Unhappy Dr Martens shareholder wants action, suggests a sale

Once upon a time it seemed that Dr Martens could do no wrong, but missteps at the British bootmaker and a tough environment have sent its shares down from a high of around £5 three years ago to below 74p at one point this year. And now a major shareholder is calling for action.

Investment firm Marathon Partners Equity Management wants it to kick off a strategic review and thinks a sale of the business is the way forward.

Marathon owns over 5 million of its shares, which is substantial but doesn’t even get it into the top 10 of the Dr Martens shareholder list (Permira is in the lead with over a 38% stake) so Marathon can’t force change through. But its unhappiness reflects the firm’s underperformance in recent periods.

This week the investor issued a statement saying it has delivered a letter to that “recommends that the board hire an advisor and commence a strategic review with the goal of maximizing shareholder value”.

It “believes an auction process for Dr Martins would likely result in a substantial acquisition premium for shareholders [and] notes poor shareholder returns since the initial and secondary share offerings of the company”.

Prior to the release of its letter, Marathon “held discussions with multiple directors of Dr Martens to privately resolve these matters. While these conversations were friendly and productive, they did not lead to a satisfactory resolution of important shareholder issues”.

Marathon managing member Mario Cibelli said Dr Martens “is a distinctly British brand that has had authentic cultural ties to global consumers for decades. While we are certain that the brand will remain relevant for years to come, the unfortunate reality is that maintaining Dr Martens as an independent, publicly traded company is no longer in the best interests of shareholders.”

He highlighted its “stalled earnings growth and lowered intermediate term guidance combined with an unwelcoming market for many smaller companies in the UK [that] has caused company shares to perform poorly and become deeply discounted versus their underlying intrinsic value. Given the strength and long-standing heritage of the Dr Marten’s brand as well as the opportunity to produce greater profits as part of a larger organization, our instinct is that multiple parties would potentially be interested in acquiring the company”.

Dr Martens’ market valuation based on its share price is currently around £866 million but a Reuters report cited Cibelli saying a buyer might be prepared to spend almost double that.

Of course, even at double the price, it still wouldn’t get the company back to the value it had in the early days of its stock market listing.

Marathon still seems to be supporting Dr Martens’ leadership team, calling CEO Kenny Wilson “an open-minded and talented executive”.

Dr Martens has a long history and is best known for its DM boots. It was bought by Permira in 2014 and went from strength to strength ahead of its share listing in 2021.

After that it posted a series of record results. But while sales continued to rise, in late 2022 it reported that profits were down due to investment being made in the business.

Then early in 2023, it reported ongoing issues at its new LA distribution centre that was causing headaches for it in the US. Wholesale was also an issue for it. 

When it delivered results for the first half of FY24 last November, it was clear that its problems wouldn’t be going away quickly and it highlighted ongoing challenges in the US market in particular.

And in January it said that the so-called Golden Quarter — its third quarter — was less than sparkling for it.

On a reported basis, revenue for the quarter was down 21% at £267.1 million, or down 18% in constant currency (CC), worse than the year as a whole. For the first three quarters of the financial year combined, reported revenue was down a more moderate 12%.

Q3 DTC revenue declined by 5% and wholesale was down a massive 49%. E-commerce revenue fell 9%. This was driven by “a weak USA performance, as expected” while general “trading in the quarter was volatile and we saw a softer December in line with trends across the industry”.