Jan 19, 2023
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Dr Martens has US headache in Q3, but stays ahead of the pack

Jan 19, 2023

Bootmaker Dr Martens continued to keep its head well above water in the final three months of the year, although the quarter wasn't without its problems with the US, in particular, causing a few headaches.

Dr Martens x The Clash

The company said on Thursday, that demand for the brand remained “resilient through challenging conditions during the peak trading period of Q3”. But its bad news sent its share price down nearly 20% in early trading.

It saw “a combination of significant operational issues creating a bottleneck at our new LA distribution centre and weaker than anticipated US DTC trading, in part due to unseasonably warm weather”. That means it now expects full-year revenue growth of 11%-13% on an actual currency basis and full-year EBITDA to be between £250 million and £260 million.

During Q3, revenue rose, 9% to £335.9 million, but it was up only 3% at constant exchange rates (CER). For the nine months of the financial year so far, revenue is 12% ahead at £754.5 million and is 5% higher CER.

By channel, E-commerce rose, 5% in Q3 and 6% for the year to date, and Retail was up 21% (16% CER) in the quarter and 29% (23% CER) in the nine months. DTC rose 11% (6% CER) in Q3 and 15% (10% CER) for the year to date. And wholesale was up 7% (or down 1% CER) in the latest three months and up 8% for the nine months.

Clearly, while some of its fashion sector peers might be more than happy with such figures give the tough conditions in 2022 (and specifically the last quarter of the calendar year), they represented something of a comedown for the brand that has been riding high in recent years, hence the share price plunge.

As mentioned, the company said Q3 revenue was below its expectations due to those issues in the US. But it saw “robust” DTC trading overall and EMEA and APAC were in line with expectations. 

EMEA, Q3 revenue grew 8% (7% CER) with DTC growth building positively through the quarter to a very strong December. This momentum was led by an excellent Retail performance with 50% (48% CER) growth in December alone. And even with that leap, EMEA E-commerce managed to rise marginally.

America grew 16% (but only 1% CER) and despite the bottleneck issues, there were plenty of signs of “the continued strength of the brand”.   

In APAC, Q3 revenue declined 4% (and by the same amount CER) due to China, where a combination of Covid infections and the “orderly managing down of distributor inventory” impacted revenue negatively. 


So what about those LA distribution centre (DC) issues? A bottleneck at the LA DC was created by a combination of factors. Inventory was transferred from its Portland DC to its new LA DC faster than planned originally. Plus it accepted requests from some US wholesalers to store direct shipments at its LA DC. And inbound shipping times from its factories to the DC improved significantly resulting in inventory arriving more quickly than anticipated. That's an issue, reported by a number of businesses in recent months as they'd been planning for shipments to stay slow but were taken by surprise as deliveries speeded up.

The company has taken steps to resolve the issues, including opening temporary warehouses nearby and increasing work shifts at the LA DC. It added that “the most experienced members of the EMEA and global supply chain teams are now in LA to ensure these plans are implemented successfully”.

It said the impact of lost wholesale revenue and incurred costs as a result of the problems will reduce FY23 EBITDA by £16million-£25 million, “depending upon the pace at which we resolve the issues and normalise operations at the DC”.  

We’ve already mentioned the outlook for the rest of the current financial year (FY23) due to those specific issues and Dr Martens added that revenue growth for FY24 will have its own challenges.

It has been “reviewing the strategic and economic benefits of continuing to sell into pureplay wholesale e-commerce accounts, particularly in EMEA, and as a result, we have therefore decided to reduce volume into these accounts in FY24. Over time, the benefit will be to underpin DTC mix expansion, but in FY24, revenue growth will be impacted”. 

That said, revenue growth will still be at a level some others would envy with the firm predicting it will be in mid-to-high single digits on a constant currency basis.

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