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Dr Martens Shares Plunge 10% as US Consumer Challenges Threaten Profit Margins

Published by
Matthew Martins
  • Dr Martens shares drop over 10% as investments and US consumer backdrop threaten profit margins.
  • Declining demand in the US, driven by reduced discretionary spending and high inflation, impacts core earnings.
  • Dr Martens plans to invest in new stores and anticipates a 1-2 percentage point decline in core profit margins this fiscal year.

Dr Martens, the iconic British bootmaker, witnessed a sharp decline of more than 10% in its shares on Thursday after issuing a warning about potential profit margin challenges caused by the tough consumer environment in the United States. The US market, which represents the company’s second-largest market, contributed to a significant drop in core earnings of over a quarter for the fiscal year ending on March 31.

Dr Martens, renowned for its stylish and durable work boots since the 1960s, has encountered declining demand in the United States as consumers cut back on discretionary spending amid elevated inflation. Moreover, the company grappled with logistical difficulties at a recently established distribution center in Los Angeles, resulting in increased operational costs.

In an interview, Dr Martens CEO Kenny Wilson acknowledged the difficulties faced by the company in the United States, emphasizing, “We think that the consumer backdrop in the United States is the toughest in the world at the moment,” and expressing the belief that these challenges would persist. Wilson added that US consumers have been under pressure for an extended period, with this adversity being shared among various industries.

Anticipating investments of £50-55 million over the next few years, including the opening of new stores, Dr Martens expects a decline of 1-2 percentage points in core profit (EBITDA) margins for the current fiscal year. The company reported a 26% decrease in profit before tax, which amounted to £159.4 million ($198 million), for the year ending on March 31.

Mark Crouch, an analyst at eToro, commented on the impact of several profit warnings on investor confidence, stating, “A series of profit warnings… has knocked investors’ confidence in the iconic British bootmaker – and its full-year results are unlikely to inspire any immediate change in their perceptions.”

Amidst the challenges, Dr Martens achieved a significant milestone as its annual revenue surpassed £1 billion for the first time, driven by strong demand in Europe and Japan. Another positive development was that direct-to-consumer sales accounted for more than half of the total revenue, marking a notable shift for the company.

Matthew Martins

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Published by
Matthew Martins

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