14th Apr 2023 15:26
(Alliance News) - Shares in Dr Martens PLC were surprisingly on the rise on Friday, despite investors digesting some "bad news" for the footwear brand.
"It's bad news at Dr Martens, where operational headaches at its Los Angeles distribution centre have seen earnings expectations downgraded to around GBP245 million. Full year revenue was up 4% on a currency neutral basis, with wholesale performance acting as a drag," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
Shares in the London-based company up 10% to 155.36 pence each in London on Friday afternoon. Over the past twelve months, the stock is down 34%.
Lund-Yates said: "The shares have fallen almost 70% since they listed in 2021, which was partly a function of a frothy valuation, but also raises questions about the long-term growth trajectory for the famous shoe brand."
Dr Martens said its full year revenue for the year ended March 31 was up by 10%, with a 6% revenue growth in the final quarter of financial 2023. The projection was below January's guidance of between 11% and 13%.
Dr Martens attributed the increase in revenue in the final quarter to "strong direct-to-consumer growth" in Europe, Middle-East and Africa as well as Asia-Pacific regions.
Nevertheless, the company noted a 4% fall in wholesale revenue in the last quarter of the year, mainly driven by operational issues at the Los Angeles distribution centre, and shipment reduction to its China distributor.
Financial 2023 total incremental costs associated with the LA centre were around GBP15 million, higher than the originally expected GBP8 million to GBP11 million. Dr Martens expects the same figure for financial 2024 as a result of rent annualisation.
As a result of higher costs at its LA distribution centre and lower wholesale revenue, the bootmaker now expects its full year earnings before interest, tax, depreciation and amortisation to be around GBP245 million, down 6.8% from GBP263 million. It would also be below January's guidance of between GBP250 million and GBP260 million.
Looking ahead, the company said it has made "good progress" on resolving operational issues in LA, and shipment volumes are back to "normal levels." In addition, Dr Martens has begun expanding its New Jersey distribution centre, and reported a successful initial test shipment in March.
"Ultimately, Dr Martens has a strong brand, but investors would like to see some further momentum on both the top and bottom line," Lund-Yates commented.
Separately, Dr Martens also announced on Friday its chief financial officer, Jon Mortimer, will retire after seven years with the firm. Mortimore will continue in his role until a successor is appointed to ensure a "smooth transfer," the company said.
Dr Martens is in the process of searching for a new CFO.
Chair Paul Mason said: "On behalf of the board, I would like to thank Jon for his central role in driving the strong growth and strategic development of Dr. Martens over the last seven years. His knowledge of the business and understanding of the company's value drivers have played a key part in helping develop the business during this period."
By Sophie Rose, Alliance News reporter
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