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

Hello, everyone, and welcome to the Dr. Martens' Q3 Trading Update. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Ije Nwokorie, CEO, to begin. Please go ahead.

Good morning, everyone, and thank you for joining Giles Wilson and I on the call this morning. You've hopefully all read the statement. In a moment, we'll open up to your questions. But before we do, let me give you a brief update on our strategic progress to date. This year, my first in a row, is a year of pivot. And what do I mean by that? I mean making the necessary changes to set us up for sustained profitable growth. And as I've said each time I've spoken to you, these changes can involve hard decisions, such as returning to a disciplined approach to promotions and incurring the top line headwind as a result. It means simplifying our operating model and ways of working to ensure our people and processes are truly consumer first and contribute to making this the world's most desired premium footwear brand. It means the hard work, optimizing each market for the right distribution. So our wholesale partners and our DTC offering complement each other instead of acting in competition. It means reducing reliance on off-price deals, particularly in America wholesale, which, if you remember, was a top line benefit in FY '25. And it means starting to assemble a lineup of fantastic distribution partners in new markets such as Lat Am and UAE, where it doesn't make sense for us to have a DTC presence, but where there is still untapped demand for our brand. Those are some of the things that this pivot is about. Our Q3 figures demonstrate the progress we're making. I'd call out Americas where on a 2-year stack basis, our growth rate has accelerated by almost 20 percentage points. This growth was across both retail through great in-store execution and wholesale, particularly with our largest partners. Wholesale across the group performed well. And Q3 is the first quarter in over 3 years where we've achieved wholesale growth in all 3 regions. You will recall me talking about the importance of wholesale growth in this strategy. APAC saw a strong full price revenue performance. And again, I'd call out the important market of South Korea as a standout market for us. E-commerce was the channel particularly impacted by our planned reduction in promotions and clearance, and you'll see that across all 3 regions. EMEA also continued to experience a challenging consumer backdrop, which I'm sure you've heard from other companies. And coupled with our disciplined approach to promotions, this has impacted our DTC results in EMEA. It is worth highlighting, however, that overall EMEA pairs were slightly up in the period. So we're continuing to get pairs on feet as well as grow our bags and accessory business. We will deliver all 4 of our strategic objectives this year. What are they? Reducing reliance on discounted pairs in America wholesale, driving pairs growth in those new product families I've told you about, Buzz, Zebzag, Lowell, opening in new markets through our capital-light structure and simplifying our operating model so we better serve our consumers. As we talked about in November, the primary financial metrics we're focused on this year are quality of our revenues, profit before tax and cash. And on all 3, we're performing in line with our plans and happy with our progress. We remain on track to deliver significant year-on-year growth in PBT through a combination of healthy margin and good quality revenue and strong cost control. We're in year 1 of a multiyear strategy at Dr. Martens, changing from a channel-first mindset to a consumer-first mindset. So there remains much work to do. And while we're pleased with progress, we continue to be laser-focused on execution, and you'll hear me talk about that again and again. With that, I'll open it up for questions. So Nadia, over to you.

[Operator Instructions] The first question goes to Kate Calvert of Investec.

A couple for me. The first question is, could you talk about the sell-through rate in the U.S. wholesale and sort of more generally, the quality of the stock in both wholesale and D2C at the end of the period, you sort of pretty happy with where you are? And my second question is just on the U.S. price increases for spring/summer, which you're putting through to offset tariffs. Can you talk about how these have been put through? What sort of level of increase has gone through in the end? And are there any early indications on how they've been received?

Yes. Kate, as you know, this is just a Q3 trading update. We're happy with sell-through rates. It's the reason why the order books are healthy because as partners sell through, they place future orders and with that confidence in the performance. So we're happy with sell-through rates. I'm not going to give you any specific figures, but the health of the order book is the ultimate signal that, that is in a good place. And in terms of quality of stock, we're also really happy with what we have and what our partners have. There is some in-season orders that our partners place, but it really is the order book, the forward-looking order book for autumn/winter '26 and spring/summer '27 that gives us the confidence in the order book. So they have the right levels of stock. Inventories are significantly down. And more importantly, they have a broader assortment of products than what they probably had 12, 18 months ago. On U.S. price, it's still early days. We're still in the third week here. But we have no reason to be -- no evidence to be worried about that. Those price increases were different from different products. So I can't kind of give you a specific increase by individual products. But in terms of how the consumer is reacting to that, it's early days, but we've seen nothing to worry about. The most important point is to again mention that while this is to mitigate tariffs, this is really the first price increase we've taken in 3 years in America. So we are not expecting any negative consumer reaction, but we will continue to track how that performs in the market.

