Dr Martens shares up on guidance hold, £25m savings plan

Shares in Dr Martens jumped as investors breathed a sigh of relief that trading at the troubled bootmaker had not gotten any worse since a profit warning last month, with guidance held and a new £25m cost-cutting plan offsetting a slump in annual revenue and operating profit as its US woes continued.

Revenue fell 12% to £877m against expectations of £900m, while operating profit plunged by a third to £122m compared with forecasts of £125m. Pre-tax profits were down 43% to £97m. Shares were up almost 6% in morning London trade.

Investors also bore the brunt as the dividend was slashed by 56.3% to 2.55p a share, with plans to hold it flat for 2025 before possible rises the year after.

"Our 2024 results were as expected and reflect continued weak USA consumer demand. This particularly impacted our USA wholesale business and offset our group direct-to-consumer performance, where pairs grew by 7%,” said outgoing chief executive Kenny Wilson.

“For the first half, we expect a group revenue decline of around 20%, driven by wholesale revenues down around a third.”

Dr Martens said trading in the US - its key market - was “disappointing” with wholesale revenues down 32.7% on a constant currency basis and brand awareness flat at 73%, with a meaningful decline in consideration from consumers who have not purchased recently.

The company has faced major challenges in the region, including residual problems from supply bottleneck issues in its Los Angeles warehouse. Overall US revenue fell 24% to £325m as consumers held off on buying its boots and shoes and a recovery isn't expected until the autumn season of 2025.

In April it warned that current-year overall profits could fall by as much as two-thirds as its share price dropped to an all-time low.

Plans to axe £20-25m of costs will target savings from “organisational efficiency and design, better procurement and operational streamlining”, with the impact not felt until the 2026 financial year.

TAKEOVER TARGET?

Wilson is to step down later in 2024, to be replaced by Ije Nwokorie, currently chief brand officer at the business, before the end of the current financial year.

AJ Bell analyst Dan Coatsworth said the company now looked like a "ripe takeover target" given its current problems and a leadership change on the way.

"One of the classic scenarios for takeovers is when a company is down on its knees, it’s going through a leadership transition and there is a major shareholder who has been hanging around for longer than expected. That’s Dr Martens all over," he said.

“Permira still owns 38.46% of the business despite selling some of its holding at IPO. A decent bid premium from an opportunistic bidder could persuade the private equity group to support any offer that comes along.”

“To now chuck a cost savings target into the mix feels like the boot maker kept a bit of good news up its sleeve for the results. Markets love a good cost cutting spree, even if that might massage near-term earnings at the detriment of long-term benefits to the company."

“Under the circumstances of Dr Martens attempting to break the record for the most amount of profit warnings for a listed company, it’s surprising to see it continue to pay dividends. Perhaps Dr Martens took the view that without the dividend, shareholders would have nothing to cling on for."

Sophie Lund-Yates at Hargreaves Lansdown also felt the share price rally was "likely more to do with relief that management’s grasping the nettle than it is to do with concrete optimism".

"Management has promised a hefty cost-saving plan to try and lace margins back together, but being forced to trim fat under duress is not where any company wants to be. There have long been question marks over Dr Martens expansion execution and these figures won’t help allay these fears," she said.

Reporting by Frank Prenesti for Sharecast.com