Goldman Sachs downgrades Dr Martens to ‘sell’

"Given continued weakness in trading commentary from peers (VF Corp, WWW, GCO) we see a soft boots industry backdrop persisting into FY25, and a propensity to invest through the cycle driving margin pressure (GSe 8% below FY25E EBIT consensus)," it said.

Goldman noted that a key driver of Dr Martens’ Dec-23 revenue downgrade to FY24 expectations was softness in the broader boots category - particularly in the US - impacting both wholesale revenues and retail like-for-like growth.

"Looking forward, we now expect this to continue into FY25, noting that boots peer Timberland believes that US inventory levels in Dec-23 remain higher than targets, with other footwear peers WWW and GCO outlining soft revenue guidance for CY24/FY25.

"Hence, we expect that a stabilisation in category trends (as seen in Google Trends data) may take some time, given that the next key wholesale stocking period is circa six months away (Sep-Q)."

Goldman said that unless there is a material change in demand for the boots category, which it will continue to monitor, it would expect wholesalers to have a relatively cautious approach to orders.

It also said that given the revenue declines now expected, and the investment required to grow the brand, it sees a risk that margins could remain under pressure from 2H24 into FY25.

The bank pointed to limited valuation upside versus history and relative to growth.

"We note while DOCs screens towards the bottom end of global footwear peer multiples, we believe this reflects the modest EPS growth outlook for the business, with faster growing businesses (VF/Crocs) trading at comparable or cheaper multiples," it said.

At 0940 GMT, the shares were down 3.7% at 84.75p.