Dr Martens, the renowned bootmaker, managed to maintain stability in the last quarter of 2022 despite encountering difficulties in the US market. The company reported that demand for its brand remained robust during the peak trading period of Q3. However, the news of operational issues at its new distribution center in Los Angeles and weaker-than-expected trading in the US caused a drop of almost 20% in its share price.

During Q3, Dr Martens observed a 9% increase in revenue, amounting to £335.9 million. However, when adjusted for constant exchange rates, the increase was only 3%. For the nine months of the financial year so far, revenue has risen by 12% to reach £754.5 million, or 5% higher after adjusting for constant exchange rates.

E-commerce revenue grew by 5% in Q3 and 6% for the year to date, while retail revenue saw an impressive increase of 21% in the quarter and 29% in the nine months. Direct-to-consumer sales experienced an 11% rise in Q3 and 15% growth for the year to date, and wholesale revenue increased by 7% in the quarter and 8% for the nine months.

Although these figures would typically be seen as impressive in the fashion sector, given the challenging conditions of 2022, they fell short of the expectations for Dr Martens, which has encountered substantial growth in recent years. The company attributed the lower-than-expected Q3 revenue to issues within the US market. However, it also noted that overall direct-to-consumer trading remained strong and that the EMEA and APAC regions performed as anticipated.

In the EMEA region, Q3 revenue grew by 8%, driven by a strong retail performance that witnessed a 50% growth in December alone. E-commerce revenue in the EMEA region also experienced a slight increase. Additionally, revenue in the US grew by 16%, although it was only 1% higher after adjusting for constant exchange rates. Despite the challenges faced at the LA distribution center, Dr Martens saw promising signs of the brand’s continued strength in the US market.

In the APAC region, Q3 revenue declined by 4% due to challenges in China, including COVID infections and the management of distributor inventory.

The operational issues at the LA distribution center were due to a combination of factors, including the quicker transfer of inventory from the Portland distribution center to the new LA center than initially planned. The company also stored direct shipments from some US wholesalers at the LA center, resulting in inventory arriving sooner than expected due to faster inbound shipping times from factories. Nevertheless, these issues have been resolved, with the company establishing temporary warehouses nearby and increasing work shifts at the LA center.

However, the impact of these problems will lead to a reduction in FY23 EBITDA by £16 million to £25 million, depending on the speed at which the issues are resolved and operations at the distribution center can normalize.

Looking into the future, Dr Martens anticipates that its decision to reduce volume into pureplay wholesale e-commerce accounts in the EMEA region will affect revenue growth in FY24. Nonetheless, the company believes that this decision will ultimately support the expansion of its direct-to-consumer business. Although FY24 will experience an impact on revenue growth, Dr Martens still expects mid-to-high single-digit revenue growth on a constant currency basis for the year.

Overall, despite facing challenges in the US market and encountering operational issues at its LA distribution center, Dr Martens remains optimistic about its future growth prospects. With its well-established brand and loyal customer base, the company is well-positioned to overcome these obstacles and continue its success in the footwear industry.

Useful links:
1. Dr Martens news
2. Reuters article on Dr Martens Q3 revenue