Dr Martens lowers full-year earnings outlook again
Bootmaker Dr. Martens cuts full-year earnings forecast again due to LA warehouse fix costs
- Dr. Martens now expects underlying profit for FY23 to be around £245 million
- The company’s Los Angeles warehouse suffered a significant bottleneck
- Finance boss Jon Mortimore said he would retire after 7 years in his position
Dr. Martens has cut its annual profit forecast again after “operational problems” at the Los Angeles-based distribution center led to higher costs and lower wholesale revenues.
The iconic British bootmaker now forecasts underlying profit for the financial year ending March to be around £245m, down from a previously downgraded estimate of between £250m and £260m.
In recent months, the newly opened warehouse of Dr. Martens in California suffered a significant bottleneck when it was inundated with supplies being transferred faster than expected from its base in Portland and its factories.
Prediction: Iconic cobbler Dr. Martens now forecasts underlying profit for the year ending March to be around £245m due to issues at its Los Angeles distribution center
As a result, Dr. Martens said it lacked the necessary capacity to meet US wholesale demand and fourth-quarter supply forecasts.
To solve these problems, Dr. Martens opened three temporary storage depots and introduced a third shift at the LA distribution center, allowing the release of excess shipping containers.
While warehouse shipment volumes have now returned to normal volumes, incremental costs related to the LA location were £15m higher than expected, mainly due to the cost of container rental.
“We have taken decisive action to address the operational issues in our LA DC and deliveries are now back to normal,” said Kenny Wilson, CEO of the retailer.
“However, the cost of solving these problems was higher than our initial estimates.”
Wholesale sales also fell 11 percent on a constant currency basis in the fourth quarter, further impacted by the planned reduction in shipments to the Chinese distributor.
However, this was offset by very healthy direct-to-consumer growth in the Asia Pacific and EMEA regions, as well as strong online demand.
For the full fiscal year, Dr. Martens revealed that sales were up just 4 percent, compared to double-digit percentage growth in previous years.
Dr. Martens further announced on Friday that CFO Jon Mortimore would step down after seven years in his position.
During his tenure, the company more than quadrupled its annual turnover from £230 million to £1 billion, while a new generation of celebrities and teenagers became fans of its chunky work boots.
The Northampton-based company was valued at £3.7 billion in January 2021 as a rush of investor demand led to its IPO being eight times oversubscribed.
However, Dr. Martin shares have shrunk by more than 60 percent since then amid slowing sales growth, profit warnings and a more uncertain macroeconomic environment. They were up 6 percent at 149.8 p on Friday morning.
“Ultimately, Dr. Martens has a strong brand, but investors would like to see a little more momentum on both sales and earnings,” said Sophie Lund-Yates, principal equity analyst at Hargreaves Lansdown.