19th Jan 2023 11:09
(Alliance News) - Shares in Dr Martens PLC took a tumble on Thursday, as the iconic bootmaker suffered from "significant operational issues" in the US.
The London-based company identified a bottleneck at its Los Angeles distribution centre, which it said was caused by a "combination of people and process issues".
"The transfer of inventory to the new hub was faster than planned, causing a bottleneck of stock," explained Hargreaves Lansdown analyst Susannah Streeter.
Dr Martens expects the impact of lost wholesale revenue and costs incurred as a result of the issues to hit annual earnings before interest, tax, depreciation and amortisation by around GBP16 million to GBP25 million.
Consequently, it now expects Ebitda for the financial year ending March 31 of between GBP250 million and GBP260 million. In financial 2022, the footwear brand posted Ebitda of GBP263.0 million.
Market consensus, as cited by Numis, had been for Ebitda to grow to GBP287 million in financial 2023.
The profit warning sent Dr Martens shares down 26% to 155.73 pence in London on Thursday morning. The FTSE 250 stock has halved in value over the past 12 months.
The company also guided for annual revenue growth of between 11% and 13%, having previously expected "high teens" annual growth back in November.
The bottleneck is "significantly" impacting throughput, which will limit its capacity to meet wholesale demand as well as its fourth-quarter shipment forecasts, Dr Martens explained.
"This is another big migraine for the company, which was also dealing with the headache of disappointing US sales in the fourth quarter, which is viewed as a key market for growth for the company," Streeter said.
Dr Martens outlined several measures to resolve the issues at the distribution centre. These include the opening of three temporary warehouses, starting a third shift at the centre by the end of this month, and reconfiguring its east coast distribution centre to ship wholesale orders.
However, these will just serve to push up costs further, HL's Streeter noted.
Dr Martens also said it was reducing volume into pure-play wholesale e-commerce accounts in the next financial year. This will underpin the direct-to-consumer mix expansion "over time", the firm said, but will hit revenue growth in financial 2024.
"Dr Martens is attempting to position itself more 'up market' by reducing the number of boots being sent to retail channels," Streeter said.
The move could help reduce "too much discounting", which can be damaging for the brand image, she said, but the resulting lower volumes will hit revenue.
Targeting a more trend-focused affluent clientele is also not without its risks.
"If Dr Martens can tread into the style books of wealthier consumers, it would offer long-term benefits. However, trends do still wax and wane, and there is still a risk that the pulling power of Dr Martens could fade over time," Streeter said.
By Elizabeth Winter, Alliance News senior markets reporter
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