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Dr Martens plunges 20% as weak demand and strong dollar dents profits

Vintage Dr Martens boots for sale in Brick Lane in Shoreditch East London
Dr Martens, the iconic British boots brand blamed weaker-than-expected demand, with direct to consumers sales growth slower than forecast. Photo: PA Media

Shares at Dr Martens (DOCS.L) tumbled as much as 22% on Thursday after it warned of weaker demand ahead of the busy festive season.

Here are some of the key figures from its trading update:

Revenue: Up 13% to £418.6m ($507.5m) — behind expectations

Profit: Down 8% to £44.7m in the half-year

Margins: Between 100 basis points and 250 basis points lower.

The bootmaker said that its annual core profit margin would be lower than last year as it battles economic headwinds plaguing the retail sector, such as rising inflation and the cost of living crisis.

It now expects core earnings margins for the full year to be between 100 basis points and 250 basis points lower.

Revenues did manage to jump 13% to £418.6m in the six months to the end of September, however, this was still slower than analysts had predicted. Pre-tax profits slipped 8% during the period to £44.7m.

The iconic British boot brand blamed weaker-than-expected demand, with direct to consumers sales growth slower than forecast.

After defying the doom and gloom over the summer by reporting an increase in profits and raising its revenue guidance, it now admitted it was knocked by the strength of the US dollar this year, and its continued investments.

It maintained its revenue guidance for high-teens growth for the full-year, but it was not enough to appease investors. The stock is on track for its worst daily drop on record.

Shares were trading around 35% below their flotation price of 370 pence a share from its London listing last year.

“Growth in the lucrative direct to consumer sales channel is slipping and that matters because building out this part of the business is a key thread of the strategy,” AJ Bell investment director Russ Mould said.

“Hopes that a hefty increase in the dividend would keep the market sweet have proved forlorn, though one item which is hitting profitability, but which should earn Dr Martens a bit of credit, is the investment in the business.

Read more: Pound hits highest since August on hopes for slower interest rate hikes

“Taking a short-term hit to profit now to support growth in the future is what any business should be doing, and Dr Martens will hope this will help it put its best foot forward from here.”

Meanwhile, Victoria Scholar, head of investment at Interactive Investor, said: “This is a brand that falls in and out of favour among fickle fashionistas. Recently its boots were a ‘must have’ but that preference appears to be fading.

“Consumer discretionary brands more broadly are facing the problem of slowing sales as the recessionary environment takes its toll on retail. No doubt Dr Martens will be hoping for a boost to sales around Christmas, but January onwards could prove more challenging.”

She added: “From an investment perspective, the company still seems to be in favour among analysts with seven buy recommendations, one hold and zero sells on the stock with an average price target up 61% from the current share price. Although there could be some downgrades after today’s update.”

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