Dr. Martens plc (DOCS) Earnings Call Transcript & Summary

Hi. Good morning, everyone, and thank you for joining us today, both in person here in the room and on the webcast for our first half of FY '23 results. I'm Kenny, the CEO of Dr. Martens and I'll be joined as usual today by Jon, our Chief Financial Officer. Also in attendance from Dr. Martens today is Emily our Company Secretary. If you've got any questions in the coming weeks following this presentation, then please reach out to Mark Blythman and Beth Callum from our Investor Relations team. So our agenda for today, I'm going to take us through the key takeaways from our first half, and then Jon is going to pick us up and take us through a detailed financial review. Then I'm going to come back and talk to our strategic performance and why I feel confident that our future growth will continue despite the economic headwinds that we see ahead of us. And then at the end, we'll have a Q&A both for people here in the room and on the webcast. So the key takeaways from our first half. Brand equity and long-term brand health is our top priority at Dr. Martens. Sales follow equity. Later, I'll share some numbers with you from a quarterly global brand survey which showed that the Dr. Martens brand is stronger than it's ever been before. Secondly, our DOCS strategy continues to deliver for us. As per our DTC first approach, our growth in the first half is DTC-led with first half revenues in our own channels, up by 21%. Our strategy has always been that price will offset inflation. Our pricing plans for autumn/winter '23 next year are now in place and the recent pricing study that we've just done demonstrates that consumers see our products delivering strong value for money. We continue to invest for long-term brand value and growth given the vast untapped potential that still lies ahead of Dr. Martens around the world, and we will update on our investment plans today. Overall, we remain confident in the performance and future growth of the business and our brand. And today, we are increasing our interim dividend by 28% year-on-year to reflect our confidence. For those of you who followed Dr. Martens since our IPO, which was nearly 2 years ago, this is going to be a very familiar slide. It's the custodian mindset, and this is how we lead Dr. Martens. Right now in what is a difficult economic environment, it could be very easy to think short term. To be a much more promotional business, to sell to the wrong customers and drive short-term volume. But Dr. Martens, we never take shortcuts. We will continue to take long-term decisions to drive sustainable growth and to build brand health over time. As you will see later in this presentation, in the first half, we've invested in stores. We've invested in marketing. We've invested in people. We've invested in technology and also inventory at the peak time of the year to support the medium-term growth of the business. We believe passionately that the best brands think brand first and they focus on long-term brand health, and that's what you're going to hear from us today. With that, I'm going to hand over to Jon, who's going to take us through the financial review.

