Dr. Martens H1 2025 Earnings Report

Dr. Martens EPS Results

• Actual EPS: -GBX 1.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Dr. Martens Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Dr. Martens Announcement Details

• Quarter: H1 2025
• Date: 11/28/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, November 28, 2024
• Conference Call Time: 4:00AM ET

Founded in 1960, Dr. Martens (LON:DOCS) is an iconic British brand with a global presence. “Docs” or “DMs” were originally produced for their durability for workers, before being adopted by diverse youth subcultures and associated musical movements. Today, Dr. Martens has transcended its roots while still celebrating its proud history. It operates in over 60 countries and employs over 3,650 people worldwide. Its operations are split across both Direct-to-Consumer and wholesale channels, and in addition to its world-renowned “1460” boot its product segments span shoes including the 1461 shoe and Adrian loafer, sandals including the Zebzag mule, Kids ranges, as well as a growing line of bags and accessories. The Company successfully listed on the main market of the London Stock Exchange on 29 January 2021 (DOCS.L) and is a constituent of the FTSE 250 index. Dr. Martens operates across three geographic regions: EMEA, Americas and APAC. Our product segments include Originals, Fusion, Kids and Casual and a complementary range of Accessories.

Dr. Martens H1 2025 Earnings Call Transcript

Key Takeaways

• In H1 FY25 constant currency revenue fell 16% to €332 million with total payers down 20%, driven by a 27% wholesale decline versus 5% in D2C.
• Delivered $25 million annualized cost savings at the top end of guidance and tightly controlled operating costs to support extra brand investment ahead of the peak season.
• Reduced inventory purchases and used excess cash to pay down ~$40 million of term debt, cutting net bank debt by $85 million year-on-year and ending H1 with 2.3× net debt/EBITDA well below covenants.
• Completed refinancing with a new €250 million term loan and €126 million revolving credit facility offering three-year initial tenors (with two one-year extensions) and healthy covenant headroom.
• Pivoted to a product-led marketing strategy—highlighting core icons like the 1460 boot alongside new launches such as the Ambassador, Aniston and Mable—which, coupled with digital improvements, is expected to drive U.S. D2C back to growth in H2.

Presentation

[Kenny Wilson, CEO at Dr. Martens]

Good morning, everyone, and welcome to our FY 2025 Half One results presentation. I'm joined today by Giles Wilson, our Chief Financial Officer, and Ije Nwokorie, our Chief Brand Officer. Our agenda for today: I'm going to provide a short introduction before handing over to Giles, who will walk us through our Half One 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 four 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 USA direct-to-consumer business is working, and we'll return this business to growth in the second half.

[Kenny Wilson, CEO at Dr. Martens]

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 2025 would be a year of action, and we are taking focused action. Now, over to Giles, who will now walk us through the results.

[Giles Wilson, CFO at Dr. Martens]

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 four key areas. I set out back in May that we would take out £20 million-£25 million of costs from the business on a four-year basis, with the full benefit in FY 2026. I'm pleased to report we have delivered at the upper end of that range, at £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.

[Giles Wilson, CFO at Dr. Martens]

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 reduce 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.

[Giles Wilson, CFO at Dr. Martens]

For this year, we have also introduced adjusted profit metrics due to the one-off costs largely related to delivering the cost action plan. 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 payers are down 20%. However, due to better DTC mix, revenue is 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.

[Giles Wilson, CFO at Dr. Martens]

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 GBP 0.011. Dividend is set at one-third 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 that wholesale revenue would be down by about a third, with actual results slightly better than guidance, delivering 27% or GBP 55 million down on year-on-year.

[Giles Wilson, CFO at Dr. Martens]

D2C revenue is 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 fallback and wholesale. The owned store 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.

[Giles Wilson, CFO at Dr. Martens]

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 7 million year-on-year decline. However, as we entered the boot season towards the end of Q2, 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 Q1 genuinely weak across the group.

[Giles Wilson, CFO at Dr. Martens]

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 D2C 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 two years, split into the two halves.

[Giles Wilson, CFO at Dr. Martens]

The chart starts at FY 2023 with inventory at GBP 258 million. During the first half of FY 2024, we built up levels to GBP 315 million. And then during the second half of FY 2024, we used that inventory to sell during peak period, closing the year with GBP 255 million of inventory. As we entered FY 2025, the reduced plan purchases can be seen on the chart, with the half-year inventory position slightly down versus the FY 2024 year-end. And as we enter the second half of FY 2025, 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 2025, 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.

