Dr Martens delivers weaker results as US remains challenged

​Dr Martens’ first-half FY24 results didn’t make for easy reading on Thursday as the brand that once seemed to be able to do no wrong saw its sales and profits slumping in the six months to the end of September.

Yet it said it made “strategic progress” despite the challenging backdrop in the US.

However, the tough times are continuing in H2 and it added that “trading in the half to date has been mixed, with the start of the season impacted by warm weather across all three regions and weaker traffic overall”.

That said, in both EMEA and APAC, it has seen improved trading in more recent weeks and it expects trading for the rest of the year in these two regions to be “broadly in line with previous expectations”.

But in the US, “the consumer environment has become more challenging. Although we have seen some encouraging signs in very recent DTC trading, including over the Black Friday weekend, we expect that it will take longer to see a material improvement in USA performance than initially anticipated”. 

It’s now saying full-year FY24 revenue will decline in high-single-digits at constant exchange rates. That means annual EBITDA should be “moderately below the bottom end of the range of consensus expectations”. It’s also withdrawing its previous guidance of high-single-digit revenue growth in FY25. 

The firm’s “medium-term expectations are unchanged though, underpinned by the significant white-space growth opportunity and our iconic brand and product range”.

The numbers

So let’s look at just how tough the first half was. Revenue fell 5%, or 3% at constant exchange rates (CER), primarily because of weakness in US wholesale. But direct to consumer revenue was up 9% and rose 11% CER to make up 50% of the mix. Retail revenue was up 15%, or 17% CER, and e-commerce rose 3%, or 5% CER. 

That all added up to total revenue of £395.8 million. Retail revenue was £104.7 million and e-commerce revenue was £91.7 million. Total DTC was running at £196.4 million and wholesale at £199.4 million, the latter figure being a fall of 15%.

As well as the US issues, wholesale revenue was impacted by planned strategic decisions to reduce volumes into EMEA e-tailers and the exit of the China distributor.

It added that the “regional shape of performance [was] in line with expectations, with good growth in EMEA, a strong performance in Japan DTC and America revenue down 18%”.

The gross margin dipped 1%, and EBITDA fell 13% to £77.6 million, while profit before tax was down as much as 55% at £25.8 million. That pre-tax fall reflected the EBITDA performance together with higher depreciation and amortisation as a result of continued investment in IT projects, distribution centres (DCs) and new stores.

The company said it sold 5.7 million pairs of shoes, boots and sandals, which was 9% lower than a year earlier.

On the plus side, it opened 25 new stores, and the six months saw the launch of its new marketing brand platform ‘Made Strong’ with high-impact city activations in New York, London and Tokyo. 

The 14XX capsule collection was also unveiled, “the first step of a faster pace of product innovation, driving brand energy”.

As well as opening those new own stores globally, it hailed the “successful rollout of [its] omnichannel offer in the UK, with positive initial results”. A rollout across core EMEA markets is coming in 2024.

And it “transformed our North America distribution network with automation of the LA DC, expansion of the New Jersey DC and relocation of the Canadian DC to Toronto”.

Its strategic supply chain savings also drove both a gross margin improvement of 2.8 ppts (to 64.4%) and resulted in an EBITDA margin performance ahead of guidance.

CEO Kenny Wilson said: “During the period we focused on controlling the controllables: we delivered significant supply chain savings, successfully transformed our North America distribution network, opened new stores, and launched a Dr Martens UK repair service. The DOCS strategy of brand control and prioritising more profitable sales via our own stores and websites continued to deliver, with DTC revenues up [and] representing half of group revenues.

“We saw a continued strong DTC performance in EMEA and APAC. In the USA, where there is an increasingly difficult consumer environment, our results have been more challenged, led by weakness in wholesale. We have strengthened the Americas leadership team and they are taking action, including refocusing marketing and improving our e-commerce trading capabilities. Notwithstanding the clear challenges we face in the USA market we remain very confident in our iconic brand and the significant growth opportunity ahead of us.”