Dr. Martens Plc · LSE:DOCS
Dr. Martens — H1 FY2023 Earnings Presentation
47 slides from Dr. Martens's earnings presentation, Nov 24, 2022
Slide 1: H123 Results
H123 RESULTS 24 NOVEMBER 2022
Slide 2: Agenda
AGENDA • Introduction – Kenny Wilson, CEO • Financial review – Jon Mortimore, CFO • Business review – Kenny Wilson, CEO 2
Slide 3: Conviction in Future Growth
CONVICTION IN FUTURE GROWTH 1 Dr. Martens brand stronger than ever 2 DOCS strategy continues to deliver with DTC up 21% 3 Price offsets inflation; AW23 pricing in place 4 Continue to invest for future growth and long-term brand value 5 Confidence in the future, dividend up 28% 3
Slide 4: Custodianship Guides Long-Term Thinking
CUSTODIANSHIP GUIDES LONG-TERM THINKING 4
Slide 5: Agenda
NEW IMAGE AGENDA • Introduction – Kenny Wilson, CEO • Financial review – Jon Mortimore, CFO • Business review – Kenny Wilson, CEO
Slide 6: Financial Overview
FINANCIAL OVERVIEW 1 Strategy delivering; solid H1 results led by DTC 2 Balanced global footprint; natural USD hedge 3 Global supply challenges resolved; restocked for success and future growth 4 High proportion of continuity product; minimal markdown risk 5 Strong balance sheet 6
Slide 7: Strong Underlying Revenue Growth
STRONG UNDERLYING REVENUE GROWTH % change • Strong underlying1 revenue Constant £m H123 H122 Actual growth currency • Underpinned by volume Pairs (m) Underlying1 6.3 5.9 6% Russia/S.America - 0.4 n/a • Gross margin expansion driven by Total 6.3 6.3 - DTC mix improvement; held back Revenue Underlying
Slide 8: DTC Mix Continues to Expand
DTC MIX CONTINUES TO EXPAND % change Constant • All channels in growth Revenue (£m) H123 H122 Actual currency Ecommerce 88.8 82.6 8% 1% • Strong DTC growth led by retail Retail 91.0 65.9 38% 33% traffic recovery • Post-covid shopping trend DTC 179.8 148.5 21% 15% evolution Wholesale1 238.8 207.7 15%
Slide 9: Underlying Revenue Up 18%
UNDERLYING REVENUE UP 18% 20.9 418.6 £m AW Price increase EMEA: 7% US: 13% 3.6 • Underlying revenue up 18% 5.7 9.4 • Underlying volume up 6% • DTC mix up 3%pts to 43% • Price increase from AW22 10.4 season (July) • Continued strong full price 369.9 Full Price at 90% driven 12.4 by lower discounting
Slide 10: Gross Margin Up 0.3%pts
GROSS MARGIN UP 0.3%pts 12.2 257.8 £m 2.6 • Gross margin up 0.3%pts to 5.7 61.6% 9.4 10.4 • DTC mix improvement worth 1.1%pts 226.6 (8.3) • As planned in H1, price offsets (0.8) c.50% of inflation increase • Price increases expected to fully offset inflation across the year Channel H122 Volume mix N
Slide 11: DTC Mix in H2 Drives Higher EBITDA Margins
DTC MIX IN H2 DRIVES HIGHER EBITDA MARGINS H2 margins typically higher than H1 +2.9%pts +8.4%pts 32.4% 30.0% 28.8% 29.0% • H2 trading patterns typically 27.1% result in stronger margins due to 24.0% DTC mix 21.2% • H1 margin decline as expected: • H1 DTC mix +1.1%pts FY21 H1 H2 FY FY22 H123 • Price
Slide 12: A Balanced Global Brand
A BALANCED GLOBAL BRAND Regional revenue share 14% 14% • Balanced global brand 18% • America our biggest market • 43% revenue share • Largest DTC opportunity 42% 43% 38% • UK our second market • 15% revenue share • Expect UK to grow but at a slower pace than average 28% 27% 28% • Japan our third mar
Slide 13: Conversion Strategy Driving EMEA Performance
CONVERSION STRATEGY DRIVING EMEA PERFORMANCE % change • Underlying revenue up 9% led by strong DTC up 22% Constant £m H123 H122 Actual currency • DTC mix up 5%pts with Revenue - Underlying 179.0 164.6 9% 9% Germany up 8%pts and Italy up 8%pts - Russia - 3.0 n/a n/a - Total 179.0 167.6 7% 7% • Retail
Slide 14: Good America Revenue Growth
GOOD AMERICA REVENUE GROWTH % change • Underlying revenue up 31% Constant (15% CC) £m H123 H122 Actual • DTC up 26% (11% CC) currency • Wholesale1 up 35% (19% CC) Revenue - Underlying 179.7 136.8 31% 15% • Softer Q2 DTC growth - South America - 10.7 n/a n/a • Tougher comparatives • Weaker consumer -
Slide 15: APAC Led by Strengthening Japan Market
APAC LED BY STRENGTHENING JAPAN MARKET % change • Japan our no.3 global market at c.40% of APAC revenue and Constant c.55% of EBITDA £m H123 H122 Actual • Steady recovery from Covid-19 currency • 14 franchise stores become own stores at year end Revenue 59.9 54.8 9% 6% • DTC mix 80%+ EBITDA 13.1 10.