Thanks, Kenny. Good morning, everyone. So I'll walk you through the story of our first half, touch on implications for second half and the full year as well as we go. So click forward, click forwards financial overview. The results in our first half year ended 30 September '22 were solid and were led by a very strong DTC performance, which had revenues up 21%. We have a balanced global economic footprint with only 15% of revenue from the U.K., which results in a natural U.S. dollar hedge at the global level. The COVID-19 challenges in our supply chain are now resolved. Remember, last year, 3 factories in South Vietnam were closed from July to September, affecting about 1/3 of our volumes, and this was compounded by significantly extended lead times from factories in Asia to our DCs. As anticipated, we've now caught up and restock the business. We can carry higher levels of inventory because a significant proportion of our product is continuity in nature. Boot shoes and sandals that are always in the line. In addition, given 4 of 5 pairs we sell tend to be black, we have minimal markdowns. We are able to plan for growth via strong availability without P&L risk. Finally, we have a strong balance sheet with spot leverage of 1.2x an average leverage of 1x. On an actual currency basis, underlying revenues grew by 18% with total revenue up 13%. Total revenue was GBP 419 million. Within the financial year, wholesale shipments are nonlinear or lumpy. This is particularly so in our first half as this represents the peak wholesale shipping period such that volumes fall in one side or another of an arbitrary accounting date and not unexpected or unusual. In the current period, approximately GBP 10 million of wholesale revenue representing 0.2 million pairs that was pretty much picked and packed and ready for dispatch was shipped in early October rather than September. The EBITDA value of this would be around GBP 4 million. For the first half only, I've introduced the concept of underlying storytelling for revenue and pairs. In the prior year, we ceased supply to Russia following the invasion of Ukraine. And in the autumn of last year, we took the decision to not renew a number of distribution agreements in South America, taking the opportunity to increase our focus on the U.S.A. On a full year basis, the financial impact of this is not material, representing only around 1% of revenues of last year and marginal impact on EBITDA. However, at the half year, to properly understand performance, it is better to exclude these items. For clarity, this does not affect D2C. Gross margins expanded by 0.3 percentage points, mainly DTC mix shift, held back by timing of price increases versus inflation, and I'll return to this topic presently. We continue to invest for growth in the period with OpEx increasing by 23%, mainly marketing, new stores and tech. EBITDA was level with last year at GBP 89 million with growth impacted by the timing of wholesale shipments across the accounting cutoff period and our decision to continue to focus on the DOCS strategy investment thesis. First half growth was led by DTC, which grew by 21% on an actual currency basis and 15% on a constant currency basis. The DTC channels have continued their steady recovery from COVID-19 restrictions in prior years. We are keeping a very close eye on how both physical retail and e-commerce are evolving post the pandemic as consumers become much more adept at shopping both channels and seamlessly moving between the 2, which is better to view these channels together. Through the first half, consumers have continued to rediscover the delights of visiting shops over the functional ease and speed of e-commerce. We believe we will return to pre-pandemic trends with e-commerce growth being stronger than retail growth. However, whilst we are still in a recovery phase, it is likely retail growth or more retail will grow more stronger than e-comm. The strong retail growth was led by continued good like-for-like traffic recovery in EMEA and America with traffic recovery at a more conservative pace in Japan. At the 30th of September, all of our stores once mature, were profitable and the average EBITDA return on sales, including RIN, [indiscernible], was at pre-pandemic levels of profitability of around mid-30%. In the first half, we opened 21 new stores and closed 5 stores at lease break date. Of the 5 stores closed, 3 represented relocations, which represent more of a move to a better located large unit. For example, in Dublin, we moved to a larger unit on Grafton Street. We are on track to open a further 13 to 15 locations in the second half, resulting in full year new stores gross of 34% to 36% less the 5 stores close, so end up with a net figure in the middle of the guidance range. In addition, we are also on track with the franchise store transfer in Japan, and we'll be transferring 14 stores from franchisees to our own stores at the back end of Q4 of this financial year. These will be in addition to the owned stores I just mentioned. We grew underlying wholesale by 15% on an actual currency basis, which was up 8% on a constant currency basis. We were particularly pleased because this was from 13% fewer accounts as we continue to focus on quality over volume. We continue to review wholesale in-market inventory and rate of sell-through. Availability is significantly better than in prior year and the order book is in excess of our full year estimate. The excess of order book over estimate gives us the financial headroom to cancel future orders should we want to. Underlying revenue grew by 18% and followed the DOCS strategy. First, underpinned by volume. Pairs grew by 6%. Secondly, DTC grew faster than wholesale with mix expansion of 3 percentage points. And thirdly, we continue to focus on full price sales with price increases to fund inflation across the year. We have benefited from approximately 6 percentage points of growth from the strength of the U.S. dollar versus the pound and euro, and I'll return to the workings of our natural hedge in a few minutes. At the beginning of this financial year, our guidance assumed we would not benefit or be negatively impacted by exchange. Since this time, the U.S. dollar has materially appreciated whilst EBITDA is not impacted by this depreciation, revenue has benefited. We increased prices in EMEA by around 7%, I think GBP 10 or EUR 10 on a 1460 boot and by 13% in America, I think, $20 on a 1460 boot. We chose not to take price increases in Asia Pacific as we wanted to narrow the pricing corridor between our markets. These price increases were implemented from the autumn/winter season, which began in July. Average inflation across the 6 months was 6%, with the largest driver being cost of goods or COGS. For the full financial year, the annualization effect of the price increases will fully fund the locked in inflation of 6%. Turning to full price mix. Within DTC, the full price/mix was 90%. The continuity nature of our product range means we have minimal markdown risk with markdowns only in relation to seasonal products. Given the strong product margin structure we have, markdowns tend to be above cost. In the period, we benefited from lower markdowns on clearance lines. In effect, whilst we discounted seasonal products clear, we achieved this with lower discounts than the prior year. We will continue to target around 90% on average full price mix. However, I do not anticipate we will benefit from even lower discounts on clearance product going forward. Gross margins were up by 0.3 percentage points to 61.6%. DTC grew faster than wholesale worth 1.1 points. The timing effect of price increases versus COGS inflation was a negative by 1.3 percentage points, but will be fully offset across the full year, and full price mix was worth 0.5 percentage points. As a reminder, the typical trading patterns of our business means stronger margin. DTC revenues represent a higher mix of business in the second half than the first. For example, DTC mix in FY '21 was 34% in the first half and 50% in the second half. And last year, it was 40% in the first half and 56% in the second half. The stronger gross margins associated with DTC then drive higher profitability and EBITDA margins H2 versus H1. Here, you can see in the first half of FY '21, the EBITDA margin was 27.1% and the second half, 30%. And then last year, first half was 24% and a second half 32.4%. As expected, in the first half this year, EBITDA margin was lower. Positive DTC mix was worth 1.1 points the timing impact of price net inflation on COGS was minus 1.3 points. Marketing inflation -- sorry, marketing investment in line with strategy was up 0.5 percentage points. And finally, investment in DTC cost us 2.1 percentage points. The 2.1 percentage point investment in DTC mainly reflects 3 areas of targeted investment. Firstly, new stores. All stores once mature are profitable, with average return on sales of mid-30%. It takes around 2 years for a new store to achieve these typical returns. A new store has a target payback on CapEx of no longer than 2 years and typically, a store takes around 6 months to achieve breakeven EBITDA. Therefore, when we open a new store, there is a period of negative short-term impact on EBITDA and EBITDA margin. This is more prevalent in a period of step increase in new store openings. You think the base last year, we opened 13 stores at the half year this year, we opened 21 stores. So nearly double year-on-year. Second is people. In the half, we continue to improve the quality of our people in the business as we scale. In particular, we focus on e-commerce, retail support, marketing and product. Third is IT and technology. We successfully implemented our global ERP solution in Japan and now using last year's numbers, 95% plus of our global revenues are in a single cloud-based platform. We also implemented a new order management system in the U.K. to give us the foundation to try Click and Collect and return to store in the U.K. from the fourth quarter of our current financial year. Kenny will build further on the theme of investing for future growth in presently. We have a balanced global brand and a balanced global economic footprint. America is our biggest market and has the largest DTC opportunity with the DTC mix lower than the group average and only 46 stores at the balance sheet date. The U.K. is our second market. It is important for the brand being our home market and whilst it's expected to grow, that growth will likely be slower than the average, resulting in reduced economic influence. Japan is our third market and cements this position after the transfer of 14 franchise stores. Following this transfer, we'll have a DTC mix here of approximately 80%, which we expect to grow towards 90% over time. Given the very strong margin structure of DTC and Japan pricing being our highest globally, Japan is our strongest EBITDA margin business and will become the APAC growth engine for the next few years. In EMEA, growth was led by DTC, which grew by 22%. Region DTC mix increased by 5 percentage points and was led by Germany and Italy, which both expanded by 8 percentage points, respectively. Whilst e-commerce grew in the period, retail growth was a lot stronger with growth rates broadly following group averages. Like-for-like retail traffic recovery was strong and only partly offset by an in-store conversion decline. The in-store conversion decline was part due to mass of higher traffic in part due to a higher proportion of customers being in browse mode rather than purchase mode. Trading was strong in London and the largest cities in Continental Europe, with U.K. provincial stores and stores outside larger cities experiencing slower growth than expected. In the period, we opened 7 new stores and closed 3 stores to end the