Investors put Dr Martens on rocky footing

Nick-D, CC BY-SA 4.0

Shares in iconic Northamptonshire boot and shoe maker Dr Martens tanked on Thursday (1 June) after the firm reported a 30% dip in profits caused, it said, by its “mistakes” in the American market.

Despite posting annual revenues of £1bn for the first time in its history, the firm saw its post-tax profits slump to £128.9m for the year to March 31 – with struggles across the pond costing the company nearly £15m.

The announcement clearly troubled investors, who administered another kicking to Dr Martens’ share price this morning.

Shares in the firm were changing hands for 156.3p at close of play yesterday, but were trading for around 136p within a couple of hours of the company’s results being made public.

Russ Mould, investment director at AJ Bell, said: “Investors could be forgiven for sighing and dismissing Dr Martens as just another dud to be sold onto the unwary by private equity, given that the shares stand more than 60% below their 2021 flotation price of 370p after the latest set of disappointing results.

“The issue is not the numbers for the year that ended in March 2023, but the guidance from chief executive Kenny Wilson for the coming year, which signals increased investment in the business and therefore lower profit margins. That is the latest in a string of disappointments and one which could feed the prejudice that private equity firms squeeze costs and investment too hard when they own a business and then leave the next owners to pick up the tab.

“Dr Martens also still has to prove that it can resolve the difficulties with its distribution centre in Los Angeles and whittle down its bulging £258m inventory pile.

“That year-end figure equates to 246 days’ sales and raises the risk that the company has to discount to shift the stock.”

Dr Martens says it has made good progress on resolving issues around its Los Angeles distribution centre after “people and process” errors caused a bottleneck of stock at the plant.

A £3.9m impairment charge and a £10.7m charge from the foreign exchange translation of Dr Martens’ European bank debt were also responsible for the alarming slump in profits, the company said.