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

Good day. Good morning, and welcome to Dr. Martens' FY '25 Q3 Trading Update. I will now hand over to Chief Executive Officer, Ije Nwokorie. Please go ahead.

Good morning, everyone. Thank you for joining today's call. I'm joined in the room by Giles Wilson, our CFO; and Bethany Barnes, who heads up IR here. Hopefully, you've seen this morning's Q3 trading statement. Q3 trading was as expected, and our guidance is unchanged. I'll give some detail on how we're feeling about Trading in a moment, and then we'll open it up for your questions. Before I do though, I want to say how excited I am to have taken on the role as CEO of Dr. Martens. I also want to take a moment to thank Kenny, my predecessor. He was a great leader of this business for 7 years, and I'm truly grateful for the time and commitment he put into a thorough and smooth transition. I spoke at the half year results about what makes Dr. Martens such a strong brand, its resonance across demographics and cultures, consumer recognition of our premium quality, design and craft and our product attributes, comfort, style, protection, things that are sought after by consumers everywhere. My job as CEO is to capitalize on these qualities, make DOCS an even more effective organization and pursue the growth opportunities this brand presents. Right now, that means delivering FY '25 on the 4 objectives we set out to achieve: rightsizing our operating cost base, strengthening our balance sheet, pivoting our marketing to relentlessly focus on our products and returning our U.S.A. DTC business to growth in the second half. We talked at length during the first -- about the first 3 of these objectives at the first half results, and we're well on track with all of them. It was too soon then to talk about U.S.A. DTC performance. However, you'll see in today's statement that U.S.A. DTC was up 4% constant currency in our key Q3 period. Whilst there remains work to do, we're pleased with the early progress. We're doing what we said we would do. In EMEA, we saw a weaker performance, particularly in our 2 largest markets of the U.K. and Germany. As usual, we participated in seasonal clearance and had a good Black Friday and Cyber Monday performance. In December, however, we saw very deep and prolonged discounts on the high street, and we did not do this to the same extent the depth and length of many others in the month. This helped protect our bottom line, but it did cause some revenue softness. We have since seen a return to more rational trading behavior in the market. EMEA overall was flat constant currency with growth in wholesale offsetting the small decline in DTC. And finally, our APAC region continues to motor with our growth engine here, Japan, delivering another good period. China also had a strong performance. So there's no change to our guidance or how we're feeling about FY '25. We're operating against a variable and uncertain consumer backdrop, which I'm sure you've heard from others. And against this, we're focused on our trade-in and execution plans. I'm looking forward to coming back at our FY '25 results at the start of June, to give you a much fuller update on how we're looking at the business, and I'm looking forward to getting to know you all in due course. With that, operator, please, can we open up for questions. If you could say your name and firm at the start, that would be great. Thank you.

[Operator Instructions] We'll take our first question from Kate Calvert from Investec.

It's Kate Calvert here from Investec. A couple of questions for me on the Americas, please. Could you give us an idea of how your inventory is looking by channel post-peak? And on the wholesale side, I know you were not planning for any in-season ordering, but was there any? And then just a quick one. Could you give us an update on the FX headwind from November, please?

Thanks, Kate. I'll say a few things about inventory in wholesale and Giles will say a few other things about that, but also take the FX question. So inventory is down. And as you know, that was one of our targets and one of our objectives for the year. So in our inventory, we're down. The good news is that also our wholesale partners in the U.S. as elsewhere are also significantly down year-on-year on inventory, which creates, of course, opportunity going forward. So I think that's the main thing that we're focused on. In terms of in-season, I think these numbers are too small to begin to play with. All I will say is for the quarter ahead, we're pretty confident. Wholesale will be a much bigger part of this quarter. So that gives us visibility. So we feel good about our plans in wholesale. Giles, if you want to add something and maybe answer the FX question.

Yes. So I mean, obviously, you see usually in season ordering on but nothing that we'd say there's any more significant than we would have seen in prior periods. In terms of FX, we've obviously seen a bit of benefit with the U.S. dollar coming off from its peak. So that's helped a little bit in recent times. The year rates and the yen as well. So I would have said there's a little bit of positivity of a few million on the revenue if we continue at the current rates versus what we talked about at the full year and a little bit dropping through to the bottom line.

We'll now take our next question from John Stevenson from Peel Hunt.

I wonder if you could just give a little bit more color on the retail sell-through across your wholesale partners and the extent to which that's informing the build for the autumn/winter '25 order book, to the extent you've sort of got visibility on that at the moment? And secondly, obviously, you've had a success, I guess, focusing on product-driven marketing. Can you give a feedback in terms of how you felt your sort of approach to marketing and trading has gone over peak sort of positives and negatives?

Yes. So let's deal with the wholesale piece. There hasn't been any massive recovery in sell-through. I think the important point, though, is that the sell-in, so that the amount of inventory going into them is less than the sell-through. And so that does create opportunities going forward. In terms of how that is -- how that looks for the autumn/winter '25 selling in, we're early in that process. We're encouraged by the conversations we've had, but I think it would be too early to start giving you a scorecard on that. But we're encouraged by the conversation we had. Your second question is related, which is around how has the product-driven marketing gone. The main thing to say about that, that we're pleased with is how that's driven sales of our new products. And let me just say a couple of things about that. The first thing is that for any brand, the ability to present new products to a customer is a really good measure of strength, particularly as is the case here, if those are products at the same or higher price than your core, and that is -- that's what we've done. I think the second thing to say about new products for us, which is encouraging is also that new products for us doesn't mean non-core. Some of our best-selling new products were actually core products, but you do a soft leather, and we consider that new and those products, which we've driven marketing around have done really well. We see those as really positive stories and conversations that we're having with wholesale right now, as we begin to talk about new products in seasons ahead is a really positive conversation. So nothing to report firmly yet, but we're encouraged by the early conversations. And the new product is a big part of that story.

And our next question is from Ben Rada Martin from Goldman Sachs.

I had 2, if that's okay, please. First, just on Europe D2C. Super helpful you guys calling out a bit of an elevated pricing competition into December. I wonder if you can talk about maybe some of the key geographies you saw that in and some of the key retail formats. And then the second was just on the U.S. DTC business. I know in the past, you've spoken to kind of like a market level of growth. I wonder how that went in the quarter relative to your growth in that channel.

I'm going to get -- Ben, if you can just clarify your second question, what markets are you talking about? Can you just clarify your second question?

Just to clarify on the second. I think in the past, you've spoken to kind of an industry Boots category growth number. I wonder how that went in the kind of quarter?

Okay. I'll take the first one. I'll take the first question. As we said in -- certainly, I said it in my opening statement right now, U.K. and Germany are where we really saw that effect in performance. Year-to-date, our conversion markets are in growth. So we really saw the impact of that. And again, to emphasize, we saw that really in those first 3 weeks of December. We had a very successful Black Friday pretty much everywhere, Cyber Monday. And then we kind of -- and typically, the market will sort of pause those seasonal discounts.The market kept those discounts, and we decided not to chase after that to protect margin and to protect the brand. So U.K., Germany, High Street is where we saw a lot of those challenges. In terms of the U.S., look, we have no big evidence that Boots market is not -- doesn't continue to be challenged. We don't have any new data on that beyond what we reported at the half year, but there isn't any evidence of Boots doing any better. So that was much more of a broader other product categories also doing well for us. And then just driving our own Boot sales as we could, but it wasn't due to any big improvement in the Boots market in the U.S. Giles, anything to add?

No, I was going to say I think you pulled on the other 2 categories did well as well. Actually, we saw good particularly [indiscernible]