half with 83. In U.K., we had 33 stores, down from 35 with 50 in Continental Europe, up from 45 at 31st of March. Of the 3 stores closed, 2 represented relocations being Dublin and London Stratford. Underlying wholesale revenue was slightly lower than prior year and all due to timing of the 10 million of revenue that fell in October rather than September. In America, underlying revenue grew by 31% on an actual currency basis and 15% on a constant currency basis. We had good growth from all channels with DTC up 26% actual currency, 11% constant currency, an underlying wholesale up 35% on an actual currency basis, 19% constant currency. Both e-com and retail grew in the period with growth slightly stronger than the global average, particularly in the first quarter. Growth was led by retail traffic recovery being similar to EMEA recovery profile and story. Across the period, DTC growth was weaker than expected in the back end of Q2, part strong prior year base, part later than optimum delivery of sandals and shoes and part weakening consumer environment. In the period, we opened 6 new stores compared to 3 in the prior year, including 2 in Texas and 1 each in Chicago, L.A. and San Francisco. We also relocated the store in Minneapolis. We are on track to roughly double the number of new store openings in the U.S.A. across the full year. We took a decision to proactively build inventory and improve availability in American DTC. This was twofold. First, America was the most impacted region in the prior year from COVID-related supply delays, both factory shutdown and also extended sailing times. Second, we have historically had weak availability from December as DTC has been stronger than we have anticipated. In effect, we have historically underestimated demand in this market. Given our low levels of markdown, we can take this investment inventory with low risk, the nature of our product allows us to plan for growth. In Asia Pacific, revenue grew by 9% on actual currency and 6% on a constant currency basis. Growth was led by Japan, which grew DTC by 17%, expanding DTC mix by 2 percentage points. As I mentioned previously, retail recovery in Japan was traffic led similar to EMEA in America, but it's a more conservative pace. As is typical of e-commerce in Japan, penetration is lower than the Western world. From a low base, our e-commerce trading had strong growth. We opened 3 new stores to 25 owned stores and including the 14 transferring franchise stores, we will operate from at least 39 stores in Japan by the year-end. Similar to America, we took the decision to invest in inventory to drive availability in Japan. In China, our own e-commerce trading was severely impacted by lockdowns in Shanghai earlier in Q1. Shanghai is where our DC is located. And during this lockdown period, we were unable to ship any product. In the half, this resulted in e-commerce revenue declining double digit. We have 4 owned stores in Shanghai, and we are now trialing the full DOCS strategy, DTC first with own retail supporting e-comm. Having reviewed the strategic and economic effectiveness of the legacy distributor contract, we will not now renew this contract at the end of the term in summer of next year. Region EBITDA grew by 22%, reflecting the increased influence and superior margin structure of our Japanese business. EBITDA was level in the half, therefore, the higher depreciation and amortization costs from previous investments in stores and IT systems resulted in profit before tax declining by 5% to GBP 58 million. Net finance expense was up as much compared to the prior year. Whilst we expect to see higher interest charges on our debt, these are expected to be broadly funded by high interest receivable on cash. For net financing costs, guidance is maintained at around GBP 15 million across the financial year. Tax charge was 22.8% in the period, and is expected to be in line with full year guidance of around 21% of PBT by year-end. We recognize their economic challenges ahead. However, we believe we are well positioned for future growth. As a result, we have increased the dividend per share by 28% to 1.56p. This represents a payout ratio of 35% of earnings as at the top end of the guidance we gave at IPO. As I said earlier, we have a balanced global brand and a balanced global economic footprint. One of the many benefits of this is we have a natural hedge against movements in the U.S. dollar, both up or down in pounds and euros. I'll walk you through this example, which looks at the impact of a 10% appreciation in the U.S. dollar on prior year figures. This hedge works because the America and EMEA regions are broadly of a similar size, and also approximately 95% of our COGS are paid for in U.S. dollars. So from left to right, U.S. dollar on translation is worth 10% more resulting in more pounds in revenue being GBP 38 million higher and more pounds for EBITDA being GBP 12 million higher. In EMEA, the U.S. dollar cost of inventory purchases is 10% higher, resulting in EMEA EBITDA being GBP 13 million lower. On the right-hand side, you can see at group level, EBITDA is roughly a similar number. However, higher revenue has diluted EBITDA margin by 1.3 percentage points in this example. As a result of our balanced global economic footprint, group EBITDA is not impacted by importing inflation due to currency change. We are not a U.K. domestic business. We typically generate all our cash in the second half of the financial year with a cash outflow of around half a turn of EBITDA in the first half. As I have explained, we took a decision to increase inventory to drive better availability in America and Japan through the second half of this year. In addition, inventory purchases were unusually low in the first half of last year, due to the factory closures for 3 months, which resulted in much lower levels of inventory being available to buy. CapEx represented 4.6% of revenue, with full year guidance at top end of the range of around 4.5%. At 30 September '22, we had GBP 133 million of cash with average leverage measured as average 12-month cash to recognize the cash swing H1 versus H2. Net of bank debt and leases divided by LTM EBITDA of around 1x and similar to the average leverage calculated at 30 of March at the balance sheet date last year. As anticipated, all our factories are open and operating at target capacity with lead times almost caught up. In the half, we opened larger 3PL DCs in the Netherlands and Los Angeles to support more efficient e-comm pick and pack and also support a larger retail store network. We typically fixed factory prices 6 to 9 months prior to the season and have now fixed prices for Autumn/Winter '23 season, which is from July '23 through December '23, at plus 6% versus the prior year. We now have visibility of our largest cost for the next 14 months after previously fixing Autumn/Winter '22 and Spring Summer '23. The increase is in aggregate of a number of moving parts, but mainly due to leather, which is the largest item of cost increasing low single digits and also sea freight being slightly lower. We have continued to reduce our exposure to manufacturing in China. And for Autumn/Winter '23, only 5% of production will be located there. Given the high proportion of continuity product we sell and our track record of strong full price DTC mix, we have minimal markdown risk. As I said, we have taken the decision to invest in higher inventory to drive stronger availability, particularly in America and in Japan. It's also worth remembering inventory at P6 last year was unusually low due to COVID-19 impacts, factory shutdowns and extended lead times. At the balance sheet, inventory was just over double prior year at GBP 261 million. This would represent a look back calculated stock turn of 1.3x and look back weeks cover calculation of around 40 weeks. If you think about it, though, inventory at September represents volume for future sales during peak trading. And a look-back calculation will overestimate weeks cover for a growing business. In the prior year, inventory was low. We had 20 weeks look back cover and excluding sailing time on a boat, only around 7 to 10 weeks cover because you can't sell boots if they're [ weren't boot ]. It's not really surprising to see we had weak availability through the second half of last year. Regarding quality of inventory at the 30th September '22, 84% is continuity products, and 4 out of 5 pairs were black. Through the first half of last year, this year, sorry, as I said, 90% of DTC revenue was sold at full price. The quality of our inventory is very strong. We have rebuilt our inventory for growth and will have better availability than prior year. We maintain our capital allocation philosophy as discussed at the year-end. We're an old school, highly cash-generative business. First call on cash is investment in DOCS and growth, I think better availability. The second is dividends, we're now at the top end of the IPO dividend target of 35% of earnings payout. Finally, excess cash will be returned to shareholders when average leverage, as I've described, is consistently below 1x. At 30th September, this measure was 1x and similar to the calculation at 30th of March '22. Trading since September for DTC has been variable on a week-to-week basis and has been slower than originally expected. We attribute this to the weaker consumer environment, particularly in the U.S. Our peak trading weeks are ahead of us and availability is much stronger than the prior year. We have maintained full year revenue guidance on the high teens growth. However, clarity, this is on an actual currency basis. We have a weak base and to achieve this growth, D2C we have 2 principal assumptions. Firstly, in EMEA from November, we will benefit from the weak base in the prior year due to increasingly tight COVID restrictions. If you think about last year, now we've all forgotten it, we were in lockdown this time last year, particularly in London. Very recently, we are seeing data points supporting this assumption, particularly in London, Germany, Netherlands [indiscernible] where sales have recently popped. Secondly, in America and in Japan, we will benefit from much stronger availability from late November. In wholesale, the GBP 10 million revenue timing has been shipped, and our order book is stronger than the full year estimate. Through the first half, we decided to continue to invest in future growth as set out in the DOCS strategy. Namely brand marketing, DTC, including new stores, targeted people and tech. We have also decided to continue this investment thesis through the second half and we'll not be making short-term cuts to achieve short-term profit that would put our long-term growth prospects at risk. We will also not promote or discount our icons to drive top line revenue. In addition, while our natural currency hedge protects EBITDA at a cash margin level and appreciation of the U.S. dollar does dilute the EBITDA margin. As we decided to hold investment spend, changes in revenue will impact EBITDA at the gross margin amount with minimal direct OpEx Flex. For example, a 1% increase or decrease in last year's revenue would impact EBITDA margin by approximately 65 basis points. This is at last year's gross margin percentage, which has a roughly 49%, 51% DTC wholesale mix split and 100% DTC driven change will have a higher impact because of the higher margin structure. Given these factors for EBITDA, I expect margins to be lower than last year with a range of between 100 to 150 basis points. For FY '24 and beyond, we maintained guidance at mid-teens revenue growth with DTC mix of at least 60% of revenue and e-commerce at least 40%. As a leading indicator, think Japan. The EBITDA margins will be at least 30% or a little bit more across the medium term. Thank you.