And just to say that, that's in the marketplace. So wholesale customers, you might have now taken that increase through. So we have get the pushback from our wholesale partners.

The next question goes to John Stevenson of Peel Hunt.

Two questions from me, please. First one, just on the EMEA. I mean, it seems like obviously, EMEA has been undermined, I guess, to a degree by discounting within the wholesale channel. I mean how do you deal with that? And does that change your thinking in terms of channel mix going forward? And second question is just on the order book for autumn/winter '26, which I guess we're in the sort of build for at the moment. Can you talk about how that's going both in terms of, I suppose, overall size of the order book and also the quality of the order book we talked about in the past, obviously, the sort of mix of product that's going in there.

Yes. I'll answer the second question first, and it's very similar to what I just -- what I said to Kate about the overall order book. We're happy with the quality of the order book. It's a healthy order book. Our partners are buying a spectrum of products. So they're back in our core products, but also back in our new stories. And as I've talked to you previously, we can go into more depth in the full year, how we really work closely with them over multiple seasons as opposed to just give them a portfolio of products to place an order on. So we're really happy with the diversity and the spectrum of assortment that they are buying, and that's definitely the case in EMEA. As you've seen, EMEA wholesale is in growth. And so that's a really healthy relationship there. And it may be -- and I wanted to answer that first -- the second question, Q3 was promotional in EMEA and the consumer, generally speaking, across categories, not just in our sector, was looking for deals. And wholesale has a really good role to play for us in that. We've never said that this business shouldn't have promotion. It is right to reward the consumer with a deal and particularly in that as you approach sort of Black Friday, Cyber Monday, that whole period leading up to Christmas. The consumer rightly so and all of us do it, looks for a deal. And it is important that our wholesale partners who have a spectrum of brands to think about can offer the consumer a deal. I think what we do is to make sure that in our DTC offering that we don't have to stretch as much as the wholesale partner -- partners do. I talked to you how we need to think about DTC less in competition with wholesale and much more as working in complement. And there are times when I'm really happy for wholesale to offer the consumer a discount, a promotion, and that's how the consumer will get that product from us and our wholesale and our D2C will remain more full price, more with some of our DTC exclusive offerings. So I'll give you an example. We did really well with our collaborations in Q3, whether that was something like Wednesday or the Marc Jacobs. Those are not available in wholesale. They only sold in DTC at full price. So that's the way we think about the marketplace. Every different channel has a role to play. And -- so I'm not critical of our wholesale partners who have offered some discounts. I just want to make sure that in DTC, we don't think that we have to play second fiddle.

The next question goes to Anne Critchlow of Berenberg.

I've got 2 questions, please. The first one is about the return on advertising spend. I'm just wondering if you've been able to size up the effectiveness of your new marketing approach at this point. And then the second question is just about availability. So did you order too lightly in any particular product areas or for any particular regions? I mean could you have sold more perhaps in DTC?

So return on advertising spend, I think probably it's a good question. We're constantly reviewing it. We've got much better data through our customer data platform, so we can start to see how -- so we're much more targeted about the way we're doing that type of advertising. I think in terms of the bigger campaigns, we obviously have the big campaign, we have a big campaign 1 or 2 a year. We saw real interest from the rain boot. That particularly was one that generated a lot of interest and a lot of discussion around products, how you measure the exact returns is what I suppose you see through footfall. But I think the other piece, I think I would say is that we are trying to be much more targeted and understand how we work through the e-com, I think as you see. In terms of the second question, which I think is more about lines, I mean it's like all things, we've had a couple of really good products this year. We talked about it at the half year, the Kasey boot. We talked about the fact that actually that sold through really quickly, and we saw that with the Dunnet Flower sandal. And yes, it would be lovely to have some more of that. There was pent-up demand, and it's great because it generates that interest. Generally, stock availability is pretty good. The U.S. particularly has been challenged, if any area that we would say we've been -- we've seen 2 or 3 really good products have done really well. So Kasey was a good one. We saw it with Dunnet. We've also seen it with Mary Jane. And our aim is to make sure we keep stocks here. But yes, ultimately, we're pleased with our overall, I suppose, overall levels of inventory. It's always nice to have a product that scarcity as well.