Slide 16: Confidence in the Future Supports Increased Dividend
CONFIDENCE IN THE FUTURE SUPPORTS INCREASED DIVIDEND £m H123 H122 % change EBITDA 88.8 88.8 - • Dividend per share up 28% Depreciation & amortisation (23.3) (18.0) -29% reflecting confidence in future performance FX gains/(losses) (0.2) (2.1) n/a • Represents 35% of earnings • Top end of guidance Fi
Slide 17: We Have a Natural Hedge
WE HAVE A NATURAL HEDGE Proforma illustration of a 10% £m FY22 Translation COGS1 Proforma Inc/(Dec) appreciation of the USD vs GBP and EUR EMEA 398 - - 398 - America 383 38 - 421 10% • Both EMEA and America c.43% APAC 127 - - 127 - revenue mix Revenue 908 38 - 946 4% • £12m EBITDA translation benefi
Slide 18: Typical Cash Profile
TYPICAL CASH PROFILE £m 88.8 H2 cash inflow • Typical H1 cash outflow • Significant cash inflow in H2 • PY H1 inflow untypical 114.8 228.0 (97.4) • Working capital outflow due to (19.3) decision to invest in inventory (14.1) (14.8) • Capex 4.6% of revenue 4.6 133.0 • New stores 113.2 (42.8) • Rackin
Slide 19: Supply Chain: Caught Up and Building for Growth
SUPPLY CHAIN: CAUGHT UP AND BUILDING FOR GROWTH FACTORIES OPERATING AT TARGET DIVERSIFIED FACTORY BASE CAPACITY AW23 AW20 AW22 est LEAD TIMES ALMOST CAUGHT UP Vietnam (s) 30% 31% 29% NEW 3PL DCs IN LA AND Vietnam (n) 12% 21% 24% NETHERLANDS Laos 15% 21% 28% Bangladesh 6% 8% 5% FACTORY PRICES FIXED 6
Slide 20: Rebuilt Inventory for Success: Improved Availability
REBUILT INVENTORY FOR SUCCESS: IMPROVED AVAILABILITY P6 Inventory Product Mix H1 DTC Full Price Mix Sept-22 Sept-21 10% Inventory (£m) 261 120 16% Stock turn 1.3x 2.6x Cover (weeks/historic) 40 20 84% 90% Approx. weeks on boat 6-8 10-13 Continuity Seasonal Full Price Markdown • Last year inventory t
Slide 21: Capital Allocation Philosophy
CAPITAL ALLOCATION PHILOSOPHY DOCS IS HIGHLY CASH GENERATIVE WE WILL HAVE EXCESS CASH WHEN AVERAGE PROGRESSIVE DIVIDEND LEVERAGE (INC. LEASES) FIRST PRIORITY IS POLICY OF 25% TO 35% IS CONSISTENTLY LESS INVESTMENT INTO THE OF EARNINGS – NOW AT THAN 1X AND THEN WILL BUSINESS 35% CONSIDER FURTHER RETU
Slide 22: Trading Update & Outlook
TRADING UPDATE & OUTLOOK DTC WHOLESALE FY23 • Since H1: variable week-to-week • Timing in EMEA caught up in Oct • High-teens revenue growth in actual currency • Peak trading weeks ahead • Orderbook in excess of full year • Slower DTC growth • Good availability in all markets estimate • Headroom for
Slide 23: Agenda
NEW IMAGE AGENDA • Introduction – Kenny Wilson, CEO • Financial review – Jon Mortimore, CFO • Business review – Kenny Wilson, CEO
Slide 24: Conviction in Future Growth
CONVICTION IN FUTURE GROWTH 1 Dr. Martens brand stronger than ever 2 DOCS strategy continues to deliver with DTC up 21% 3 Price offsets inflation; AW23 pricing in place 4 Continue to invest for future growth and long-term brand value 5 Confidence in the future, dividend up 28% 24
Slide 25: DM4: The DOCS Strategy