Great. Thank you, Jon. I'm now going to walk us through the major elements of our DOCS strategy and provide some more detail on the key points, which give us real confidence in the future growth of Dr. Martens. This is our tried and tested DOCS strategy. We review it on an annual basis to ensure that we align with market conditions. However, I think the key point here is that DOCS has been unchanged now for 5 years because of the overall strategic direction of the company is working. The D is all about direct-to-consumer first. This is about increasing our own stores, about growing our e-commerce business, developing omnichannel capabilities, as Jon has talked to, and building a profitable repair and resale business over time. The always is about organizational and operational excellence. This is about investing in our people, investing in the resilience of our supply chain and building out our technology. The C is consumer connection, which for me is our most important pillar. This is about our product, it's about marketing, it's about driving sustainability through durability and innovation. And S is all about supporting brand expansion through B2B, the wholesale business. Here, we want to partner with fewer but better wholesale accounts so we can reach more consumers globally. And we want to convert targeted distributor markets to own subsidiaries so that we can implement the full DOCS strategy. Jon talked about investment. We will continue to invest in the DOCS strategy and in long-term brand health, despite the headwinds. We believe strongly that those brands that continue to invest in difficult times are the ones which will win in the long term, the custodian mindset in action. In the first half of 2023, we've invested in 21 new stores these are profitable brand beacons, which in their own right, add to the brand, but they also support our e-commerce business. And we will deliver on our full year guidance of 25 to 35 stores this year and a similar number as we look ahead to next year. In terms of marketing, we've increased our marketing spend this year by 50 basis points, and we will continue to invest up 50 basis points per annum. On people, we've really targeted our headcount investment this year to support our direct-to-consumer business, but also our growing markets. Think about markets like Italy, Germany and Japan, which I'll talk about later. In technology, we've invested in an ERP solution in Japan and in the European business, we've invested to support omnichannel initiatives which will deliver for us next year and will support the medium-term growth of the direct-to-consumer business. In terms of inventory, we've rebuilt our inventories from a difficult situation last year, especially in America and Japan, where we were significantly understocked in Q3 and Q4. Given 84% of our inventory is continuity this is a low-risk investment, which, as Jon said, has got minimal markdown risk. We can make these type of investments because we've got a strong brand, we've got continuity product, which is iconic, we've got vast untapped potential for growth with small market shares, and we've got a very strong balance sheet, as Jon has described. As I said earlier, my #1 priority is the brand. Strong brand equity is a leading indicator for sales and profit growth. We've just completed our latest quarterly study, our July study, and that shows that we've maintained global awareness year-on-year, and we've grown familiarity to top of mind awareness by 4 percentage points versus last year meaning DOCS is known by more consumers than ever before. Our last 24-month purchases are up 1 percentage point to 8%, which reflects the growth that we've seen in payers, but it also shows the opportunity that still lies ahead. There are many consumers who still have to buy their first pair of Dr. Martens. I think the best statistic though is we're ranked #1 in boots for unprompted awareness around the world, but we do rank lower in shoes and sandals, which is a great growth opportunity for us, which I'll talk to. We have a larger study with consumers, which we carry out across October and November. We haven't got the results yet on that, but we will report on this at our year-end. Our product strategy is unchanged. It is led by timeless iconic product with the 1460 boot at the absolute center. Originals infusion, which are our 2 most important categories, make up 85% of our revenue, and these are our most profitable products, but they're also our most brand distinctive products. Sandals is now 8% of our revenue on an LTM basis, up from 6% at year-end and collaborations are at 3% when they were 1% at year-end as we continue to focus on driving brand heat and brand equity. I want to call out a couple of areas in the product collection. The first is one of the fastest-growing parts of our business, which is platforms. This is a business that Dr. Martens absolutely owns. Our product approach is always icons and innovation. And in platform at the center of the image there, you see the icon product, which is Jadon, which actually is going to be 10 years old next year. Around the Jadon, we innovate with boots like Audrick, Jarrick, and Jetta and in the shoes category with the iconic 1461 Quad and the 8053 Quad. All of these products drive distinctive DOCS DNA. Sandals is DM's fastest-growing category, and this is a real medium-term opportunity for the business. We grew 43% in sandals in the first half. I think Dr. Martens is relatively unique, and that consumers see us as having authority across the footwear category, boots, shoes and NAV sandals. Whilst we like #1 in boots, we're #15 in Sandals. This presents us with a real opportunity, which we will take advantage of going forward. And the photos here, you see examples of both our sandals and our mules, but once again, all are very clearly Dr. Martens products badge with our DNA. To support our products, we've got strong, compelling marketing campaigns. In the spring of this year, we focused on a campaign called All Access Summer. This was around raising awareness of our shoe and sandals product ranges with consumers. This was the first summer since 2019 where consumers could get back out to festivals and gigs and Dr. Martens were there across the world. Since running this campaign, we have seen an increase in consumer awareness in both shoes and sandals in our recent brand study and we're going to build on this next year as we increase the importance of both of these categories alongside our strength in boots. In September, we switched our focus back to the core, and we continued with our unpolished campaign globally, which supports our original icons. For those of you in the room, you can see the products around here and elements of the campaign. We supported the 1460, the 1461, the 2976 and Jadon, the iconic platform. And here, we also highlighted one of the iconic features of Dr. Martens, which is the Yellow Stitch. We're going to continue to support icons through the key holiday period and will specifically market, our winter boots as the weather turns colder over the next 5 to 6 weeks of peak trading. We said many times before that we take a consumer-led approach to our pricing. We've just completed in the last few weeks a detailed price study, which we ran in all of our key markets from July through to the middle of October 2022. The key headline from that study demonstrates that consumers continue to see Dr. Martens products as good value for money, given their quality, their timeless style and appeal and the durability of the brand. Consequently, we have taken the decision that we will increase prices in all 3 of our regions from July 2023, which is the beginning of our autumn/winter '23 season. And this will offset the COGS inflation of 6% that Jon talked to. The study took a long-term view on consumers' views of pricing, and we believe that our pricing headroom will increase further as we continue to invest behind the Dr. Martens brand and our DOCS strategy. Therefore, we are reiterating our strategy that price will offset inflation for the Dr. Martens brand. Moving on, I want to talk just briefly about our 3 regions. For EMEA, the