[Giles Wilson, CFO at Dr. Martens]

We will continue the inventory reduction into FY 2026, 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 £479 million at the end of H1 FY 2024, as shown in the column on the far left, to £349 million, as shown on the column on the far right, a total of £130 million reduction year-on-year, split £85 million decline in net bank debt from cash generation and £45 million decline in IFRS 16 debt. The bridge sets out the cash flow from FY 2024 year-end position.

[Giles Wilson, CFO at Dr. Martens]

Starting with the second column, which is the net debt at FY 2024 close, the next four boxes show underlying operating cash movement in period. We've tightly managed our cash position 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 deliver 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 increase significantly from the prior full-year position.

[Giles Wilson, CFO at Dr. Martens]

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 five 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 20 and 25 million of cost savings.

[Giles Wilson, CFO at Dr. Martens]

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 2024 costs was carried out versus prior years by function, by region, and cost line. Each global leader was then tasked to identify savings against these FY 2024 costs. Direct demand generating marketing costs and frontline 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.

[Giles Wilson, CFO at Dr. Martens]

Programs were put in place to exit levers on a fair basis and also support the teams going forward. 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 that cost action program was completed with the savings at the top end of the range of GBP 25 million in FY 2026. The makeup of these savings are approximately two-thirds through headcount reduction, leading to an exceptional charge booked at the half year of circa GBP 7 million, as explained earlier. The remaining third will be through efficiency and procurement savings.

[Giles Wilson, CFO at Dr. Martens]

I'm pleased to share that on the 19th of November, we've refinanced the Group with a new facility of EUR 250 million term loan, replacing the existing EUR 337 million euro term loan and EUR 126.5 million rolling credit facility, replacing our previous EUR 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 2026 and return to growth. The key features are as follows: an initial term of three years with the option to extend both facilities by two additional one-year terms 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.

[Giles Wilson, CFO at Dr. Martens]

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 has only been 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.

[Giles Wilson, CFO at Dr. Martens]

We have focused on our cost base and delivered our cost action plan. We have managed cash tightly and seen inventory and net debt significantly reduce year-on-year. Finally, we are pleased to have successfully refinanced the Group's borrowing facilities. I will now hand over to Kenny.

[Kenny Wilson, CEO at Dr. Martens]

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 USA, which is a high priority market for us. As you can see from the Circana data, the total boots market in the USA continues to be challenging, with a 12% decline year-on-year. We're 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're pleased with the progress we're seeing in our USA action plan.

[Kenny Wilson, CEO at Dr. Martens]

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 USA 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've 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've 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.

[Kenny Wilson, CEO at Dr. Martens]

However, we've been working closely with our key wholesale partners in continuing to reduce in-market inventory and building plans for the year ahead. Since the start of Autumn Winter 2024, our direct consumer business in the USA has been encouraging with improved consumer demand. As we have outlined before, there is a lag between consumer pull and wholesale orders. In the months ahead, our partners will place orders for Autumn Winter 2025, and more encouraging consumer demand today should lead to a stronger USA order book for Autumn Winter 2025. 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.

[Kenny Wilson, CEO at Dr. Martens]

We remain confident in the future growth prospects of these markets. We launched our first stores in three 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 two 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 four pairs per thousand 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.

[Kenny Wilson, CEO at Dr. Martens]

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 three new DTC stores and two franchise stores, and we have a strong new store pipeline in H2 and the year ahead. As you're aware, we've been investing in critical systems for our future growth, and I'm pleased to say that two 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 consumer channels, is now live in EMEA and the USA, and this will enable more targeted marketing and personalized journeys. The benefits from the CDP will increase over time as we gather more data.

[Kenny Wilson, CEO at Dr. Martens]

Our demand and supply planning system will be live by end H1 FY 2026. This will help us to improve availability while 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 consumer pairs 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 Lowell 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 2025. Within sandals, we saw strong performance for mules, a growing category.

