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Its first set of results as a listed business triggered a share price slump, but that gives investors an opportunity to get in at a much better price

Shares in iconic footwear brand Dr. Martens (DOCSreceived a bit of a kicking from investors following its first set of financial results as a publicly listed company (17 June).

These showed pre-tax profit down 30% to £70.9 million after accounting for one-off costs linked to its stock market listing on 29 January and staff bonus payments.

The absence of any upgrades to earnings forecasts for the current year and the announcement that chief product and marketing officer Darren Campbell and chief digital officer Sean O’Neill are leaving the group not long after the listing also disappointed many investors.

Yet the results-driven stumble has created a buying opportunity at Dr. Martens, which exhibits many of the hallmarks of a high-quality company with high and rising profit margins and return on capital employed marching in the right direction.

In the context of a global pandemic, Dr. Martens’ annual numbers were robust, with revenue up 15% to £773 million and adjusted pre-tax profit (before costs of floating the company on the stock market) striding 34% higher to £151.4 million. Operating cash flow rose by 65% to £234.1 million.

Despite the impact of Covid-19 store closures and restrictions on physical retail sales, down 40% to £99.7 million in the period, the £4.45 billion cap still managed to generate strong growth across all regions. In China, where it continues to establish the Dr. Martens brand and lay the foundations for the future, revenue sprinted ahead by 46%.


Dr. Martens is an iconic British brand founded in 1960 in Northamptonshire. Originally produced for workers looking for tough, durable boots, the brand was quickly adopted by diverse youth subcultures and associated musical movements including mods, ska fanatics, punk rockers and goths.

The boots have since transcended their working-class roots while still celebrating their proud heritage. People all around the world wear their instantly recognisable ‘Docs’ or ‘DMs’ as a symbol of empowerment and their own individual attitude.

Modern-day Dr. Martens is an iconic global footwear brand selling more than 11 million pairs of footwear annually across 60 countries through a network of its own retail stores, online and through wholesale partners. One attractive feature of the company’s growth profile is that it is global in nature and the brand remains relatively under-penetrated across parts of Europe, the Americas and Asia Pacific.


In February, Peel Hunt said Dr. Martens ‘embodies everything we look for in a brand’. It added: ‘There’s an authentic rebelliousness to the brand which perfectly define what it means to consumers. The product is instantly recognisable and iconic, transcending fashion trends, like Levis or Converse.’ That results in a wide and diverse customer base.

Peel Hunt also pointed out consumers are loyal and sticky, typically coming in young and staying with the brand. It also highlighted the company’s global growth opportunity as well as attractive financials, with Dr. Martens achieving gross and EBITDA (earnings before interest, tax, depreciation and amortisation) margins of around 60% and 27% respectively, as well as strong cash generation which should see future free cash flow being paid out in ordinary and special dividends.


Dr. Martens’ business model is similar to larger footwear peers, with the company primarily engaged in product design and brand equity building whilst it outsources the majority of its manufacturing to third parties. The downside is there have been grumbles over product quality since a manufacturing shift east years ago.

Brick and mortar retail remains a profitable and important channel for Dr. Martens, as physical stores allow it to showcase the brand. Despite the dreaded coronavirus, Dr. Martens opened 18 new stores globally last year, taking its total own-store estate to 135 sites.

The wholesale strategy is to have fewer, deeper relationships with quality partners who understand and appreciate its brand. And like other global footwear giants such as Nike and Adidas, it is now prioritising selling directly to consumers, so it can have greater control over the brand messaging and better margins.

With retail severely impacted by Covid-19 restrictions, Dr. Martens has focused its efforts on a step-change in e-commerce, achieving revenue growth of 73% last year, taking online sales to 30% of the total sales mix.

This strong e-commerce result was due to the improvements made in its online proposition over recent years, as well as increased investment in digital marketing, together with the shift in consumer spending from shops to online.

Supply chain investments made in recent years, along with its multi-country sourcing model and close supplier relationships allowed Dr. Martens to react quickly to the changes created by the pandemic, ensuring minimal disruption and maintaining good product availability throughout the crisis.


Led by chief executive Kenny Wilson, who previously spent 19 years with Levi’s and Cath Kidston, Dr. Martens came to the stock market setting out its intentions to double sales across all geographies and grow EBITDA margins from 27% to 30% over time, with a focus on direct-to-consumer sales and key third-party partnerships.

This year, Dr. Martens expects to deliver high teens revenue growth. From full year 2023 and over the medium-term, investors can expect sales growth in the mid-teens.

Furthermore, management is targeting e-commerce to grow to 40% of the sales mix, with total direct-to-consumer including retail rising to 60% of the mix. There is a medium-term target of 30% EBITDA margin and the company also expects to begin paying a dividend this year. RBC Capital Markets forecasts the dividend will be 3.85p per share.

RBC forecasts adjusted pre-tax profits of £195 million and earnings per share of 15.4p this year, ahead of £227 million and 18p respectively in 2023, then £263 million and 20.8p in 2024.

Based on this year’s estimates, Dr. Martens shares at 452p aren’t cheap, even after their results-induced de-rating, swapping hands for 29 times this year’s earnings.

That rating drops to 25 times based on RBC’s estimates for 2023 and given the global growth potential of the brand, the strengthening balance sheet and with a cash-generative model to support progressive dividends, we think there is potential for the shares to be a decent investment.

Looking at the valuation in a different way, Dr. Martens trades on 21 times calendar 2022E enterprise value to earnings before interest and tax, which is less than the luxury sector average of 23-times, according to Goldman Sachs.


Upside risks include:

Stronger consumer environment: A faster return of traffic to physical stores post Covid restrictions or consumers spending lots of the cash they saved in lockdown could boost sales forecasts.
New products and collaborations: These may increase the buzz around the Dr. Martens brand, increasing purchase frequency and average purchase value.
Accelerated timeline for distributor conversions: Conversions in Germany and the Netherlands resulted in accelerated revenue growth in each region as well as a higher proportion of direct-to-consumer sales.
Faster shift towards direct-to-consumer distribution: This would boost margins and give Dr.Martens greater control.
Higher levels of cost control and operating leverage: These could also boost margins.

Downside risks include:

A cyclical industry: The luxury fashion industry has limited visibility and is dependent upon consumer confidence.
Fashion cycle: Inherent to all branded fashion retailers, a major miss on a collection could impact sales growth and profit estimates.
 Increased competition: The footwear market is highly fragmented, characterised by a few dominant brands and a long tail of smaller players.
 Higher customer acquisition/retention costs: Risk to margins if Martens decided to increase spend on customer acquisition and retention investment.
 Execution risk: This exists around geographical expansion, particularly in China where the brand entered in 2007, changed distribution partner in 2017 and appointed new management in 2019.
 Foreign exchange and currency volatility: Volatility in key currencies versus pound sterling represents a key risk. Dr. Martens is a global brand, deriving c.40% of sales from EMEA, c.40% from the Americas and c.20% from APAC.
 Dilutive capital allocation, M&A and store expansion: Value destructive acquisitions and/or capital allocation through store expansion or otherwise are a potential source of downside to estimates.Source: Goldman Sachs, Shares

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