Dr Martens (LON: DOCS), perhaps better known as Doc Martens, shares are down 26% this morning. This is on the back of the half-year report which shows that things are not going well. However, it’s necessary to point out that things are worse than the blad figures show. For, recall, corporate results are never inflation adjusted. That is, flat revenues, in a time of inflation, are a shrinking company. This is a mental adjustment we have to do for ourselves.
It’s also true that the specific difficulties being mentioned increase our own belief in an American recession. As we’ve said several times, trading conditions for corporates are the first place we will see signs of a recession and it’s entirely possible that the series of results - and complaints about trading conditions - we are getting mean it’s already here.
Those results: “H1 revenue down 5% (3% constant currency (CC)), primarily driven by weakness in USA wholesale DTC revenue up 9% (11% CC) to 50% mix. Retail revenue up 15% (17% CC) and ecommerce up 3% (5% CC) Wholesale revenue impacted by planned strategic decisions to reduce volumes into EMEA etailers and exit of the China distributor, together with a weaker USA wholesale performance than previously anticipated Regional shape of performance in line with expectations, with good growth in EMEA (revenue up 9% or 8% CC), a strong performance in Japan DTC (revenue up 41% CC) and America revenue down 18% (15% CC), driven by wholesale”
And, well, yes. That EMEA performance is about keeping track of inflation. As is the direct to consumer business. Clearly the American performance is a disaster. But as we say, including the inflation adjustment the real numbers are worse than those presented.
Dr Martens share price from Google Finance
We’ve looked before at Doc Martens: “Doc Marten's (LON: DOCS) shares are down 10% this morning on the announcement of the annual results. They're not terrible, it has to be said, sales are up, profits down, that's the sort of thing that can happen when there's significant supply chain disruption around the world. “Revenue up 10%, or 4% constant currency (CC), to £1,000.3m, reaching this milestone for the first time”...”Profit before tax (PBT) was down more than EBITDA due to higher depreciation and amortisation, as expected, a £3.9m impairment charge and a £10.7m charge from the FX translation of our Euro bank debt” OK, so bit of a mixed bag and all that.
What interests us here is the impact of inflation. That is, we want to take a larger lesson from this one example. The use of “constant currency” there is a bid of a misleader for what they mean there is foreign exchange rates. We want to think about inflation. So, sales are up that 10%. What was inflation last year? Well, obviously it varies across currencies but 10% as a rich world average last year wouldn't be too extreme. It was 11.2% in Oct 2022, 10% in March 2023 in the Doc Marten's reporting currency, sterling. So it would be fair enough to actually report Doc Marten's real sales - that is, adjusted for inflation - as being flat, not up 10% at all.”
Second time in a row that we’ve results showing that Dr Martens is shrinking in real terms. No wonder the share price is falling.