[Kenny Wilson, CEO at Dr. Martens]

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 today. Thank you.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

Thank you, Kenny. And hello, everyone. I'll now share the progress we've made with one of our four focus areas, pivoting our marketing towards relentlessly promoting our products. I'm nine months in as the Chief Brand Officer, the new role created to pull together our product, marketing, sustainability, and strategy efforts to drive the brand. And it'll be an honor to take over as CEO of Dr. Martens 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.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

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 three strengths that I found we 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 Doc's Docs, like the yellow stitch, the groove sole, the heel loop, and our distinctive silhouettes.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

And third, the correlation between our product attributes, comfort, style, protection, etc., 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 2024. 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 our 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.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

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 as a whole on the comfort message. This has done really well for us, significantly outperforming comparable products from Autumn/Winter 2023. 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 boot, retailing at GBP 210 in the UK versus a black smooth 1460 at GBP 170. We're pleased with the performance so far, with strong sell-through metrics and consumer reaction.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

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 Boots 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.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

Mia Bruce, the actor in that piece, models the iconic 1460 boot alongside new products inspired by it, the Sub Boot, which is a big part of our cold weather lineup, and the dramatic 14XX that showcases Doc's product innovation at its most avant-garde, but the focus of the campaign is the 1460 black smooth boots 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 of course London, and the engagement and feedback we're getting from consumers on the ground is encouraging.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

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 Winterize line. This has 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.

[Kenny Wilson, CEO at Dr. Martens]

Thank you, Ije. As you've heard, we are on track to deliver on our four 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.

[Kenny Wilson, CEO at Dr. Martens]

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 as 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 is 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. Thank you.

[Operator]

Thank you. To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question is from Kate Calvert from Investec. Your line is now open. Please go ahead.

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Morning, everyone. Two from me. You mentioned that you would reduce the purchase of core products again in FY 2026. 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 2027, or do you think you can get any in 2026? And then in terms of my second question, any thoughts on manufacturing cost price inflation going into next year?

[Kate Calvert, Head of Retail and Consumer Research at Investec]

And how will this feed through into price for next year? Because I do note Ije's comment on the premium for the standing of the brand and the fact that people are perhaps prepared to pay more. Thank you.

[Kenny Wilson, CEO at Dr. Martens]

Morning, Kate. Thank you very much. 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 2027 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.

[Giles Wilson, CFO at Dr. Martens]

Yeah, 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 impacts 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 2025 is already set. And on like-for-like products, you will see no price increases from the brand.

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Okay, thanks very much.

[Operator]

Thank you. Our next question is from Ben Rada Martin from Goldman Sachs. Your line is now open. Please go ahead.

[Ben Rada Martin, VP of Global Investment Research at Goldman Sachs]

Great. Hi, Kenny, Ije, and Giles. Thanks very much for the questions today. I've had three, please. My first is just on the wholesale channel, particularly in the U.S. and Europe.

[Ben Rada Martin, VP of Global Investment Research at Goldman Sachs]

Just interested maybe if you can talk to, I guess, what you're seeing with your partners' sell-out 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. But I'm interested in, I guess, what you're seeing at the moment. And the second question would just be on gross profit margins. 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? Thanks.

[Kenny Wilson, CEO at Dr. Martens]

Great. Thank you, 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 USA, are down more than the sell-out. 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.

[Giles Wilson, CFO at Dr. Martens]

Thanks, Kenny. 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 DTC, 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 what we said when we set out at the beginning of the year, or 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.

[Giles Wilson, CFO at Dr. Martens]

We believe that we have now right-sized the cost base for the business today.

[Ben Rada Martin, VP of Global Investment Research at Goldman Sachs]

Great. Thanks very much.

[Operator]

Thank you. Our next question is from Richard Taylor from Barclays. Your line is now open. Please go ahead.

[Richard Taylor, Equity Analyst and Head of UK Mid and Small Cap Research at Barclays]

Yeah, morning. Thanks for taking my questions. I've got three, please. Firstly, can I push you a bit more on inventory, please? I think this was just over GBP 100 million back in FY 2021-2022. I realize that was during COVID, so perhaps not the right time to think about, but is there any chance that you can get down to that sort of level over the medium term with your current DTC and wholesale split? Secondly, Giles, you mentioned the lease duration being quite short on stores if you do want to come out. Just wondered, did you allude to this because you were considering making some cuts to the store portfolio?

[Richard Taylor, Equity Analyst and Head of UK Mid and Small Cap Research at Barclays]

And more generally, can you update us on your approach between DTC 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?

[Kenny Wilson, CEO at Dr. Martens]

If 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?

[Giles Wilson, CFO at Dr. Martens]

Yeah, so turning to the 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 five-year lease or a break at five years. In terms of are we planning to exit, no, 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.

[Kenny Wilson, CEO at Dr. Martens]

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.