conversion markets continued to drive a multiyear opportunity for us as we expand our direct-to-consumer business. The U.K. is our most penetrated market, but it's still growing and growing nicely. And as Jon said, it only represents 15% of our group revenue now. We're highly diversified. The United States is our biggest and our fastest-growing market. It also represents the largest direct-to-consumer opportunity for the company given we have a lower DTC share there. As we were significantly understocked in the United States, the key holiday period last year in both DTC and wholesale. We have invested in inventory this year and also an increased marketing in the United States to support the USA potential over the peak trading period, but also more importantly, over the medium term. In terms of Asia Pacific, Japan is now 40% of all APAC revenue. We've got excellent brand health, we got [indiscernible]. The franchise transfer of 14 stores is progressing well, and everything is on hand to make that happen within the year as we outlined. China is a very small market for us with 1% of global revenues. However, we are starting, as we hinted at 6 months ago to trial the DOCS strategy in China and we now have 4 company-owned stores in Shanghai, which have obviously been impacted by the open and close of the Zero COVID policy in the Chinese market. So just going into each region a little bit more. Firstly, in Europe, DTC growth is a real opportunity for us in our conversion markets. If you look at the first half for us as a company, direct-to-consumer mix grew globally by 3 percentage points from 40% to 43%. However, if you look at Germany and Italy, the mix expanded by 8 percentage points. As we open stores in key cities, you see some examples there on the slide. And alongside that, we saw result in uplift in the e-commerce business where we opened the stores. I think the exciting part here really is that these DTC shares are still well below the group average. So we'll continue to expand these markets as we move forward and take some of that flight space that lies ahead of Dr. Martens and Continental Europe. And just as a reminder, DTC growth gives us increased brand control and also very strong financial returns. Moving on to the United States. This is our largest DTC opportunity. In the first half, we opened 6 new stores in the United States, and we will open slightly more than that in the second half of this year. At the full year, we gave an example of Texas, which is one of our focus states. Today, I want to really focus on L.A. as an example, and probably more broadly, the greater L.A. area, which is a more established market for Dr. Martens. Recently, we've expanded our store presence in Greater L.A., and we've moved from 8 to 10 stores opening in both Brea and Santa Anita, which are suburbs of L.A. Anyone who's been to L.A. though knows it takes a long time to drive even a very short distance, hence the reason why we're now at 10 stores already. But even in a more established city like Los Angeles, what we see when we open stores is the e-commerce sessions grow. So in Brea, sessions grew by 142% in that ZIP Code and in Santa Anita by 62% since we opened the stores. This is exactly the same effect that we showed you in Texas, and it's exactly the same as we've seen in all parts of the world. Our stores are profitable brand beacons with great returns but more importantly, to drive consumers to our website. Also, if you look at the brand stats from the Los Angeles area, you see a real big brand effect familiarity is up by 23 percentage points in Los Angeles versus last year ever purchased is up by 10 percentage points versus last year. So just showing the effect as we build out the Dr. Martens brand, what we can really accomplish and over the medium term, we will continue to expand our store presence in the United States to deliver the 100 to 120 stores we've talked about previously. Moving to Asia. I really want to focus on Japan today, which is now our third most important market globally. In the first half, we opened 3 new stores in and around the Tokyo area. We're making really good progress on the transfer of the 14 franchise stores to company ownership by the end of FY '23, which will give us greater brand control in the important Japanese market and will improve further the profitability of Japan, even though it's already our most profitable market. For next year, more than 80% of our revenues in Japan will be direct-to-consumer. And as Jon said, this really gives a future vision of the direction in which we are taking the company, DTC first. This year in Japan, we've invested in Microsoft Dynamics 365. We've invested in increased headcount ahead of this DTC growth, and we have increased our marketing investment. Brand sentiment in the Japanese market is extremely strong. On wholesale, our strategy is really simple. It's focused on ensuring that we drive greater control on how the Dr. Martens brand is sold in a wholesale environment. We're focused on elevating brand presence. In the back of the slide, you see an example of a shop-in-shop there, and we're driving out more shop-in-shops around the world. We're expanding and managing the product assortment better, and we are working with fewer but better strategic wholesale partners. What that strategy has delivered in the first half of this year is 15% wholesale growth but from 13% fewer accounts. So every account is becoming more productive and therefore, consequently, wants to treat the Dr. Martens brand with respect that it deserves. For the second half, our order book in wholesale more than covers the guidance, which Jon gave, will fly there. So we're in a strong position that we can manage our cancellations effectively. Over the medium term, we will continue to focus on the right strategic partners with a focus on bricks-and-mortar retailers. So we're really focused in wholesale and bricks-and-mortar retailers, and we will support fewer customers with a focus on try-on and brand expansion. Likes me so much. There you go. Nice to be popular though. Right. It really like my glasses. Sorry on the webcam, you can't see this, but there's a fly landing on my glasses. There we go. Right. Last, but not least, the short update on sustainability. From a product perspective, we've been working with third parties to trial alternative materials to leather and PVC, which is where the brand has its biggest impact. So far, the trials seemed to be really encouraging. And the next step now is to achieve Dr. Martens levels of durability and mass production. Obviously, these alternative materials have to be as durable as the product that we already have, which is incredibly sustainable. We've significantly reduced the levels of single-use plastic in the packaging of our boots and shoes in the first half, and we will continue to focus on this as we go forward. And then I've said this before, but I think that repair and resale will be an important part of Dr. Martens future. We've extended the trial of reconditioned DMs on Depop in the U.K. And we're also looking into a similar trial of selling repaired and reconditioned DOCS in the U.S.A. next year. Our goal is to play a much more active role in the secondhand market for Dr. Martens given the incredible durability of our product. So in conclusion, most importantly, our brand is stronger than ever. The DOCS strategy continues to deliver for us with direct-to-consumer being the fastest-growing part of our business. We are investing for long-term brand health, even in difficult economic times because that's what the best brands do. And our pricing headroom will allow us to offset inflation in the go forward. And as Jon said, we've increased our interim dividend, showing our confidence in the future growth of the brand and the company. So with that, we're going to open up for questions. Luckily, the fly has now gone. If we can take questions first from people here in the room and then from those on the webcast. Also, if you could just let us know your name and the organization you represent. And thank you very much to all of you for giving Jon and I your attention. We appreciate it.

