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

Good morning, everyone, and welcome to our FY '25 Half 1 results presentation. I'm joined today by Giles Wilson, our Chief Financial Officer; and Ije Nwokorie, our Chief Brand Officer. So our agenda for today. I'm going to provide a short introduction before handing over to Giles, who will walk us through our Half 1 financial results. Then I'll provide a business update before Ije informs us on our brand and how we are refocusing it. Our first half performance is in line with our expectations. Back in May, we communicated 4 key objectives for this year, and I'm pleased to say that we are making good progress on all of them. The action plan we are executing in the U.S.A. direct-to-consumer business is working and will return this business to growth in the second half. We've pivoted our marketing to relentlessly focus on our product and Ije will pick up on this in detail. We've reduced our operating cost base ahead of schedule, and Giles will walk through this, and we have strengthened our balance sheet while delivering on the reduction in inventory that we promised. We said that FY '25 would be a year of action, and we are taking focused action. Now over to Giles, who will now walk us through the results.

Thank you, Kenny, and good morning, everyone. As Kenny has set out, our first half has been about delivering on our plan, setting the foundations for the key peak trading period. Before I run through the financial results, I would like to highlight 4 key areas. I set out back in May that we would take out GBP 20 million to GBP 25 million of costs from the business on a full year basis with the full benefit in FY '26. I'm pleased to report we have delivered at the upper end of that range at GBP 25 million of annualized savings. We have reduced inventory through reduced purchases and are on track with our target. Last week, we successfully completed the refinance of the group's banking facilities. During this process, we used excess cash generated from the reduction in inventory to pay down the term loan by circa GBP 40 million and reduced the level of the rolling credit facilities to be aligned with future liquidity requirements. We are on track to deliver our financial results for the full year with our key trading months still ahead of us. The swift action taken on the cost plan and the tight cost management helps underpin our full year results. I said at the full year, I would focus on delivering more clarity in our financial results presentation. At this half year and going forward, we will set out our financial results both on the reported currency and a constant currency basis versus the prior year. This will allow us to show the true impact of underlying trading, taking out the impact of foreign translation on our reported numbers. For this year, we have also introduced adjusted profit metrics due to the one-off costs largely related to delivering the cost action program. Turning to the financials themselves. In later slides, I will give more detailed explanations of the key financial metrics. Our key financial headlines are as follows: total pairs are down 20%. However, due to better D2C mix, revenue was only down 16% at GBP 332 million on a constant currency basis and in line with our expectations. Gross margin is down in line with revenue, with gross margin rate broadly flat year-on-year. Operating costs have been well controlled with strong cost management, allowing for extra investment in demand generation to support the brand as we head into the busy peak period. Overall, adjusted EBIT is a loss of GBP 2.4 million and Adjusted PBT loss of GBP 16.1 million, both significantly back on last year, but in line with our expectations. During the period, we incurred GBP 9.3 million of exceptional costs, mainly related to the cost action program and GBP 1.6 million due to the currency gains and losses impact on our accounts receivables and payables and our euro debt. At the EPS level, there is a loss at Adjusted EPS of 1.1p. Dividend is set at 1/3 of the previous year's total dividend, in line with our guidance in May. Turning to revenue by channel. As explained on the previous slide, we are showing constant currency for year-on-year comparison. We guided at the full year results, the wholesale revenue would be down by about 1/3, with actual results slightly better than guidance, delivering 27% or GBP 55 million down on year-on-year. D2C revenue was down by 5% or GBP 9 million with total revenue down 16% or GBP 63 million on a constant currency basis, in line with guidance given in May. I'll explain the movements on the next slide. Our D2C mix improved, driven by full back in wholesale. The owned stores estate increased by 13 stores year-on-year and was broadly flat in the half. I introduced this slide at the full year. The boxes in the bridge set out the key movements by channel and market. Starting with Americas. The key driver in the revenue decline was GBP 27 million of wholesale as expected. Kenny will pick up later the time lag on wholesale recovery. Americas D2C was marginally down by GBP 3 million driven by weak retail footfall offset by slightly better performing e-commerce, all again in line with our expectations. Turning to EMEA. Wholesale was again in line with our expectations and partly impacted by shipment timing differences due to the timing of Easter. EMEA D2C, as indicated in May, was also impacted by the timing of Easter and sale, together with weaker sandal performance in the summer, particularly in retail, delivered a GBP 7 million year-on-year decline. However, as we entered the boot season towards the end of quarter 2 we saw D2C performance improve to be back in positive territory in both Americas and EMEA. Finally, in APAC, the slight decline in wholesale is as planned. And in D2C, we saw continued year-on-year growth in Japan, partially offset by weaker performance in Hong Kong and South Korea. Overall, our regional and channel performance was in line with our expectations. Our D2C revenue performance was better in the second quarter, with retail in quarter 1 generally weak across the group. The underlying EBIT drops from GBP 39.7 million H1 last year to a GBP 2.4 million loss on an adjusted basis this year. Stepping through the bridge, GBP 50.1 million reduction from the impact of volume at standard gross margin, predominantly due to the decline in wholesale revenue as explained. The impact of better DTC mix and price adding GBP 8.3 million. As indicated at the full year results, we increased support behind our brand by GBP 1.8 million. We tightly controlled costs even before the impact of the cost action program delivering GBP 2.3 million reduction in operating costs, a small increase in depreciation due to the increase in stores, the exceptional costs and FX translation, as I explained earlier. A key area of