Dr Martens — Brand at the heart of the story

Research: Consumer

Dr Martens — Brand at the heart of the story

Dr. Martens (DOCS) recently hosted a teach-in, focusing on product and innovation. The event explored how DOCS aims to keep its brand and range appealing to consumers, and outlined its sustainability initiatives, with presentations from its leadership team. Successful turnaround of operational issues in North America and delivering consensus expectations could enable the valuation discount to peers to narrow.

Russell Pointon

Written by

Russell Pointon

Director of Content, Consumer and Media

Consumer

Dr. Martens

Brand at the heart of the story

Retail

QuickView

22 September 2023

Price

144p

Market cap

£1,426m

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Share details

Code

DOCS

Listing

LSE

Shares in issue

989.7m

Business description

Dr. Martens is a British global footwear and clothing brand that sells in over 60 countries. The group has a multi-channel sales strategy, direct to consumer through online and own stores, as well as B2B through wholesale and distribution.

Bull

Globally recognisable brand with attractive strategy of buying in distribution partners.

Loyal customer base with strong consumer sentiment scores.

Push into sustainability through refurbishment of products and entry into the resale market could open up new revenue streams and further drive customer loyalty.

Bear

Distribution issues in the US have hindered revenue performance.

Competitive industry with investment needed to maintain relevancy and popularity among consumers.

Relatively high price point of products could deter consumers with squeezed household budgets.

Analysts

Russell Pointon

+44 (0)20 3077 5700

Milo Bussell

+44 (0)20 3077 5700

Dr. Martens (DOCS) recently hosted a teach-in, focusing on product and innovation. The event explored how DOCS aims to keep its brand and range appealing to consumers, and outlined its sustainability initiatives, with presentations from its leadership team. Successful turnaround of operational issues in North America and delivering consensus expectations could enable the valuation discount to peers to narrow.

Product innovation and brand appeal

The DOCS brand has global appeal with iconic footwear silhouettes. The group has invested in its product team to enable growth at scale and increase its go-to-market functions. The group has four ‘icons’ within its product range and innovation is always through a DOCS lens, whereby the team takes inspiration from its archives to refresh, renew or revolutionise products. A key aspect of driving brand awareness and relevance among a younger demographic is through partnerships and collaborations with globally recognisable influencers and organisations. The group then ensures marketing campaigns on social media and partnerships with high-end media platforms create further ‘brand heat’. DOCS’ consumer base is very diverse as well as loyal, with the brand consistently above peers for sentiment scores among UK consumers, which continues to be a driver for the group’s global growth prospects.

Bringing sustainability to the fore

Management presented DOCS’ sustainability strategy around ‘planet, product and people’. The group is looking to reduce its environmental impact through, among others, ensuring its leather is sourced from Leather Working Group certified tanneries as well as exploring alternative PVC products to use in its footwear. Commitment targets of 100% natural materials from regenerative agriculture by 2040 and removing fossil-fuel chemicals by 2035 are providing pathways for its sustainability initiatives. Management believes the second-hand market is a huge opportunity for the group and plans to launch a UK repair service and trial a second-hand re-wear site in the US.

Valuation: Value at current multiples

DOCS currently trades on discounts of 48% and 32% for EV/EBITDA and P/E, respectively, in FY24 to global luxury, global footwear and sportswear brands. A weak share price performance since IPO in early 2021 due to a combination of operational issues and wider market effects means its valuation, naturally, looks low relative to its historical trading multiples. Consensus expects further margin declines in FY24 before a recovery in FY25.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA
(£m)

PBT
(£m

EPS
(p)

EV/EBITDA
(x)

P/E
(x)

03/22

908.3

263.0

214.3

18.1

6.5

8.0

03/23

1,000.3

245.0

159.4

12.9

7.0

11.2

03/24e

1,034.4

233.5

140.6

10.6

7.4

13.6

03/25e

1,111.4

260.3

158.9

12.1

6.6

11.9

Source: Refinitiv. Priced at 21 September 2023.

EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.

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General disclaimer and copyright

This report has been prepared and issued by Edison. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. Where Edison has used consensus estimates within this publication, we do not guarantee their accuracy or completeness.

Exclusion of liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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