Dr Martens Plc

Good morning and welcome to Dr. Martin's FY25 Q3 trading update. I will now hand over to Chief Executive Officer E.J. Macquarie. 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 that 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. Martin's. I also want to take a moment to thank Kenny, my predecessor. He was a great leader of this business for seven 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. Martin's 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 FY25 on the four objectives we set out to achieve. Right-sizing our operating cost base, strengthening our balance sheet, pivoting our marketing to relentlessly focus on our product, and returning our USA DDC business to growth in the second half. We talked at length during the first, about the first three 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 USA DTC performance. However, you'll see in today's statement that USA 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 two largest markets of UK 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 in 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 FY25. 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 trading and execution plans. I'm looking forward to coming back at our FY25 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. Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. And please make sure the mute function on your phone is switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star 2. Again, it is star 1 to ask a question. We'll take our first question from Kate Covert from Investec. Please go ahead.

Good morning, everyone. It's Kate Covert here from Investec. A couple of questions for me on the Americas, please. Could you give us an idea of how your infantry 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?

Thank you. Thanks, Kate. I'll say a few things about inventory and 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 would say is for the quarter ahead, we're pretty confident. Wholesale will be a much bigger part of this quarter. That gives us visibility. So we feel good about our plans in wholesale. John, do you want to add something and maybe answer the FX question?

Yeah. So, I mean, obviously, you see usually in season ordering on nothing that we'd say is 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 peaks. So that's helped a little bit in recent years. um in recent times uh the euro starts later on and the end as well so i would have said a little bit of positivity of a few million on the revenue if we continue the current rates uh versus what we talked about a little bit dropping through to the bottom line perfect thanks very much we'll now take our next question from john stevenson from peel hunt please go ahead hi good morning guys um i wonder if you 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, the extent you've sort of got visibility on that at the moment. And secondly, obviously, you know, you've had a success, I guess, focusing on, you know, product-driven marketing. Can you give another feedback in terms of how you felt your sort of approach to marketing and trading has gone over peak, sort of positives and negatives?

Yeah, 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 sell-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, you know, 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 product. 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'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 are 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 product in seasons ahead. It's 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.

Okay, brilliant.

Thank you. And our next question is from Ben Radamatin from Goldman Sachs. Please go ahead.

Great, good morning, EJ, Giles and Bethany. Thanks very much for the questions. I had two, if that's okay, please. First, just on Europe DCC, 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 US 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. Thanks very much.

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'd spoken to kind of an industry, boots category, growth number. I wonder how that went in the kind of quarter.

Thanks. 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, UK and Germany are where we really saw that affected 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 three weeks of December. You know, we had a very successful Black Friday pretty much everywhere, Cyber Monday. And then we kind of, typically the market would 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 you can Germany high street is where we saw a lot of those challenges. In terms of the US, we have no big evidence that boots market 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 US. And then Giles, anything to add to that?

No, I was going to say, I think you pulled on the other two categories did well as well. Actually, we saw good, good, the ticky. Yes. Thanks very much.

Thank you. We will now take our next question from Alison Lago from Deutsche Niemes. Please go ahead.

Thank you. Good morning, and thank you for taking my questions. Probably following on, I guess, from the themes we've been talking about, but just coming back to that European promo activity that you saw, has that really weighed on more of the kind of seasonal product, or has it taken away from the core product too? And just kind of wondering what your expectations are on that front for the remainder of the year. And then in terms of wholesale, the phasing obviously can always be a bit lumpy. It was particularly lumpy, I think, last year in terms of Q3, Q4. Should we expect a more even sort of phasing between Q3, Q4 this year? Or actually, should we be thinking about a similar rate to what we've just seen in Q3?

So thanks for that, Alison. For the first question, as you would imagine, if the market is promotional, that's going to impact seasonal products. For us, our full price continued to do well. And as I said, the new product continued to do well. But customers were being presented with and saw a lot of promotion in the market. And so you're going to have that affect the product across the board. So I think that's what I would say about that. In terms of wholesale timing, look, I'm not going to go too much into what we expect ahead, apart from to say we feel good and we have visibility for the rest of this quarter and the rest of the financial year. The timing and the shifting of that, we have to manage, and we know how to manage that. So we feel we have good visibility for the rest of the year.

actually yeah i don't know if you want to have something yeah i certainly i would add a little bit just just more of a prep for the for the end of the year obviously easter will play a part both in d2c and wholesale ordering and obviously last year we will actually have a year or this year in fy25 where actually easter doesn't fall at all so it was in quarter one and it'll be in quarter one fy26 and it was in quarter four fy24 so So that will have a little bit of a part to play as we get closer to the end of the year, but we just want to really put on the radar.

Great, thank you.

Thank you. As a reminder, to ask a question, please signal by pressing star one. And we'll take now our next question from Natasha Bonnet from Morgan Stanley. Please go ahead.