focus has been reducing our inventory. This slide sets out the planned inventory reductions over the 2 years, split into the 2 halves. This chart starts at FY '23 with inventory at GBP 258 million. During the first half of FY '24, we built up levels to GBP 315 million and then during the second half of FY '24, we used that inventory to sell during peak period, closing the year with GBP 255 million of inventory. As we entered FY '25, the reduced planned purchases can be seen on the chart with the half year inventory position slightly down versus the FY '24 year-end. And as we enter the second half of FY '25 we sell down inventory during our peak period. For the avoidance of doubt, our plan reduction in inventory is part of an organized reduction of purchases of core product in FY '25, not through significant discounting or selling stock below cost. We remain on track to deliver our year-on-year target for a decrease of GBP 40 million. We will continue the inventory reduction into FY '26 with purchases planned to again be below our forecasted sales. Turning now to cash flow. There's been a significant positive reduction in both net bank debt and total debt year-on-year. The gray boxes are the net bank debt being the bank debt less cash and the red boxes show the lease liabilities. Total debt drops from GBP 479 million at the end of H1 FY '24, as shown in the column on the far left, to GBP 349 million, as shown on the column on the far right, a total of GBP 130 million reduction year-on-year, split GBP 85 million decline in net bank debt from cash generation and GBP 45 million decline in IFRS 16 debt. The bridge sets out the cash flow from FY '24 year-end position. Starting with the second column, which is the net debt at FY '24 close, the next 4 boxes show underlying operating cash movement in period. We've tightly managed our cash position in this period with a particular focus on bringing down inventory, as I have just talked through. Overall, the impact of EBITDA and working capital movements delivered GBP 39 million cash inflow. This is then offset by lease payments of GBP 28 million and interest and tax payments of GBP 13 million. CapEx accounts for GBP 11 million and with a positive impact of FX on our euro debt sees overall net debt marginally increased by GBP 9 million since the full year. As I explained on the previous slide, we would normally expect to see a larger inventory purchase in H1 in advance of peak, which would see our net debt increased significantly from the prior full year position. However, this is not the case this half given the planned reduction in purchases. Our net debt to EBITDA finished the half at 2.3x, well below our bank covenants, leaving significant headroom. Finally, some new metrics on this slide showing our average lease term to break across our store and distribution center portfolio. As explained in previous results, the group tightly manages its store portfolio with all leases having no longer than 5 years before the first break. For H1, the average lease exposure to break was 2.8 years, marginally down on the full year average. Overall, as I set out at the full year results, cash flow is a key focus, and we have significantly decreased net debt year-on-year predominantly driven by our strategy to turn inventory into cash. At the full year results, we said we would deliver between GBP 20 million and GBP 25 million of cost savings. We undertook a detailed and swift process to tackle our cost base. The key process and principles we adopted were as follows: a detailed analysis of FY '24 costs were carried out versus prior years, by function, by region and cost line. Each global leader was then tasked to identify savings against these FY '24 costs. Direct demand-generating marketing cost and front-line retail teams were not included in the project. The focus was predominantly on support, operational and back office costs. Cost saving targets were not against future or uncommitted costs and therefore, had to be true reductions from actual costs. Headcount reduction took place across all levels in the organization. There was an establishment of a steering committee with a dedicated team to support the cost action plan. This also aided the speed of execution. Programs were put in place to exit levers on a fair basis and also support the teams going forward. And finally, during the first half, certain guardrails around recruitment, discretionary operational spend and capital spend were put in place over and above the normal controls. The process was effective and completed in advance of our peak period. The outcome of this swift, detailed and well-controlled process is the cost action program was completed with the savings at the top end of the range of GBP 25 million in FY '26. The makeup of these savings are approximately 2/3 through head count reduction, leading to an exceptional charge booked at the half year of circa GBP 7 million, as explained earlier. The remaining 1/3 will be through efficiency and procurement savings. I'm pleased to share that on the 19th of November, we've refinanced the group with a new facility of GBP 250 million term loan replacing the existing EUR 337 million term loan and GBP 126.5 million rolling credit facility replacing our previous GBP 200 million rolling credit facility. Our previous facilities were due to expire in early 2026, and therefore, I felt it was sensible to secure the new funding facilities slightly ahead of time to give certainty as we go into FY '26 and return to growth. The key features are as follows: an initial term of 3 years with the option to extend both facilities by 2 additional 1-year term subject to lender approval, an interest rate ratchet relating to key net debt-to-EBITDA ratios, a maximum covenant of 3x net debt to EBITDA. We have 12 banks in the facilities made up of a mix of existing and new banks. The facility is structured to meet the future liquidity requirements of the group and it was clear with the planned inventory reductions that there was excess funds to allow us to reduce the term loan to GBP 250 million. In addition, the rolling credit facility, which is only being used a couple of times since the IPO has also been reduced from GBP 200 million to GBP 126.5 million. The new facility gives us more than enough liquidity to meet the group's future requirements. We don't foresee any changes to net finance costs compared to consensus expectations as a result of the refinancing. So to conclude, overall, the first half has been about delivering what we said we would do. We have delivered in line with our expectations. We are focused on our cost base and delivered our cost action plan. We have managed cash tightly and seen inventory and net debt significantly reduced year-on-year. Finally, we are pleased to have successfully refinanced the group's borrowing facilities. I will now hand over to Kenny.

