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 interest us here is the impact of inflation. That is, we want to take a larger lesson from this one example. The us 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.
This is not how the accounts are presented. It's also not how reporting on the numbers is being done. Or here: “hitting a £1bn revenue milestone for the first time” well, if money keeps getting less valuable, is worth less over time, then record sales as measured by money should be relatively simple to achieve.
Doc Marten's share price from London Stock Exchange
As we say, corporate accounts, other news reporting, do not adjust for inflation. Which means that in order to properly understand the world and investments then we must. It is only true that a corporation has growing sales if those revenues rise by more than the inflation rate. So, whenever we see sales claims then we've got to compare the rise or change to whatever the inflation rate was in the reporting currency. For we're interested in the real value of things, not the nominal.
The truth here is that Doc Marten's sales, after inflation, were about static, possibly slightly down. A retailer with static sales volumes is worth less than one with rising - so, we need to adjust our valuation of DOCS to that truth of static, not rising, sales.
