Tough times continue at Dr Martens, CEO to step down this year

Dr Martens issued an update on Tuesday that detailed the ongoing challenges at the business. But in headline-grabbing news, it also said its CEO is to step down.

Kenny Wilson won’t be going straight away, however. We’re told he’s “decided that this will be his final year as CEO. As part of an orderly succession plan, the board is delighted to announce that Ije Nwokorie, Chief Brand Officer (CBO), will succeed [him]. Kenny and Ije will work together to ensure a smooth handover, with Ije becoming CEO before the end of the current financial year. Ije will remain as CBO in the meantime”.

Chairman Paul Mason praised Wilson and justifiably underlined his achievements that included spearheading a brand-first DTC-driven strategy, achieving significant growth, “with pairs more than doubling during his tenure”.

He’s had to cope with some of the most challenging conditions in the firm’s history given the pandemic, supply chain issues and general economic backdrop. 

But there’s no getting away from the fact that he’s also been in charge during a disastrous implementation of the firm’s US distribution centre that’s still causing problems in its largest market. 

Meanwhile, Lynne Weedall, Senior Independent Director, said of the incoming CEO: “Ije is an inspirational leader and his experience in helping drive DTC-led growth at Apple will be highly relevant in the coming years. We are already benefiting from his brand expertise since he joined as CBO in February.”

Hard times in US business

So what of that trading update? The company will announce its results for the year to the end of March (FY24) on 30 May, with the numbers “expected to be in line with guidance and consensus expectations”.

Dr Martens reiterated that it saw a pick-up in DTC in Q4, “to high single-digit year-on-year growth, compared with a 3% decline in Q3 (constant currency)”. This was due to “good growth across EMEA, a flat outcome in the USA and a very strong result in APAC, led by Japan. Q4 group wholesale performed in line with our expectations”.

For the current year, FY25, US wholesale revenue is anticipated to be down in double-digits. 

The now-finalised AW24 order book, which makes up the majority of the second half of US wholesale, “is significantly down,” it said. “If wholesale customers become more optimistic, we could see in-season re-orders, however these are hard to predict”. 

The decline in wholesale has a “significant impact on profitability”, with a base assumption being in the region of a £20 million profit before tax (PBT) impact.

But it’s also having to absorb the impact of inflation with no further price rises due and is investing in retaining and incentivising talent throughout the organisation. Together “these equate to a year-on-year PBT headwind in the region of £35 million”.

And there will be extra costs in the US for additional inventory storage facilities, so the majority of the £15 million of additional costs incurred in FY24 are “expected to repeat in FY25”.

The company flagged “a wide range of potential outcomes for FY25 given that we have only recently started the year”. However, it has assumed that revenue will drop by a single-digit percentage and at the PBT level it could see a worst-case scenario of a figure around one-third of the FY24 level. 

But it added that there are also “scenarios where profit could be significantly better than this, with the key factor being if USA performance is stronger than our planning assumptions”.

Wilson said of all this: “The FY25 outlook is challenging, and the whole organisation is focused on our action plan to reignite boots demand, particularly in the USA. The nature of USA wholesale is that when customers gain confidence in the market we will see a significant improvement in our business performance, but we are not assuming that this occurs in FY25.

“We have built an operating cost base in anticipation of a larger business, however with revenues weaker we are currently seeing significant deleverage through to earnings. We continue to believe in our DTC-first strategy and the considerable headroom for growth. Our brand remains strong, and we have a compelling product pipeline. These all give us confidence as we look beyond this transition year into future years.”