Thank you, Giles. I'm now going to talk a little more about each region before moving on to systems and product. Turning first to the U.S.A., which is a high priority market for us. As you can see from the Circana data, the total boots market in the U.S.A. continues to be challenging with a 12% decline year-on-year. We are assuming that this weak backdrop will continue into the second half. And as previously communicated, we expect our USA wholesale business to be down double digit year-on-year. However, despite the external environment, we are pleased with the progress we are seeing in our USA action plan. On the left, you see what we said we would do. And on the right, you see what we've done. In marketing, we increased our investment in the U.S.A. as a percentage of revenue. We focused on talking specifically about our products. And as you will hear from Ije, we've recently launched our Boots Like No Other campaign. We have elevated the quality of our retail windows in key cities, and we've utilized more social media to drive consideration of our brand. In digital, we have driven double-digit improvements in conversion by improving the quality of our product detail pages, and optimizing our checkout process. And we have also implemented order in store, which we already had in our EMEA business. In wholesale, we knew this year would not be about growth. However, we've been working closely with our key wholesale partners and continuing to reduce in-market inventory and building plans for the year ahead. Since the start of Autumn-Winter '24, our direct-to-consumer business in the U.S.A. has been encouraging with improved consumer demand. As we have outlined before, there is a lag between consumer pool and wholesale orders. In the months ahead, our partners will place orders for Autumn-Winter '25 and more encouraging consumer demand today should lead to stronger USA order book for Autumn-Winter '25. As product momentum continues to build next year, there is the opportunity to take in-season reorders to drive growth. Turning our attention to EMEA. We have continued to see good strategic progress in our EMEA conversion markets. Italy, Spain and the Nordics saw good growth in H1, while German revenues were flat. We remain confident in the future growth prospects of these markets. We launched our first stores in 3 new European countries with the opening of Stockholm, Copenhagen and Vienna. These markets provide further runways for growth. Also, we've seen real success in key cities where we've opened 2 stores. Some examples include Milan, Berlin and Barcelona, and we see further opportunities ahead in more markets, both in EMEA and globally. Back at our full year results in May, I shared an update on our Japanese market, which continues to perform well and which remains a significant growth driver as we have high brand engagement and low penetration at only 4 pairs per 1,000 people nationwide. Japan remains our largest DTC market with 80% of revenues through our own channels, and we continue to target new store openings in and around both Tokyo and Osaka. We have a healthy franchise business with great partners, and this remains an important part of our growth strategy. Our franchise partners help us in extending our reach beyond Tokyo and Osaka and growing the brand across Japan. In H1, we opened 3 new DTC stores and 2 franchise stores and we have a strong new store pipeline in H2 and the year ahead. As you are aware, we've been investing in critical systems for our future growth, and I'm pleased to say that 2 of our biggest projects are now live or close to final implementation. The customer data platform, which gives us a single consumer view across both direct-to-consumer channels, it's now live in EMEA and the U.S.A., and this will enable more targeted marketing and personalized journeys. The benefits from the CDP will increase over time as we gather more data. Our demand and supply planning system will be live by end H1 FY '26. This will help us to improve availability whilst reducing working capital. And again, we expect the benefits to build over time. Our product performance in H1 was in line with our expectations with direct-to-consumer payers down 3% on the year. As expected, boots were down 12% and we have made changes to our marketing approach from July, which will drive boots demand in H2. Shoes performed well with pairs up 7%, driven by core product and new styles like the [ lyle ] shoe which is shown in the middle picture here. Sandals were flat year-on-year, a disappointing performance following several years of growth. This is an area for improvement in spring/summer '25. Within sandals, we saw strong performance from mules and growing category. We have a strong product pipeline coming through. And as we called out in our statement, current trading has been driven by good DTC sales of new product supported by our product-led marketing approach. I'm now going to hand you over to Ije, who will walk us through AW24 focus to date. Thank you.