Karina, go ahead.

Karina from Goldman Sachs. I would like to just drill in a little bit in terms of your cost structure and specifically OpEx. Thank you very much for giving us the bridges. They are very helpful. But in terms of your kind of OpEx structure. Can you just help us think about the drivers of that and then operational leverage, both on the upside and the downside? And following on from that, you have changed your margin guidance for the full year. Can you talk us through kind of what's changed since you gave that initial guidance in July? Presumably those investments you're making with regards to technology and the new stores that were known back in July. And then finally, there is quite a wide range in terms of that minus 100 to minus 250 bps. Can you help us think about what growth assumptions you're embedding for the full year to kind of reach that kind of low end of that guidance range.

So OpEx structure. The largest cost we have in OpEx is people, not surprisingly, and mainly people in stores probably. After that, you are looking at DC costs, the cost of the distribution centers themselves and picking costs. And picking costs, its cost in terms of what highest picking cost is e-commerce single pick, then it's retail, then it's wholesale. And then after that, you're into probably marketing spend, which we said we've increased by 50 bps and then staff want to pay a description. That's the biggest, the biggest choice the biggest OpEx costs. We have, as we said, we know what's changed in the guidance. But what we have said, we have continued to open new stores in line with what we thought. And as I said, you open up a new store. First it takes about 6 months to break even EBITDA, makes money across a 12-month period, and then gets the full returns across the 2-year period which takes it to reach maturity. So obviously, doubling number of stores year-on-year, roughly in the first half. You increased the amount of cost in a store in the new opening period year-on-year, which puts the cost base up. We've got 50 bps on marketing spend, and we have invested in people and in tech as we described. In terms of what's changed in the guidance that's probably linked to the EBITDA margin point. I think it's fair to say that, particularly in the back end of the second quarter, DTC growth was lower than we expected. There was probably -- there's a number of reasons. I think the principal emerging reason is one of a weakening consumer environment, mainly in the U.S. It's not all in the U.S., but mainly in the U.S. I think also if you go through what's been going on much more recently in terms of current trading and the variable week-on-week trading performance we described. We didn't want to write this, but it's been warm and whilst October was a fantastic month for sandals from a very small base, the more boots were we had much lower growth than we expected. It's been too warm. We need to see how, when and weather changes, how things pop. So I think it's mainly -- the top line was a bit slower anticipated, which is a higher-margin DTC, which meant the investment structure. Stayed pretty much put. So it just dropped. As when you think about go the full year as for example, 1% of last year's revenue. At last year's average gross margin would drop to about 65 basis points impact in EBITDA and that's on an average gross margin split in DTC is obviously more profitable than average. I guess the only other thing that's impacted the EBITDA percent on a full year basis is strengthening of the dollar. And Jon's example that has a reasonably profound impact also.

Kate Calvert from Investec. A couple from me. In the presentation, you did mention wholesale cancellation rates quite a few times. So have you actually seen any change in behavior yet on wholesale cancellations? Second question, have you got any early thoughts on how you're going to tackle China and when you might start to get going? And the third one is your opening plans for next year in the states, which states will you actually be focusing on with your opening plans?

I can take a first stab, Kate. The -- so the question on wholesale, we haven't seen increased cancellations thus far this year. So they're broadly in line with where they've been over the last 2 years. As Jon said, with an uncertain economic environment, we've provided for higher cancellations between now and year-end. We don't know if that will come through. And actually, what we're seeing in the last few weeks, just as the weather has turned both in Europe and the United States is we're seeing good wholesale performance. What we have to remember though is we had a weak base last year because this was the period when we didn't deliver a lot of product in. So the numbers are starting to look really good, but we don't want to get overly optimistic. So we haven't seen higher cancellations thus far, but we've provided just in case. In terms of China, and we've made the decision that we want to get after the DOCS strategy there, but the cities are so big that what we're going to do is we're going to focus our efforts first on Shanghai and then we'll look at Shanghai and Hangzhou as a cluster given how close they are. So we will open 4 stores in Shanghai. Given everything that's happened there with COVID this year, we're quite pleased that we haven't opened too many too quickly. What we've seen is strong conversions in those stores higher than we've been able to achieve with our franchise partner, but it's just too early because of the open up close down. In terms of the United States, where will we focus? Well, we're going to continue to focus on Texas. We talked about Texas before. We're going to continue to build out Texas. We're going to focus on the Midwest when we started opening stores this year. I'm going to build out Midwest cluster, and then I'm actually going out to Florida in a couple of weeks because we're looking to build out Florida as well. So those would be my headlines, and if you want to add anything.

Just to build on just on the first 2. On the wholesale cancellation, the reason I want to talk about that is we're actually paranoid about not stuffing the trade. So I'd rather have an estimate that is lower than order book, so that we always exit a year with the right size of inventory in market, and we monitor that on a weekly basis, weekly inventory and sell-through to the top 20 wholesale customers in each of our regions. So it's paranoid about not making that era. And just on the China, Shanghai and Hangzhou, we take those 2 locations together. They've got a population size of a small medium-sized European countries about 50-odd million people. So if you think about in that context rather than 2 cities, it is quite a big city conurbation of people to go after.

Edouard Aubin from Morgan Stanley. So Jon, you talked about OpEx growth. Could you please just come back on the inflation you're seeing in terms of wages and rents today and what you're expecting over the next few months, so that would be helpful, number one. Number two, related to that, in terms of the EBITDA margin in the statement today, you reiterate that you're keeping your EBITDA margin, medium-term guidance of around 30%. So obviously, it's not going to be that number this year. I know it's a bit premature and there are many uncertainties in terms of the macro environment and so on. But could that be achieved as early as next year that could be maybe ambitious also given the adverse geographic mix that you talked about potentially for next year? And then lastly, sorry, on the competitive landscape, are you seeing any increase in discounting activities from some of your peers and competitors? And to what extent it can or could impact your sales given that you want to remain very disciplined in terms of full price sales ratio.

Okay. Edouard if I do the first 2. Kenny, I'll pick up the third one. On OpEx growth, biggest cost is cost of goods that's fixed at 6% for the next 14 months. So we're happy with that through to December '23. The average wage inflation we've seen this year has been between -- it's been averaged about 4% between 3% to 6% across the world, so averaged about 4%. That's what we paid for the current financial year. Obviously, next financial year, we need to see. But again, being a global business, U.K. inflation is what just shy of 11. The U.S. is just shy of 8. In Asia Pacific, they're sort of small single digits. We've got this blended rate across the world. It's not all U.K.-centric. In terms of rents, actually rents are still we're discovering when we're renewing leases. In Europe, we are still going along. We'll renew your lease, but we want pay lower rent. And if someone doesn't want to pay lower rent, we're happy to walk and we're still getting lower rents coming through. So rents, we're still seeing rent deflation actually. EBITDA margin is an interesting one. The reason we are still confident of journey to 30% and maybe a little bit more, it's all to do with the DTC mix drop. So as at the full year, last year with 49% DTC take the annual number. And you've seen -- we said we've got a target of 60% plus. We're seeing Japan will be 80% going to next year as a -- as a sort of a leading North Star indicator. You've seen in the presentation today how small the DTC mixes are in the European conversion market opportunity headroom to drive there. And because of the margin structure of DTC, which you think in the examples I've given the pricing of a boot, DTC is about 2.5x more revenue per pair per boot and about 4x the gross margin that's the key underlying economic driver of our DTC mix shift. So your view on how far and how fast we drive the DTC mix shift will drive the underlying margin improvement. In terms of pace, as that's in your model, the one thing that will move in our favor would be if the dollar were to depreciate against the pound and the sterling because that bridge will then work the other way around. But parking that because that's not under our control, what is under control, is focusing on DTC first.

Yes. And then your final question was about what do we think is going to happen in the competitive landscape? We're expecting quite a promotional environment in the next 5 weeks. We're expecting that more for the apparel companies than we are for footwear. And however, I think for Dr. Martens, #1, we've got a brand that people want. And secondarily, we think it's really important to build brand trust with consumers. So you will never see while the 2 of us are here, Dr. Martens marking down code iconic product in core colors because we think it's absolutely the wrong thing to do. We think it's short-term thinking. And what it does is it boosts short-term sales and then gets people in a spiral when they start to annualize numbers. It just the roads brand trust. So will Dr. Martens participate this weekend over the Black Friday, Cyber Monday. Yes, you might find a seasonal color of a boot or a shoe. So we'll have some offers there. But if somebody wants to buy a 1460 in Black Smooth, they'll be paying full price and they'll be paying full price for as long as I'm here.