Yes, good morning. Thank you for taking my questions. I've got three. So the first, just on brand momentum, can you share any indicators you have on Dr. Martin's brand momentum currently? What are you hearing from your key partners? And do you expect to see a return to growth in the number of pairs sold in fiscal year 26? The second, just on your stores, you had planned to open 15 stores in fiscal year 25. Can you tell us the regional breakdown of these new stores and how they've been performing, but also what your plans are in terms of store openings for fiscal year 26? And then lastly, any comments on current consensus at this stage, so fiscal year 25 EBITs are around 60 million and fiscal year 26 of around 100 million? Thank you.

Thanks, Natasha. I'll take the brand momentum question and then Giles will answer the questions on stores and consensus. We, as you probably know, we do a big brand survey at the end of the year. We don't have the data on that yet, and we'll probably have a few things to share at the four-year results. And so the thing that is commercial that you can really keep an eye on, and I've talked about this before, How open to new products, particularly in the premium end, is the customer? And there, we've had an encouraging and successful year. I'm not going to dive into what that means for Pairs growth now, because we're really focused on landing this quarter. But our Pairs targets, et cetera, will be something we talk about over the full year. But the evidence on brand that I can share with you is the success of a new product, and particularly success of a new product that is at the premium range. Giles, you want to talk about stores?

Yeah, so I think we talked about stores. We talked about opening sort of 10 to 15 in FY25. If you remember at the half year, we were actually, we were flat on stores and we pulled down on them slightly, more just because of trying to find, you know, getting the right stores at the right time and just a slight delay. If you also remember, we talked about really focused on EMEA, Japan and other regions in the APAC. We've done very little in the US. We opened one during the period, which actually was an outlet store. So I would say our store count is slightly down against where we said we would be at guidance back in the full year, albeit probably near in line with what we said at half year. And again, that's not because we're slowing down. That's just trying to find the right stores in the right locations. In terms of what does that mean for FY26, we haven't actually guided it on those numbers, and we'll pick off. In terms of consensus, just picking through, sorry, you were, I think we're talking consensus around EBIT for this year in the sort of mid-60s, and I think we're talking around 100, as you say, for FY26.

Thank you. We will now take our next question from Anne Critchlow from Barenburg. Please go ahead.

Thanks very much for taking my questions. I've got two here. I wonder if you could talk a little bit about the performance in terms of type of products, so men's versus women's, and then your newer lines like soft leather, which I think you said were doing well, winterized lines and so on. And then secondly, how should we think about OPEX looking into next year in terms of underlying inflation? versus those cost savings that you've got coming through. Thank you.

Thank you, Anne. I'll take the first question, and Jazz will talk about our picks. I'm not going to break down in terms of anything on gender. As we've talked about, boots have been tough, But on the flip side, shoes and sandals have been really positive for us. I'm not going to go into too much detail on that. But to the other half of your first question there, yeah, the new products have done well. We've backed that with product-led marketing. And we're encouraged that when we talk to the customer about specific products, they respond really well. And so that's something you should expect us to continue to double-click on and push forward.

Hi, yeah. Hi, Anne. That's nice to hear from you. Just generally on OPEX. So as we talked about at the full year, we would aim to take 25 million of cost out of FY26 on a full year basis. And we have, you know, we're confident we said we have delivered that. We did it at the half year. The other, we also have some slight tailwind in the sense of our distribution costs, which was to do with excess capacity we had in our DCs. The costs have two elements to it. Firstly, obviously, OPEX, which is the fixed cost base. We also have a revenue-based cost that come through. So as the revenue top line goes up, you get a little bit of, obviously, additional costs from retail stores or distribution. What we're probably saying at the moment is we're looking to hold costs as tight as we can. We will definitely deliver that 25 million and the DC savings and we'll look to offset as much of the inflation as we can through in 26. Obviously some small headwinds coming through on Things like the national insurance change. I know we're not talking, it's not a big number, but those are numbers that will, there's less than 2 million, but we do need to flag those through. So I think the consensus numbers look around about where we'd expect OPEX to be and we're comfortable at that type of level and we'll look to manage as tightly as we have this year going into FY26.

Great. Thank you very much.

Thank you. As a final reminder, to ask a question, please signal by pressing star 1. We'll pause for just a moment to allow you to signal. And it appears there are currently no further questions at this time. With this, I'd like to hand the call back over to EJ for closing remarks. Over to you, sir.

Thank you. And thanks again, everyone, for your time and questions on today's call. As we've discussed, we are doing what we said we'd do. and we're on track for the four objectives of the year. This is a phenomenal brand, and the team and I, as I said in the statement, are squarely focused on returning the business to sustainable and profitable growth. If you have any questions following this call, please reach out to Bethany. Thank you.

This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.