Dr. Martens issued its profit warning for the fourth quarter as it faced higher-than-expected costs at a new Los Angeles (LA) distribution center.
Q4 revenue was up 6 percent, flat in constant currency (CC), driven by strong direct-to-consumer (DTC) growth in EMEA and APAC, offset partly by continued soft DTC in America.
Wholesale revenue was down in Q4 due mainly to the LA distribution center (DC) operational issues and planned shipment reduction to its China distributor, offset partly by EMEA growth.
DTC trading grew 20 percent, 13 percent CC, with wholesale down 4 percent (-11 percent CC). Within DTC, retail rose 36 percent, 28 percent CC, and e-commerce grew 8 percent, 2 percent CC.
For the full year, revenue growth was 10 percent, 4 percent CC. DTC was up 16 percent, 11 percent CC, and wholesale was up 4 percent, -3 percent CC. Within DTC, retail was up 30 percent, 25 percent CC, and e-commerce was up 6 percent, 1 percent CC.
Dr. Martens said it now expects FY23 EBITDA to be around £245 million due to higher costs at its LA DC and lower wholesale revenue.
In FY23, total incremental costs associated with the LA DC were c.£15m, higher than the initially expected £8 to 11 million. Previously, guidance called for EBITDA in the range of £250 million and £260 million.
“We have made good progress on resolving the operational issues at our LA DC, which began impacting our America wholesale channel in December,” Dr. Martens said in its statement.
The company opened three temporary warehouses to release excess shipping containers and store stock away from the LA DC. It added a third shift to focus on the additional work needed to unblock the bottleneck and transfer excess stock to the temporary warehouses. As a result, shipment volumes at the LA DC are now back to normal levels. Work continued enlarging and reconfiguring the New Jersey DC to allow it to store, pick and pack for both DTC and wholesale channels in America and, in line with our plans, a successful, initial test shipment took place in March.
The company maintains FY24 revenue growth guidance of mid- to high-single-digits on a constant-currency basis.
As with FY23, the company expects FY24 incremental costs associated with the LA DC will be £15 million, due mainly to rent annualization as the firm now plans to maintain temporary warehouses for the full year, offset partly by lower year-on-year container and handling costs. These costs will be first half weighted.
Kenny Wilson, CEo, said, “Full-year revenue was up 10 percent with Q4 up 6 percent. In constant currency, full-year revenue was up 4 percent with Q4 level last year. By channel, Q4 growth was driven by strong DTC trading, led by retail growth of 36 percent, or 28 percent in constant currency, but this was offset partly by wholesale being behind last year. Within our regions, EMEA DTC accelerated in Q4, while America DTC remained soft. We took decisive action to tackle the operational issues at our LA DC, with shipments now back to normal levels. However, costs associated with resolving these issues were higher than our initial estimates, which, in conjunction with softer Q4 wholesale revenue, means we expect EBITDA for the year to be around £245m. We continue to adopt a custodian mindset, making decisions in the best long-term interests of all our stakeholders, and I believe firmly in the DOCS strategy, the continued strength of the Dr. Martens brand and the medium to the long-term growth potential of the business. I look forward to sharing more details at the full year results.”
Photo courtesy Dr. Martens