Thank you, Kenny, and hello, everyone. I'll now share the progress we've made with 1 of our 4 focus areas, pivoting our marketing towards relentlessly promoting our products. I'm 9 months in as the Chief Brand Officer, a new role created to pull together our product, marketing, sustainability and strategy efforts to drive the brand. And it will be an honor to take over as CEO of Dr. Martens the next year. It's a brand that I not only love but have always marveled at its resonance across demographics and cultures from generation to generation. While we have a lot of hard work to do, I'm encouraged by the progress we are making and excited by the opportunities ahead. We pivoted our marketing approach and organization this year based on 3 strengths that I found that were underplaying in our marketing. First, a premium position in the category by which we simply mean that the consumer is willing to pay more than the category norm for our products because they recognize the higher quality, design and craft of those products. Second, the consumer connection with our iconic DNA that allows us to connect both new and core products, so we get more bang for our marketing buck. So we will amplify the things that make DOCS, DOCS like the yellow Stitch, the groove sole, the heel loop and our distinctive silhouettes. And third, the correlation between our product attributes comfort, style, protection, et cetera, and the things that drive consideration for footwear buyers. Back in May, as part of this marketing pivot, Kenny shared this slide laying out the key product plan for autumn-winter '24. We still have the height of the season to come, but I want to share some early progress. The product pipeline is strong, so we'll continue to have more great products to drive our marketing efforts for seasons to come. In July, we launched a variant of our core icons in soft leather. We call it Ambassador. we know comfort is one of those attributes that really matters to consumers. And while we have great comfort options, we haven't made it a big part of our marketing efforts. So we leaned in hard on comfort with the line we've gone soft and focused all our channels from social media to in-store experiences and the organization on a whole on the comfort message. This has done really well for us a significantly outperforming comparable products from Autumn-Winter '23. We've continued pushing these products through the season, and they have consistently been in our top-selling products season to date. Comfort works really well for us. In August, we launched our Anistone boot, a biker boot style that borrows from our iconic and recognizable DNA to create a new silhouette for Dr. Martens. It leans on our premium position compared to our iconic 1460 boots. Retailing at GBP 210 in the U.K. versus a black smooth 1460 at GBP 170. We're pleased with the performance so far with strong sell-through metrics and consumer reaction. The future product line will continue to reflect this elevated style as our designers make the most of our premium position. Another example of the premium coming through in the new product is the Maybole square toe, which we focused on in September. At GBP 160, the Mary Jane shown here sells at a GBP 20 premium versus the related core product. Again, we've seen very strong sell-through metrics globally season to date. The Chelsea blue version you see on the right of the slide is a particular commercial and social media hit. In October, we switched our focus from new product back to the core, and the iconic 1460 boot in particular, albeit with a few new friends. Let me share the global campaign we made, and then I'll share a few ways we've executed it in the market. [Presentation]