DM4: THE DOCS STRATEGY Our DM4 strategy is about selling more pairs of boots, shoes and sandals, to more people, through our own DTC, in our 7 priority markets: UK | US | FRANCE | GERMANY | ITALY | JAPAN | CHINA Build brand Manage B2B Enable growth Acquire new equity and holistically and unlock cust
Slide 26: DOCS Strategy: Investing for Future Growth & Brand Health
DOCS STRATEGY: INVESTING FOR FUTURE GROWTH & BRAND HEALTH MARKETING • DTC • MARKETING DTC • PEOPLE PEOPLE • TECHNOLOGY • INVENTORY & DCs DTC INVENTORY & DCs TECHNOLOGY UNDERPINNED BY STRONG BRAND, CONTINUITY PRODUCT, VAST UNTAPPED POTENTIAL & STRONG BALANCE SHEET 26
Slide 27: Brand Purchase Funnel Continues to Improve
BRAND PURCHASE FUNNEL CONTINUES TO IMPROVE GLOBAL GLOBAL LAST 24M AWARENESStr FAMILIARITY PURCHASED MAINTAINED +4%PTS +1%PT TO 8% RANKED GLOBAL No.1 IN BOOTS FOR UNPROMPTED AWARENESS 27
Slide 28: Product Strategy: Led by Iconic, Timeless Products
PRODUCT STRATEGY: LED BY ICONIC, TIMELESS PRODUCTS COLLABORATIONS AND MADE IN ENGLAND 3% 1460 2976 1461 revenue2 47% revenue1 38% revenue 8% revenue3 SINCLAIR AUDRICK JADON SANDALS QUAD NEOTERIC 7% revenue TARIK LO BOURY 4% revenue 4% revenue 1. Analysis based on LTM revenue 2. Revenue of collaborat
Slide 29: Boots and Shoes: Platforms Driving Growth
BOOTS AND SHOES: PLATFORMS DRIVING GROWTH 8053 QUAD 1461 JARRICK QUAD JETTA ADDINA JADON BETHAN AUDRICK 29
Slide 30: Sandals Revenue Grew by 43%
SANDALS REVENUE GREW BY 43% 30
Slide 31: SS22: 'All Access Summer' to Build Range Awareness
SS22: ‘ALL ACCESS SUMMER’ TO BUILD RANGE AWARENESS PRODUCT-LED CAMPAIGN FOCUSSED ON SANDALS AND SHOES UK WHOLESALE UNPROMPTED AWARENESS +1%PT ACROSS BOTH SANDALS AND SHOES DIGITAL MARKETING FESTIVALS 31
Slide 32: AW22: 'Unpolished' Campaign Driving Icons
AW22: ‘UNPOLISHED’ CAMPAIGN DRIVING ICONS PARIS AMSTERDAM HONG KONG HERALD SQ. TAKEOVER - NYC DIGITAL MARKETING LONDON 32
Slide 33: Consumer-Led Pricing Strategy
CONSUMER-LED PRICING STRATEGY CONSUMERS CONTINUE WE WILL INCREASE IN-DEPTH CONSUMER TO SEE VALUE IN OUR PRICE FOR AW23 TO PRICE STUDY HIGH QUALITY AND OFFSET COGS REPEATED RECENTLY TIMELESS PRODUCTS INFLATION OF 6% 33
Slide 34: Regional Highlights
REGIONAL HIGHLIGHTS EMEA AMERICA APAC LARGEST DTC JAPAN NOW 40% CONVERSION OPPORTUNITY OF APAC REVENUE MARKETS DRIVING AND HEADING TO DTC GROWTH MARKETING AND 80%+ DTC MIX INVENTORY CONTINUED UK INVESTMENT TO TRIALLING DTC GROWTH MAXIMISE MODEL IN CHINA POTENTIAL 34
Slide 35: EMEA: Conversion Markets Driving DTC Growth
EMEA: CONVERSION MARKETS DRIVING DTC GROWTH DTC mix TURIN +3% 49% 43% 40% +8% PORTA DI ROMA 33% +8% 26% 22% 19% 18% MUNSTER 11% Company Germany Italy FY22 H122 H123 35
Slide 36: America: Largest DTC Opportunity
AMERICA: LARGEST DTC OPPORTUNITY H1 NEW STORES LOS ANGELES HOUSTON, WOODLANDS • GREATER LOS ANGELES POPULATION OF 19M • 10 OWN STORES IN LOS ANGELES AT SEP 22 • LOS ANGELES FAMILIARITY CHICAGO, OAKBROOK +23%PTS AND EVER PURCHASED BREA +10%PTS VS H1 LY Opened Nov 2021 OAKLAND, WALNUT CREEK LTM % GROW
Slide 37: APAC: Japan the Regional Growth Engine
