Iconic British footwear brand Dr. Martens (DOCS) has been a disappointing investment since coming to the market in early 2021, with the shares losing around 75% of their value after delivering four profit warnings in the past year.

The investment case is straightforward - either the self-inflicted operational issues are fixed by the current management, or the business will be taken over by an opportunistic predator who recognises the untapped value of the brand.

Evidence of activist interest surfaced in July after Sky News reported Sparta Capital had purchased a stake in the bootmaker and was engaging with management to improve its financial and operating performance.

Note, the investment case does not rely solely on the business being taken over – better operational performance should attract a higher valuation over time as margins are restored and the company delivers on its medium-term growth ambitions, which remain unchanged by current troubles.

Encouragingly, the company’s new chief finance officer Giles Wilson brings a deep understanding of global brand management and wholesale distribution as well as public markets experience.

Dr. Martens has also created a new role of chief brand officer for Ije Nwokorie, who is joining from Apple (APPL:NASDAQ) where he has been senior director of Apple Retail since 2018.

Clearly the risks facing potential investors are higher than usual but Shares believes they are heavily discounted by a single digit PE (price to earnings) ratio based on March 2025 consensus estimates.

Unusually for a chief executive, Kenny Wilson has owned up to the firm’s mistakes and has vowed to fix the issues along with returning the US business to growth.

Maintaining its confidence, the board has held the final dividend of 4.28p per share and announced a £50 million share buyback.

Dr. Martens’ strategy is to sell more pairs of boots, shoes and sandals to more people through a multi-channel distribution system but with a priority focus on D2C (direct-to-consumer).

Management reckon there is scope to generate annual sales of £6 billion globally by selling into seven priority markets compared with around £1 billion today.

In its home market of the UK where it has been selling the iconic Dr. Martens boots since 1960, the company sells 32 pairs per 1,000 people.

The company believes there is significant headroom to grow given how underpenetrated the brand is in its priority markets. For example, in the US it sells 18 pairs of boots per 1,000 people and just 15 in Germany while in China it sells less than one pair per 1,000 people.

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