[indiscernible] Bruce the actor in that piece models the iconic 1460 boot alongside new products inspired by it. The sub boot max, which is a big part of our cold-weather lineup, and the dramatic 14XX that showcases DOCS product innovation at its most avant-garde. But the focus of the campaign is the 1416 black smooth boot and the core of our brand. While fully reigniting our core icons will take several seasons, we're pleased with how much attention this campaign is getting. You can see on this slide some of the marketing in key cities globally. The campaign came to life on streets in all our retail stores around the world and in collaboration with many of our wholesale partners. Since it launched I've visited teams in Berlin, New York and have across in London and the engagement and the feedback we're getting from consumers on the ground is encouraging. It's work that we will carry forward. And this month, as the weather turns cold in most of our markets, we've turned our marketing lens on another product benefit, protection with the launch of our winterized line. This is only just landed, but again, the new product lines look great and early consumer feedback is positive. I hope that gives more color on the product led marketing pivot, the observations and insights guiding the work and the early results we're seeing. Thank you for listening. I look forward to getting to speak to you more in the coming months in my new role. Back to you, Kenny.

Thank you, Ije. As you have heard, we are on track to deliver on our 4 key objectives that we set out for this year. We will get USA DTC back to growth in H2. We have refocused our marketing on our product. We've reduced our cost base, and we have strengthened our balance sheet. Ije and Giles will update on our crucial Q3 period at the end of January. Today marks my last results presentation, the CEO of Dr. Martens before handing over to Ije in the New Year. When I joined Dr. Martens back in 2018, it was a brilliant brand. It is still a brilliant brand but it's now a bigger and better company with more developed infrastructure and incredible people. The most exciting part is that the best still lies ahead for Dr. Martens, and I look forward to watching Ije, Giles and the team realize that growth opportunity in the years ahead. Thank you. We will now turn things over to a live Q&A. Please state your name and who you work for before asking any questions.

[Operator Instructions] Our first question is from Kate Calvert from Investec.

Two from me. You mentioned that you would reduce the purchase of core products again in FY '26. Is this likely to be less of an opportunity than you have achieved in the current year? And I suppose, thinking a little bit further forward in the implementation of the new supply and demand system, will the benefits from that really be felt in FY '27 or do you think you can get any in '26? And then in terms of my second question, any thoughts on manufacturing cost price inflation going into next year? And how will this feed through into price for next year? Because I do note Ije's comments on the premium for the standing of the brands and the fact that people are perhaps prepared to pay more.

Kate. Yes, you're correct. We do envisage that we will buy less product next year than we're going to sell. We've not quantified the scale of that reduction yet. But I think one would expect, again, a significant reduction in inventory year-on-year, which in the future, Giles will clarify. In terms of the impact of the new supply and demand system, that would really benefit financial year '27 and in terms of improving forecast accuracy. On the second question, Giles is going to talk to manufacturing costs and then I can tell you what we've done on pricing.

Yes. I mean, so manufacturing costs, we obviously -- as we do, we always have a cost inflation, we look to try and manage that the best we can. So no, we don't see any huge impact from manufacturing price cost inflation in the new year.

And in terms of the second part of the question, which was around consumer pricing, our pricing for Autumn-Winter 25 is already set. And on like-for-like products, you will see no price increases from the brand.