Doriana Russo from HSBC. I've got quite a few questions to ask, if I may. First of all, if you could go back to the current trading comments and give us a little bit more of color on what is actually happening right now, meaning in November, but are you seeing any changes in whether the slowdown in DTC that was mentioned in the release is particularly due to weather in the U.S. or anything else? What have you seen in Europe, for example, have you seen any boost from tourists coming back a lot of companies mentioning U.S. customers actually coming to Europe to buy rather than buying in the U.S. So that's my first question. Second question is on the inventory levels. You talked about restocking the market vis-a-vis last year, fair enough. But is there a risk that perhaps your wholesalers might start to discount and therefore, what sort of control or I don't know, penalties by you have built in your relationships in order to avoid brand awareness coming from the wholesalers rather than DTC. And I've got 1 more question on the impact of USD on EBITDA. I noticed that in the presentation, you didn't mention, you didn't call out the impact of current currencies versus actual currency on EBITDA. So I wonder if you can give us a sense of whether the impact on EBITDA margin was? What was the impact of an EBITDA margin from USD strength in natural terms? And I see that you've mentioned an example but if you could correlate that to the actual numbers, I think that would be very helpful.

Okay. I'll take the first 2, Doriana, and then I'll let Jon answer the question on currency. So we're kind of midway through November, obviously, we're not giving out specifics on November today, but I can give you some color, what are we seeing. Your point on weather is a very pertinent one, we don't like the [ more ] about the weather, and that's why we didn't put it in all the statements. But the reality is depending on which website you believe October in American unit was either the warmest on record or in the top 3. So clearly, when you run a boots brand, you want it to be cold. And as the weather has started to turn, there was a whilst as who live here in London, I've seen it in the last few weeks, we're seeing a result in step up in trade. I think that's for sure. Jon talked about 2 big assumptions in the presentation about what's going to happen in the next 5 to 6 weeks. The first was about the weak base in Europe this time last year. We're either facing lockdowns or restrictions in Europe, and we have seen the business move forward quite significantly. London especially, Germany especially. Netherlands has been strong. Italy is coming through, so we feel really good about what we're seeing in the European environment. In North America, which was the market that weakened a little bit for us in the second quarter. That one, it's been so warm that it's only again in the last few weeks that we've really started to see the pickup coming. I've only been with the business 4.5 years, but Jon reminds me that it was back in 2017 October. We faced the same thing with a late winter and it came through nicely. So the business is in the right place to -- which bridges into your second question, which is around inventory. We just had nowhere near enough product this time last year because of what happened in the supply chain. We've restocked for success. And the reason we've bet on that is we've got a strong brand, and we're in a fortunate position, and we've got continuity product. So if it doesn't come through to exactly where we expect, what happens, we've got a little bit too much cash invested in inventory. Interestingly, in the United States, what we're starting to see is that the wholesale customers didn't have enough inventory last year and their figures to use Jon's expression have popped quite quickly. We won't really see the low inventory effect in DTC until post Thanksgiving because that's what it really hit us last year. And then in terms of your question around what can wholesale do. Obviously, in the United States, we've got a manufacturer's advertised price policy. So the price is fixed in a European environment, that's illegal. So the wholesale partner is I like to sell whatever price they chose to do, but the most important thing is we've not oversold in the trade. And as Jon said, we have left ourselves in a position where we could take significantly more cancellations than we did last year. And we still make the wholesale guidance that we've given in the high teens guidance. So we feel very confident that we're managing for the long term in the wholesale trade. We're not overselling in the trade, and we're actively telling our sales people watch the sell-throughs. Jon and I look at it on a weekly basis for the top 10 accounts. So I've got absolutely no worries that we are overselling in the trades.

We're paranoid about wholesale in market inventory. The last thing we're induced overstock and leave it there because you're right, they'll discount. So if -- that's why we've got a higher order book than the forecast. So if we need to bring stuff back and return from wholesale as we will do rather than then promoting it would rather bring it back. On your last point on the constant currency or actual currency on the actual EBITDA for the first half it would broadly follow the example Doriana. The difference between constant currency and actual currency at EBITDA is not material. It's pretty much the same number. It is material, obviously, at the revenue basis which is why we've given it. But when you go through that, the way the natural hedge works, it's not material the EBITDA reported number.

But do you want to [indiscernible] percent margin?

Percent margin? Yes, because is it percent margin because it's on that example, you've got more revenue from the U.S. on translation, which drops to the margin, but the pound notes don't change. Thank you.

Piral Dadhania from RBC. Two questions. One is on your conversion markets in Europe and the other one is on China. Could you just give us a flavor of how your conversion markets in Italy, Spain and Portugal, which I think we're all done last summer are performing. And maybe break out what the EMEA DTC revenue growth in the first half would be if you strip out the benefit of the conversion markets. And then secondly, on China, you said that you're going to terminate your franchisee agreement with your distributor. I think it was Power jump from I think they operate something like 70 stores in that market. So what's the plan for those stores? Are you going to take those on? Or are you going to -- will your distributors shut those down and you'll just operate the ones that you currently have?

Okay. We start with the conversion markets. I mean we're not giving out the detailed numbers market by market. What I can tell you though is you mentioned Italy, Spain and Portugal. I mean Italy is performing very strongly. The stores that we've opened in the Italian market are doing extremely well, which gives us real confidence that we can expand the stores network. And we've seen exactly the same effect in Italy that we've seen in other countries. So we told you before that Milan and Rome as we opened those stores, it's helped e-commerce. We've seen the same thing in [indiscernible] and Verona. So right now, we've got a team looking actively at new store locations in the Italian market. Spain, we opened the first store in Barcelona. It was super successful. We followed [ Autostore ] in Madrid, which has been even more successful. We opened in Valencia recently. It's too early to see how that's going. Obviously, that's a big city, but we believe we can have multiple stores in both Barcelona and Madrid. We're actually opening the fourth store today in Spain and San Sebastian. So the Spanish numbers are extremely encouraging in terms of what we see. In terms of Portugal, we've done nothing yet. I mean the real focus has been Germany, Italy and starting out in Spain. In terms of China, we've agreed with Power jump that we are going to terminate the contract as of next year. We're still working through all the details of that right now. But I would envisage that a large number of those franchise stores will close. Potentially some of those stores a bit like we've done in Japan, where we've transferred stores back, that could be a potential avenue. But there's no decision. We're still in negotiation on how we're going to work that through. But I would -- if you're thinking about the medium term, I'd think about direct-to-consumer business focused, first of all, in Shanghai and Hangzhou and then over time building out from there. That's what we think about.

Just to build on the first one. Obviously, as you said, strong growth in EMEA was led by the conversion market. All other countries grew, but at a slower pace and the biggest country obviously is the U.K. The U.K. grew through the first half but a slower pace than the average, but all countries in the EMEA group.

