Dr Martens is an “iconic” brand of “rebellious self-expression”, its promoters told us endlessly when the bootmaker came to the stock market. Now it’s an icon of something else: the mass delusion of City investors in early 2021. In a rush of optimism when Covid vaccines had just arrived, they fooled themselves into thinking every consumer-related arrival on the stock market was headed to the moon.
The title of worst float of that brief era will forever be held by made.com, which managed to go bust before 2022 was out. But Dr Martens, after its fourth profit warning, is now a remarkable 75% down on its debut price. That outdoes even Deliveroo, which, after bouncing off its lows this year, has lost “only” 63% of its buyers’ investment.
Dr Martens was meant to be the safe-ish punt. The classic boots have been around since the 1960s and the pitch was that international expansion in the US and Asia still had a long way to go, so sit back and enjoy “mid-teens” revenue growth into the middle distance.
Instead, the company has run through the repertoire of retailers’ profit warnings. We’d already heard about the wrong weather (which also had a walk-on role in the latest effort), IT hiccups and a botched warehouse move in Los Angeles. Now comes a grumble about “an increasingly difficult consumer environment” in the US. The half-year numbers showed a 5% fall in revenues; full-year profits will be “moderately below” forecasts; and next year’s guidance for revenues has been yanked altogether.
To be fair, bigger beasts such as Adidas, Nike and Timberland have also recently sounded cautious on US consumer spending; and it’s true that Dr Martens’ numbers in Europe and Asia revealed no parallel upsets. So, for true believers, a valuation of 10 times’ expected earnings, after Thursday’s 21% share price plunge to 90p, is a moment to fill your boots. Despite it all, Dr Martens should still produce £200m-ish of top-line profits, and £115m-ish at the pre-tax level.
In reality, one suspects trust won’t return until the company can demonstrate it can go a year without tripping over something in the US, its biggest market, and chief executive Kenny Wilson can make a forecast he can stick to. The deeper worry is that the price of the product – £169 for a classic boot in the UK, these days – has been pushed beyond its natural competitive limit. Gross margins of 64% may be a tad too fabulous.
Another issue with the stock is the 36% stake held by the private equity backer Permira. It cashed out £1bn at float at 370p, and another £257m soon afterwards, but is presumably stuck with its large rump for the long term. The idea that Permira could mount a bid feels too wild.
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Instead, those investors should be kicking themselves. Dr Martens, it is now clear, was priced for perfection at listing, an age-old story. Did the buyers really learn nothing from a couple of decades-worth of private equity’s offerings?