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Dr Martens grows margins with DTC focus

The group's continued move towards direct-to-consumer sales is bearing fruit
December 9, 2021
  • Pre-tax profits almost double
  • Ecommerce sales continue to grow

Dr Martens (DOCS) looks as though it has worn in its boots, as the company strode to a robust set of half-year results. In these results, the footwear and clothing brand announced its maiden interim dividend, along with doubled pre-tax profits. 

The company listed on the main market in London in February, and it is fair to say it hasn't been a completely comfortable ride for investors. The shares have fallen back since the spring but are still trading above the initial public offering price of 370p – although not by much.

Wholesale revenue, being sales to other retailers and to distribution customers, remains the main top-line sales driver. This delivered £221m, or 60 per cent of total revenue, and was up by 6 per cent. On the downside, the group flagged that the division struggled with supply chain headwinds and port delays. For example, the US business was particularly badly hit, with an estimated £20m of revenue deferred into the second half of the year. However, Dr Martens continues to accelerate away from wholesaling and into direct-to-consumer sales, in a bid to keep more of the profit for itself. This was seen in the gross margin, which was up 2.8 basis points to 61.3 per cent, for the half.

Ecommerce is central to this vision. Management said that over the medium term they are aiming for online sales to deliver 40 per cent of revenues, a sizeable jump from the 22 per cent contribution it made this time. Online revenue was up 10 per cent to £83m, more than double the figure in 2019. The aim is for stores to underpin ecommerce growth as sales here remain a crucial lace in the Dr Martens boot and they delivered 18 per cent of total revenue in the period. There are now 147 outlets, with 13 new stores opened in the period.

RBC Capital Markets analysts expect 14 per cent compounded annual revenue growth through to 2025. In the short term, consensus forecasts are for earnings per share of 16p and 19p, respectively, for the next two years, giving respective price/earnings ratios of 25 and 21. While the Omicron coronavirus variant has the potential to hit consumer confidence and retail sales, Dr Martens’ strong ecommerce offering should be enough to see it through. Hold.

Last IC view: Hold, 446p, 17 Jun 2021

DR. MARTENS (DOCS)   
ORD PRICE:394pMARKET VALUE:£3.94bn
TOUCH:389-393p12-MONTH HIGH:522pLOW: 356p
DIVIDEND YIELD:0.3%PE RATIO:73
NET ASSET VALUE:20p*NET DEBT:133%
Half-year to 30 SepTurnover (£m)Pre-tax (£m)Earnings per share (p)Dividend per share (p)
202031841.93.0nil
202137061.34.81.22
% change+16+46+60-
Ex-div:13 Jan   
Payment:04 Feb   
*Includes intangible assets of £261m, or 26p a share