Results for Dr. Martens’ latest financial year are expected to be in line with expectations, the Northamptonshire shoe icon has said in a new trading update. However the firm is issuing warnings for FY25.
USA wholesale revenue is anticipated to be double-digit down year-on-year. “We have recently finalised the Autumn/Winter order book, which makes up the majority of the second half of USA wholesale,” the business said, “and this is significantly down year-on-year.”
The decline in wholesale has a significant impact on profitability, with a base assumption being in the region of a £20m PBT impact year-on-year, assuming no meaningful in-season re-orders.
Meanwhile the firm is seeing single-digit inflation in its cost base, and intends to invest in retaining and incentivising talent throughout the organisation. Together these equate to a year-on-year PBT headwind in the region of £35m. Dr. Martens do not anticipate increasing prices further this year, and therefore in FY25 are unable to offset cost inflation as in prior years.
Further, given an ongoing challenging performance in Dr. Martens’ USA wholesale business, it expects to continue to require the additional inventory storage facilities in this market through FY25, and therefore the majority of the £15m of additional costs incurred in FY24 are expected to repeat in FY25.
Moreover, a number of investment projects are underway, incurring operating costs in addition to capital expenditure, including a new Supply and Demand Planning system and Customer Data Platform.
In a statement to the London Stock Exchange, the business said: “There is a wide range of potential outcomes for FY25 given that we have only recently started the year. However, we have assumed that revenue declines by single-digit percentage year-on-year and at the PBT level we could see a worst-case scenario of PBT of around one-third of the FY24 level.
“There are also scenarios where the profit outturn could be significantly better than this, with the key factor being if USA performance is stronger than our planning assumptions as we progress through the year. We will also look to drive cost savings wherever possible, whilst protecting our brand and future growth opportunities.
“Against this backdrop, we are focused on cash generation and have already significantly reduced purchases from the supply chain, which will underpin the strength of the balance sheet.
“Our business is always second half weighted, however this year, given the phasing of USA wholesale and costs, this will particularly be the case.”
Kenny Wilson, CEO, added: “The FY25 outlook is challenging, and the whole organisation is focused on our action plan to reignite boots demand, particularly in the USA, our largest market. The nature of USA wholesale is that when customers gain confidence in the market we will see a significant improvement in our business performance, but we are not assuming that this occurs in FY25.
“We have built an operating cost base in anticipation of a larger business, however with revenues weaker we are currently seeing significant deleverage through to earnings. Against this backdrop, we will be laser-focused on driving cost efficiencies where possible. We also have a number of ongoing investment projects which will deliver results in outer years.
“We continue to believe in our DTC-first strategy and the considerable headroom for growth. Our brand remains strong, and we have a compelling product pipeline. These all give us confidence as we look beyond this transition year into future years.”
Kenny Wilson has decided that this will be his final year as Chief Executive Officer of the company, with Ije Nwokorie, currently Chief Brand Officer (CBO), set to succeed him.
