Dr. Martens' shares plummeted over 27% on Thursday, following the company's fourth profit warning in a year. The UK shoe maker blamed weak demand from US wholesalers and a slow start to autumn and winter for their slick boots for the downturn.
The company, which went public in 2021, hit a record low of 79.10 pence (about $1) on Thursday, and also withdrew its earnings forecast for the fiscal year 2025. The maker of the iconic yellow-stitched "1460" boots—known colloquially as "DM" boots—has been struggling, especially under pressures from the macroeconomic climate, which led to fewer orders from US wholesalers.
Dr. Martens announced a 17% decrease in its first-half wholesale revenue to $199.4 million (about $251.9 million) this year. CEO Kenny Wilson told Reuters that the main problem they faced in the US was their large wholesale clients, who were more cautious in the challenging consumer market and opted to buy less expensive shoes from other brands.
Inflation and economic uncertainty have dampened consumer appetite for luxury goods, prompting shoppers to seek good value for money. Dr. Martens stated that they offered reduced prices on seasonal colors but would not lower the cost of their flagship black boots. The company forecasts a double-digit percentage drop in sales by March 2024 and expects its full-year underlying profit margin "slightly below the lower end of the consensus range."
However, Dr. Martens reported stable demand in its home market, the UK, as well as in Europe and the Asia-Pacific region, where new stores have opened and tourism has picked up, boosting sales for the quarter. Wilson said that this trend was likely to continue into the holiday season.
Interestingly, the company's previous struggles have made it more cautious in its discounting strategy, ensuring any price cuts align with its overall pricing approach. While potential investors may think twice about investing in Dr. Martens due to its profit warnings and declining sales, its iconic status and enduring popularity since the 1960s still hold strong appeal.
Insights
At a time when inflation and economic uncertainty cause consumers to be more cautious with their spending, luxury brands like Dr. Martens have faced challenges. Despite the retail sector entering a downturn, Dr. Martens is maintaining its discipline in cost control and inventory management while focusing on its target of reducing inventory for FY 25. The company's positive sales trends in regions like Europe and the Asia-Pacific are a promising sign.
During the challenging third quarter, Dr. Martens experienced a 3% decline in revenue but managed to report 4% growth in the Americas DTC segment and strong e-commerce growth in Japan, thereby offsetting its overall decline. In contrast, the EMEA DTC revenue faced a 5% decline due to promotional activities in certain markets.