I think we can take questions online if anyone has one.

We don't currently have any questions on the telephone line. Okay. I'll come back to the ring.

Doriana.

Sorry, just a follow-up question on your capital allocation. The dividend increase was quite strong relative to the underlying and obviously, an indication that you feel like you're getting closer to that average level of 1x net debt to EBITDA before you're prepared to give more money back. If that was the case in next year, the 4 would be given your capital structure, a special dividend? Or have you got any other sort of return for in mind?

You're absolutely right. When we are continuously less than 1x, that is when we're into excess cash. And as long as the -- an excess cash is not needed for the business, not only for dividends, we're at the top end of the range, then we will be distributing that to shareholders how that mechanics of that would be -- would work through. We have not made that decision yet. Apart from when we are consistently low at 1x, we will be sending excess cash back to shareholders. Mechanic to be determined.

[indiscernible]

If we are consistently below 1x at the balance sheet date next year, potentially, yes, but we need to see how things go, yet. Okay. Got a question on the phone. Go ahead.

We have a question from Richard Taylor from Barclays, Richard, please proceed.

A few questions, please. The first one is on your perspective on brand strength, please. I can see your stats on brand familiarity being up, but I'm keen to know why that's the same as intent to purchase. And just what else you do internally to monitor the brand strength in the business. Really trying to handle on how much of this is macro versus how much might be to do with the brand? And another question is also on your revenue guidance for the out years. When I'm guessing you're speaking to the wholesale accounts fairly soon about how much you expect them to replenish next year. Can you just talk us through your confidence in how you can grow mid-teens next year maybe if the environment is a bit softer view that could be the case for your wholesale accounts as well. So why do you think you can grow strongly next year if indeed the macro is a bit tougher at the moment.

Thanks, Richard. The first one on brand strength. I mean we don't give out every measure that we track. We track a full basket of measures. The study that I quoted from this morning, which was done in July, is a smaller sample size than the one that is done across October and November, which is 70% bigger. And that's the one that we'll quote to it at year-end. But basically, overall, the measures moved forward on the global average everywhere, all countries moved forward. The reason I gave awareness, familiarity and our last 24 months purchase is because they were exactly the same ones we gave at the year-end. So familiarity, which brands are you familiar with and have you heard from recently at 4 points, we think that's a really strong indicator because it says Dr. Martens is more top of mind. The last 24 months purchased, again, continues to rise over the same period last year. So again, that's a good sign that more people are buying DOCS. And then on the unprompted awareness question around boots, the #1 boot brand around the world is Dr. Martens. So I think what we're seeing is overall, the brand is in a strong position with consumers. We track a lot of softer equity measures around how rebellious you see Dr. Martens. Questions like that. And again, the softer equity measures are also positive. So we believe, to the best of our knowledge, that the brand is strong and yes, there are economic headwinds out there, but it's not a brand strength problem.

In terms of how did you get mid-teens in the out years. I think we know price increases will give us 6% across the full year next year. And that's based on consumer survey similar to this year and that we've done in prior years with minimal volume losses start up 10 plus 6. Over the past 3 or 4 years, we've averaged grown volume by 10 this half, we've grown by 6, take a number that's closer to 6 than 10. That's a volume slowdown for the economic environment. And then it's your assumption on DTC mix, last year, we grew by 3. If you take those random 3 numbers have just given you a 6,6 and 3. You get to a number that's roughly mid-teens with a lower volume growth. It's never that simple, Richard. But if you stand right, right, right back, the key variables for next year would be probably, it's probably the biggest variable is what's your volume assumption and we've grown 6% through the first half.

And to your question, which was the other part of that question on revenue build. You're right. We're going out to sell autumn/winter '23 in the weeks ahead. We've had pre-line meetings with most of our big customers already around the world. And as normal, as we've done over the last few years, we generally don't give people the volume they want anyway. So we try and constrain the number of pairs that we sell into the wholesale market because overall, our goal is to grow DTC faster. And as Jon said, we want to grow DTC mix. So in terms of the assumptions that we're building into that mid-teens guidance for wholesale growth, I think we feel really good about it. And we'll once again be working with fewer partners, and we will be working with people who want to give us more managed space. So I think we feel good about the wholesale number and that's in that medium-term growth.

And just as a follow-up to that, I mean, you talked a lot about long-term focus, custodian mindset. In relation to the 6% price increase proposed for next year, can you just talk us through your thoughts there as well? Whether it's talking to the wholesale accounts that you just highlighted or thinking about your own channels, like -- why is that the right number? Why don't you accept slightly less excepting has an inflationary environment? How confident are you can push that through in a tougher macro notwithstanding your desires to sort of protect profits as well?

Yes. I mean we did a pricing study across July through October, so pretty recent stuff with consumers in our 7 most important markets where we look at as we increase price when is the point where they say, no, I wouldn't be buying into Dr. Martens anymore. And it's the same study we've done twice previously. And when we've done it twice previously, we've implemented the price increases and lost 0 volume all of the modeling that we've done would suggest that at maximum by putting through the price increases we plan to put through, we might lose 1% of payers. If that were to happen, we're okay with that because as we just said a moment ago, we would deviate payers to the higher gross margin DTC channels. And that's the right thing to do because it enables us to control the brand and it enables us to improve the economic model. So consumers around the world see that there is more value in the Dr. Martens brand than we are currently charging. Last year, we didn't take all year but now, we didn't take any price increases in Asia Pacific because we wanted to close the global pricing corridor the strength of the U.S. dollar means that we closed the global pricing corridor, and we've got quite a lot of headroom, and we're not taking all of that headroom. The reason we're not taking all of the headroom is we believe the macroeconomic environment will be difficult for the next 12 months. We've always said that our strategy is that price funds inflation, consumers are under pressure, so we're going to take enough pricing around the world to cover inflation, but we are not taking all the pricing study would suggest that we could take.

Edouard Aubin from Morgan Stanley. Just a small follow-up on South America. So I know it's relatively small in terms of sales in the context of the group and you gave the figure out 10 million. And I think it was marginal in terms of profit contribution, but are you just no longer distributing now in South America? And what are the plans for the medium, long term there?

So if you want to buy a pair of Dr. Martens and you live in Argentina right now, you can buy online. We have a board of free site that's serviced from our United States business where you can buy. But it was really, as Jon said, it was just a focus question. I mean you look at the size of the opportunity we've got in North America, and we're already investing a lot of operating expenses into the business, and we want to invest those operating expenses in the most focused way. So for the U.S. business or the Americas business as it was, we wanted to invest those in the United States of America. So given that short term, the business wasn't making a lot of money, we decided that the right thing to do was to focus on the U.S.A., put all of our investment against the U.S.A., service that business digitally from our U.S. distribution centers. Do I believe over time that the brand will go back into Latin America? Yes. But right now, the priority is to build out the United States of America. I think that is it. Mark is giving me the thumbs up from the back of the room. Thank you everybody in the room for your questions and for your time today. We really appreciate it. Have a good day.