APAC: JAPAN THE REGIONAL GROWTH ENGINE TRANSFER STORES NEW STORES PARCO IKEBUKURO • THREE NEW STORES IN H1 • 14 FRANCHISE STORES TO BE TRANSFERRED TO OWN STORES ACROSS TOKYO & OSAKA SHINSAIBASHI, OSAKA • COMBINED POPULATION OF 53M YURAKUCHO MARUI • 39 OWN STORES AT YEAR END • DTC MIX 80%+ • SUPERIOR
Slide 38: Wholesale: Purposeful Approach Delivers Quality Growth
WHOLESALE: PURPOSEFUL APPROACH DELIVERS QUALITY GROWTH ELEVATED BRAND PRESENTATION 15% WHOLESALE EXPANDED AND GROWTH ON 13% FEWER MANAGED PRODUCT ACCOUNTS RANGE ORDERBOOK SUPPORTS FEWER BUT BETTER FY GUIDANCE STRATEGIC PARTNERS 38
Slide 39: Our Responsibilities: Product/Planet/People
OUR RESPONSIBILITIES: PRODUCT/PLANET/PEOPLE AS A GROWING BUSINESS, WE HAVE A GROWING IMPACT, WHICH COMES WITH INCREASED RESPONSIBILITIES TRIALLED MORE SUSTAINABLE UPPER MATERIALS INCLUDING RECYCLED LEATHER AND A BIO-BASED VEGAN MATERIAL REMOVED UNNECESSARY SINGLE-USE PLASTIC FROM 83% OF OUR PRODUCT
Slide 40: Conviction in Future Growth
CONVICTION IN FUTURE GROWTH OUR BRAND DOCS INVESTING PRICING IS STRONGER STRATEGY IS FOR THE HEADROOM THAN EVER DELIVERING FUTURE IDENTIFIED DIVIDEND UP 28% 40
Slide 41: Appendix
APPENDIX APPENDIX • IR contact details • Guidance • FX rates • Quarterly revenue • Balance Sheet • Cautionary statement
Slide 42: Investor Relations Contact Details
INVESTOR RELATIONS CONTACT DETAILS Mark Blythman Beth Callum Interim Director of Investor Senior Investor Relations Relations Analyst Mark.Blythman@drmartens.com Beth.Callum@drmartens.com Mobile: +44 7570 871207 Phone: +44 20 3995 2644 42
Slide 43: FY23 Guidance: Detail
FY23 GUIDANCE: DETAIL • High-teens revenue growth, actual currency basis • FY EBITDA margins to be 100-250bps lower than FY22 • Net new own store openings of around 30 plus the transfer of 14 franchise stores to own stores in Japan in Q4 • Depreciation and amortisation of £50m to £53m • Net finance
Slide 44: FX Translation Rates
FX TRANSLATION RATES $/£ €/£ FY23 FY22 % change FY23 FY22 % change H1 1.22 1.39 (12)% 1.17 1.17 - H2 1.34 1.19 FY 1.37 1.18 44
Slide 45: Quarterly Underlying Revenue by Channel & Region
QUARTERLY UNDERLYING REVENUE BY CHANNEL & REGION Q123 Q223 H123 Underlying group revenue £154.1m £264.5m £418.6m Actual YoY change 11% 22% 18% Constant currency YoY change 5% 14% 11% Underlying revenue by region EMEA YoY change 9% 9% 9% America YoY change 23% 38% 31% APAC YoY change -14% 28% 9% Unde
Slide 46: Balance Sheet
BALANCE SHEET 30 September 2022 31 March 2022 30 September 2021 Freeholds 6.8 6.1 6.1 Right-of-use assets 133.9 105.5 92.7 Other fixed assets 65.3 53.6 47.4 Working capital 192.3 78.5 78.9 Deferred tax 10.2 9.6 8.7 Operating net assets 408.5 253.3 233.8 Goodwill 240.7 240.7 240.7 Cash 133.0 228.0 11
Slide 47: Cautionary Statement
CAUTIONARY STATEMENT Cautionary statement relating to forward-looking statements Announcements, presentations to investors, or other documents or reports filed with or furnished to the London Stock Exchange (LSE) and any other written information released, or oral statements made, to the public in t