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Dr Martens investors should be kicking themselves | Nils Pratley


Unfortunately for headline-writing purposes, the chief executive of Dr Martens has not been given the boot after issuing the company’s fifth – yes, fifth – profits warning in its three years as a listed company. Kenny Wilson has merely decided of his own accord to leave and, indeed, may take his time about it. He could be in post until next March before he hands over to Ije Nwokorie, a former Apple executive who became the chief brand officer earlier this year.

Wilson’s survival is more remarkable for the fact that Tuesday’s latest warning was a full 16-hole version with snazzy laces: the company’s “worst case scenario” for pre-tax profits this financial year is a fall of two-thirds, versus the market’s previous expectation for a slight improvement to £108m. The shares slumped by a third on Tuesday’s warning and are now 80% down from 2021’s float price.

What’s Wilson’s secret? Well, he’s an open and engaging guy, which helps, but it’s probably more his pre-float record. He became the boss in 2018 and the number of pairs of boots and shoes sold by Dr Martens every year has more than doubled in that time. That may help in keeping the support of the private equity group Permira, which didn’t cash in all its chips at the float and is still the largest shareholder with a 38% stake.

Even so, it’s remarkable that a boss can chalk up quite so many warnings in such a short period. Dr Martens can’t do anything about the slump in demand in the US market, which genuinely seems to be affecting direct competitors too. Yet the company still made its own headaches worse via a botched warehouse move in Los Angeles last year, for which it is still incurring extra costs. Europe and Asia are unaffected but a portion of the US pain is self-inflicted.

But the real moral of this tale is this: never trust a private equity-backed company that comes to market with a pitch that years of easy expansion lie ahead. If it were that easy, the backers wouldn’t be selling.

By way of reminder, Dr Martens’ projection in 2021 was for “mid-teens” revenue growth into the middle distance thanks to the potential in the US and Asia markets. Tuesday’s forecast for the “transition” year of 2024-25 now imagines “revenue declines by single-digit percentage”. The company is miles off its original schedule. In the process, it may also have discovered the limit of its pricing power now that the classic boot costs £170 in the UK; the company anticipates no price rises this year.

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The fools, of course, are the fund managers who piled in that priced-for-perfection float at 370p, or £3.7bn, and those who bought in following months at levels as high as 500p. The share price now is 67p and Permira is surely obliged to sit on its rump holding and accept that it’s in for the long haul. Dr Martens remains cash-generative and the brand name is strong, so an eventual recovery looks more than plausible. But the kicking received by investors will not be forgotten for a very long while.

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