Life as a public company for iconic British shoe brand Dr Martens (DOCS) has been far from smooth sailing.
The comapny promised healthy profit margins, mid-teens revenue growth and ‘operational excellence’ when the company floated in January 2021 at 370p, giving the unique boot brand a £3.7 billion market capitalisation.
It is easy in hindsight but maybe the then chief executive Kenny Wilson, should have consulted CEO Simon Wolfson at retailer Next (NXT) or Games Workshop (GAW) boss Kevin Roundtree, both grandmasters in the art of managing investor expectations.
This is a widely underappreciated but very important component in achieving success on the stock market. It takes patience and courage to under promise and over deliver, but the rewards are worth it.
Arguably, the combination of high investor expectations and the bottleneck issues at the firm’s Los Angeles distribution centre and associated profit warning in January 2023 explain the 82% drop in the share price.
RETURN TO OPERATIONAL EXCELLENCE
Looking forward, the former has already been fixed by the dramatic fall in the shares, which has wiped out around £4 billion of market value, while a return to operational excellence looks to be gaining traction under new CEO Ije Nwokorie.
Nwokorie served as the chief brand officer at Dr Martens and was a former senior director at technology giant Apple (APPL:NASDAQ).
Shares believes Dr Martens’ growth strategy and ambitions are readily achievable given the strength of the brand and its relatively low penetration across the globe.
The first tangible evidence of progress was revealed at the full year results (5 June) when the company flagged a return to profit growth in the year to March 2026, driven by the direct-to-consumer channel in the US.
In addition, the company has delivered £25 million of annualised cost savings, at the top end of guidance.
Nwokorie said the new strategy would increase Dr Martens’ opportunities by shifting the business from a channel-first to a consumer-first mindset. This could prove an important inflection point for the company.
LEVERAGING GLOBAL APPEAL
Analysts at Peel Hunt believe the customer-centric strategy and investment case look increasingly positive. ‘In our opinion, Dr Martens remains one of the few globally relevant heritage brands that continues to resonate strongly with consumers,’ opined the broker.
‘We believe the debate is not whether DOCS can recover, but rather how long it will take,’ added the analysts.
Restoring operating margins to 15% implies a near three-fold profit opportunity according to Peel Hunt. With existing capacity able to support over 30% volume growth, there is a clear operating leverage story emerging.
HERITAGE
Dr Martens’ origins date to 1945 when 25-year-old Dr Kalus Maertens created a unique air-cushioned sole to aid his recovery from a broken foot.
British shoemaker Bill Griggs bought the rights to manufacture the shoes in 1959 and created the iconic bulbous boot with a distinctive yellow welt stitch. In 1960 the eight-hole 1460 Dr Martens boot was born and a year later the 1461 shoe arrived.
The company has built a ‘highly engaged’ and distinctive culture focused on preserving the quality, image and reputation of the brand, which harnesses an inclusive global appeal across different ages and genders.
The brand’s broad allure is demonstrated by the fact that sales are distributed evenly between the sexes and across all age groups.
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.
magazine
