Investors cheer Dr Martens’ turnaround plan – but will it work?
Shares in Dr Martens have jumped by a fifth as investors cheered on the shoemaker’s new strategy for growth.
The iconic brand said it had “failed to take advantage” of its leather goods offering and plans to expand its range of sandals and bags.
It’s a “fundamental shift” for the brand, designed to open the company up to new customers and to steer it away from profit-eating clearance channels.
“[Dr Martens] has laid out ambitions to get back on top. Turning those dreams into reality might not be easy,” AJ Bell analyst Russ Mould said.
“Fundamentally, it’s all down to marketing and product innovation. Dr Martens needs to convince the consumer they need its products – get that right, and it could reclaim its crown in the footwear market.
“The brand still has considerable strength, the business just needs to be more creative at the front end and agile at the back end,” Mould added.
What’s in the turnaround plan?
There are four pillars in Dr Martens’ strategy – to engage with more consumers, drive more purchase occasions, curate market right distribution and simplify the operating model.
The key tenet, according to director of consumer and media at Edison Russell Pointon, is “to change from a channel-first mindset to a customer-first mindset”.
In practice, this means that Dr Martens will be more focused on the product and the consumer rather than the channels it sells products through.
The company said that a focus on channels resulted in “reduced customer acquisition, elevated inventory levels, increased use of clearance channels… and a significant increase in capital intensity and operating cost base.”
Peel Hunt analysts said the focus on products and the brand was “more appropriate” after a number of years where Docs was “driven by a need to remap distribution channels across Europe and the US”.
Investec analysts, too, said that the “refocused strategy on being consumer-led rather than channel-led should unlock a material profit growth story”.
Dr Martens has ‘firmly kicked up from the nadir’
The company’s troubles have been stark: profit plummeted to £8.8m from £93m last year.
The bootmaker has had particular issues in the US, where bottleneck issues with an LA warehouse were compounded by a general downturn in demand.
It has issued several profit warnings over the last few years, and faced calls from an activist investor to consider selling up.
Dr Martens’ share price has steadily dropped since floating on the London Stock Exchange in 2021 – it was worth 60p at the start of June, down from 450p at its float.
But analysts were largely positive on this morning’s turnaround prospects.
“The key takeaway… is that the business has firmly kicked back up from the nadir,” Peel Hunt analysts said.
Analysts also pointed to strong fundamentals, with “stock levels and net debt coming back into the range faster than expected, stability in the wholesale outlook, and margins underpinned by delivered cost savings”.
Goldman Sachs called the last year a “transition year” for the company, with progress on US sales, cost savings and inventory.
“[We] see a shift towards delivering on the return to sustainable brand growth as driving the story from here,” analysts added.