Our next question is from Ben Rada Martin from Goldman Sachs.

I've had 3, please. My first is just on the wholesale channel, particularly in U.S. and Europe. Just interested maybe if you can talk to, I guess, what you're seeing with your partners sellout trends and inventory levels at the moment across both of those markets. Super helpful with some of those commentary around how you're thinking about the U.S. from here. I'm interested in, I guess, what you're seeing at the moment? And second question would just be on gross profit margins. It might just be worth useful -- it might be useful stepping through, I guess, the drivers between the change year-on-year. I think it was slightly down versus last year's metric. And then finally, just on OpEx savings. Excellent effort in terms of getting through those quite quickly. I'm interested now, do you think the cost base is kind of at a stable level where you can kind of reposition for growth? Or do you think there's still opportunities for efficiencies as we go forward?

Ben. I'll take the first one on wholesale, and then Giles is going to pick up on gross profit and OpEx. In terms of what we're seeing in the wholesale channel, I think as we've said, we expect wholesale to be down this year. We know that because we know on the order book. In terms of the sell-out, the trend is not as good as our DTC business. However, the really encouraging fact is the inventories at our wholesale customers, both in Europe and in the U.S.A., are down more than the sellout. So the slide that I showed earlier today about the lag effect, the improving and encouraging trends we're seeing in direct-to-consumer. I think we'll see some of that translate into wholesale next year.

In regards to gross profit or gross -- I think you're after gross margin, you're right, it's actually broadly flat year-on-year, but I mean it's very, very slightly down. We've seen a positive move on D2C, which obviously helps. We've seen a slight headwind in regards to our product mix. So there's lots of sort of moving parts in there. But overall, we've managed to hold our gross margin flat. In terms of OpEx savings, I think when we said when we set out at the beginning of the year -- sorry, at the full year results, we said that we would focus on operational back office, procurement savings, those sort of things. we wouldn't cut into the muscle of the business. We wouldn't take any cut -- out of direct marketing or out of retail stores, which is exactly what we've done. We believe that we have now rightsized the cost base for the business today.

Our next question is from Richard Taylor from Barclays.

I've got 3, please. Firstly, can I push you a bit more on inventory, please? I think this is just over GBP 100 million back in FY '21, '22, I realize that was during COVID so perhaps not the right time to think about. But is there any chance you can get down to that sort of level over the medium term with your current D2C and wholesale split? Secondly, Giles, you mentioned the lease duration being quite short on stores, if you did want to come out. Just wondered, did you allude to this because you were considering making some cuts to the store portfolio. And more generally, can you update us on your approach between D2C and the use of wholesalers as you look forward? And then finally, thank you for the data on the boots market. Can you help us sort of match up how you performed versus this market over the last 12 months or so?

We start with inventory, Richard. We're not quantifying the number today. I think what we're saying is that we will buy less core product again next year than we're going to sell. So we'll start to see that inventory come down, but we're not going to quantify the exact number today. Do you want to talk about the leases?

Yes. So turning to leases. We made reference to it really so that people understand the full extent of the lease liability and also the fact that we very tightly manage our store portfolio and we never have anything longer than a 5-year lease or it was a break at 5 years. In terms of are we planning to exit? No, it's just -- it was focused solely around giving it an explanation by what we do to make sure that we manage very tightly our both CapEx and our leases.

I think in terms of your second part to that question, Richard, around DTC and wholesale. I mean, clearly, what we've said is that both channels are really important to the company. We've driven our growth over the last few years by building out the direct-to-consumer business, and we'll continue to do that going forward. But we know that one of the things that wholesale does is it brings new consumers into the brand for those people who wake up in the morning and they haven't decided which brand they want yet and they go, we want a pair of boots and they go to a store and they discover a great assortment of Dr. Marten. So both channels, DTC and wholesale will continue to be important to us. In terms of the boots market in the U.S.A., where we gave the statistic of the boots market being down 12% year-on-year. I think clearly, we've said that our business in the U.S.A. was down more than that. So in the first half of the year, this year, we've underperformed relative to that. Most of the action plans we put in place in the United States were intended to deliver getting the USA DTC business back to growth in the second half. And as we've said, we feel encouraged by where we are in terms of current trading in the United States, and we believe that we'll deliver on those numbers.