[Kenny Wilson, CEO at Dr. Martens]

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 to buy the boots," and they go to a store and they discover a great assortment of Dr. Martens. So both channels, DTC and wholesale, will continue to be important to us. In terms of the boots market in the USA, 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 USA was down more than that. So in the first half of the year this year, we've underperformed relative to that.

[Kenny Wilson, CEO at Dr. Martens]

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.

[Richard Taylor, Equity Analyst and Head of UK Mid and Small Cap Research at Barclays]

Thank you very much.

[Kenny Wilson, CEO at Dr. Martens]

Thanks, Richard.

[Operator]

Thank you. Just a reminder to ask a question. It is star followed by one. Our next question is from Charlie Rothbarth from HSBC. Your line is now open. Please go ahead.

[Charlie Rothbarth, Equity Research Analyst at HSBC]

Good morning, everyone. Thank you very much for taking my question. I wanted to ask you about inventory, but I think another question on that might be a bit different. Can I just push you a bit on your leases? 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? Are you seeing them stay flat? And the impact, are you keeping your store portfolio? Are you expecting to keep it constant across your region? Sorry, the proportion within your region, because I appreciate the guidance you gave us before the UK budget. So increases in NI might well impact how you viewed stores at a marginal level.

[Kenny Wilson, CEO at Dr. Martens]

I think if we take the last question first. I think Dr. Martens does 82% of its revenue outside the UK and 18% in the UK. 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 UK. I think looking out, our focus will be on growing the brand outside the UK in terms of new store openings.

[Kenny Wilson, CEO at Dr. Martens]

I think you see that this year in terms of the stores we've opened have been predominantly in Europe and in Japan. I don't know if you want to talk to costs, Giles.

[Giles Wilson, CFO at Dr. Martens]

Rental costs, I mean, basically, 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. 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, but because we couldn't find the right stores that delivered the right financial metrics.

[Charlie Rothbarth, Equity Research Analyst at HSBC]

Okay, understood. Thank you very much. And then so finally, are you expecting a material difference in your finance cost on the back of the new refinancing?

[Giles Wilson, CFO at Dr. Martens]

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

[Charlie Rothbarth, Equity Research Analyst at HSBC]

Sorry, must admit that. Thank you very much indeed.

[Operator]

Thank you. Our next question is from Bob Piral from RBC Capital Markets. Your line is now open. Please go ahead.

[Piral Dadhania, Equity Analyst at RBC Capital Markets]

Hi, it's Piral here from RBC. Thank you. I have one 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 editors 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? Thank you.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

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 wear-on 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.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

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 are already sure that that works really well for our brand.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

Okay, thank you.

[Operator]

Thank you. Our next question is from Kate Calvert from Investec. Your line is now open. Please go ahead.

[Kenny Wilson, CEO at Dr. Martens]

Doesn't sound like Kate's got another question.

[Operator]

Your line is now open. No worries. I will close your line. Kate, your line is now open if you did want to ask a question.

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Can you hear me now?

[Kenny Wilson, CEO at Dr. Martens]

Yes, Kate.

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Okay. I was just questioning 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?

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Ije's got to take that one, Kate.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

Yeah, thanks, Kate. It's a good question and one that we've really paid some attention to. The first thing to say is that the sandals performance is coming off of a few years of significant growth in sandals. I think over three, four, five years, sandals have 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 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.

[Ije Nwokorie, Chief Brand Officer at Dr. Martens]

So a bit of context that we were 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 this upcoming spring-summer.

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Okay, great. Thanks.

[Kate Calvert, Head of Retail and Consumer Research at Investec]

Thank you. As a reminder to ask a question, please press star followed by one on your telephone keypads now. We currently have no further questions, so I'll hand back to Kenny for closing remarks.

[Kenny Wilson, CEO at Dr. Martens]

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.

[Giles Wilson, CFO at Dr. Martens]

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.

Participants

Executives

• Ije Nwokorie, Chief Brand Officer
• Kenny Wilson, CEO
• Giles Wilson, CFO

Analysts

• Piral Dadhania, Equity Analyst at RBC Capital Markets
• Kate Calvert, Head of Retail and Consumer Research at Investec
• Charlie Rothbarth, Equity Research Analyst at HSBC
• Richard Taylor, Equity Analyst and Head of UK Mid and Small Cap Research at Barclays
• Ben Rada Martin, VP of Global Investment Research at Goldman Sachs