In mid-December 2023 we said the knock-down share price of iconic footwear brand Dr. Martens (DOCS) was too tempting to resist despite the company delivering four profit warnings.
Our rationale was simple – either the self-inflicted operational issues would be fixed by the current management or the business would be taken over by an opportunistic predator who recognised the untapped value of the brand.
WHAT HAS HAPPENED SINCE WE SAID TO BUY?
The shares were trading steadily and ticked into the money briefly before plunging 30% on 16 April after the company released yet another disappointing trading update.
Management confirmed results for the full year to the end of March 2024 would be in line with market expectations, but took an axe to its planning assumptions for 2025 after revealing the US wholesale division’s Autumn/Winter order book – which makes up the majority of the firm’s second-half trading – was significantly down year-on-year.
Consequently, the board’s base-case outcome for the 2025 financial year is a £20 million impact on pre-tax profit assuming there are no ‘meaningful’ in-season re-orders.
Yet investors seemed to focus not on the base case but the worst-case scenario which envisaged pre-tax profit falling to around a third of the level achieved in 2024.
The firm said increased cost pressures were unlikely to be mitigated by price hikes, while most of the £15 million additional inventory storage costs incurred in 2024 were now expected to repeat in 2025.
Chief executive Kenny Wilson said he intended to step down at the end of the financial year to be replaced by current chief brand officer Ije Nwokorie.
Nwokorie was previously at Apple (APPL:NASDAQ) where he led the firm’s D2C (direct-to-consumer) business.
WHAT SHOULD INVESTORS DO NOW?
It is clearly disappointing to see another profit warning and a change of leadership at a time when the company is trying to rebuild shareholder trust and confidence.
It was never going to be a smooth ride for shareholders following the volatile debut of the shares since listing. However, we are keeping faith with our original thesis and are prepared to ride the ups and downs in the shares in the belief the brand’s value will ultimately be realised.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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