[Operator Instructions] Our next question is from Charlie Rossbach from HSBC.

I wanted to ask you about inventory. But I think another question that might be have done. Can I just push you a bit on your leases? There aren't -- I don't know any company that says they aren't tightly managing leases. Across your portfolio, are you seeing rental costs come down in the areas you're in? Or you seeing them stay flat? And the impact -- are you keeping your store portfolio, are you expecting to keep it constant across your -- across your region -- sorry, the proportion within your regions because I appreciate the guidance you gave us before the U.K. budget, so increases in NI might well impact how you viewed stores at the marginal level.

I think if we take the last question first. I think Dr. Martens does 82% of its revenue outside the U.K. and 18% in the U.K. So we're very much a global brand. And as we've said previously, we have no real plans to significantly increase the store estate in the U.K. I think looking out, our focus will be on growing the brand outside the U.K. in terms of new store openings. And I think you see that this year in terms of the stores we've opened have been in predominantly in Europe and in Japan. I don't know if you want to talk to cost, Giles?

Rental costs, I mean basically, it's -- I mean, it's city by city, country by country. We focus -- we do the best deals we can do. But actually, interestingly enough, where we feel the rental costs are too high, we will look to either exit that store or actually maybe not take on that store. And actually, you will have noticed this year that we have actually taken down the number of stores that we were planning to open, not because we don't want to open them because we couldn't find the right stores that deliver the right financial metrics.

Understood. And then sorry, finally, are you expecting a material difference in your finance cost on the back of the -- on the back of the new financing?

As explained during the presentation, we expect consensus finance costs to stay in line with consensus already guided.

Our next question is from Bob [ Pyrell ] from RBC Capital Markets.

It's Piral here from RBC. I have 1 question on the product strategy, if that's okay. And I guess it's directed to Ije. Just wondering really whether there is any inclination to transition some of the offer towards more technical categories. We've seen a strong growth profile in hiking and outdoor pursuits post COVID. I think some of your competitors have been perhaps better positioned to capitalize on that trend. And we know Dr. Martens has a slightly more lifestyle-focused positioning. Is that an area that you see as an opportunity? And can we expect to see some changes to the overall product portfolio?

Thanks, Piral. The first thing to say is I'm a real believer in our product strategy. And if you look at my presentation just now, the level of attributes we can talk to our products about, really excite the market and work in the market. So I don't think this is about any new product strategy, but we will speak to functionality -- and so things like comfort might create new wearing occasions for our users and for our wearers, and that's a good thing. But no, we have no plans to go compete in other people's spaces. We're quite happy with where we're positioned. We just have to work harder to make sure that the customer is discovering the right product. And when we do that, we already show that, that works really well for our brand.

Our next question is from Kate Calvert from Investec.

Can you hear me now?

Yes, kate.

Just a question on your sandals performance because you called that as being disappointing. I'm just wondering why do you think it was disappointing what do you think potentially you got wrong there?

Ije is going to take that one, Kate.

Yes. Thanks, Kate. It's a good question and one that we've really paid some attention to. The first thing to say is that sandals performance is coming off of a few years of significant growth in sandals. I think over 3, 4, 5 years, sandals has grown from 5% of our business to 9% of our business. So just a bit of context for that performance. We also would say to ourselves that our summer lineup needed a bit of refreshing. And there are products that did really well in there. We did really well with mules but we needed a bit more newness in our summer lineup. We would be -- we'd have to admit to ourselves. And so I'm really excited about what we have in this spring/summer. I think we're really excited about that line. So a bit of context that we're coming off of quite a few years of strong comps, but also we could put a few more things in the product line, and we'll do that in this upcoming spring summer.

[Operator Instructions] we currently have no further questions. So I'll hand back to Kenny for closing remarks.

Great. Thank you very much. So I think today really has been about demonstrating that we have delivered on the action plan that we set out back in May. Our results are in line with expectations, and we're delivering on our strategic objectives. We'd like to thank you for your time and for your attention. And our next update will be at the end of January when Ije and Giles will update on our third quarter performance. Thank you so much.