-half recovery", Mould added.
"Dr Martens may have a strong brand with good potential, but it needs to leave the repair shop and shine up its sales to help restore investor confidence," said Hargreaves Lansdown's Susannah Streeter.
By Holly Beveridge, Alliance News reporter
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