Dr. Martens' profit warning highlights U.S. consumer-confidence challenge

By James Rogers

The U.S. consumer, like the U.K. consumer, has had to think hard about household budgets, according to Danni Hewson, head of financial analysis at AJ Bell

Dr. Martens' profit warning sent shares of the iconic shoe brand tumbling Tuesday and spotlighted consumer-spending challenges on both sides of the Atlantic.

The boot maker's U.S. wholesale revenue is expected to be down double-digits year-on-year, Dr. Martens (UK:DOCS) said in a statement. "The FY25 outlook is challenging, and the whole organisation is focused on our action plan to reignite boots demand, particularly in the USA, our largest market," said Dr. Martens CEO Kenny Wilson. "The nature of USA wholesale is that when customers gain confidence in the market we will see a significant improvement in our business performance, but we are not assuming that this occurs in FY25."

The warning weighed heavily on Dr. Martens shares, which ended Tuesday's session in London down 29.4%.

Related: Dr. Martens shares lose a third of their value on U.S. warning

Danni Hewson, head of financial analysis at AJ Bell, told MarketWatch that many of Dr. Martens' problems are of its own making. "There has been a degree of mismanagement when it comes to the US market, and it's struggled to fight back after distribution issues at its LA centre and the increased costs associated with that," she explained, via email. "But a lack of consumer confidence which it noted is impacting its wholesale business can't help but impact US competitors, especially ones at a similar price point."

The U.S. consumer, like the U.K. consumer, has had to think hard about household budgets, according to Hewson. "If demand is likely to be subdued stores aren't going to order excessive volumes of stock," she added.

U.S. consumer confidence fell to a four-month low in March with persistent inflation and the 2024 presidential election contributing to Americans' anxiety.

Related: Consumer confidence dips in March on more pessimism about the future of the economy

In its warning, Dr. Martens said it expects to require additional inventory storage facilities in the U.S. through fiscal year 2025.

"Many retailers were burnt post-covid when they were left with inventory stagnating in storerooms," said Hewson. "They don't want to be saddled with excess products they then have to shift on sale."

Manufacturers like Dr. Martens have a tough path to tread, the analyst added. "They need to produce enough to fulfill orders and flex to cope with increased demand if and when it comes, but they also have to consider the additional costs of housing all those pairs of boots not yet destined to find a new home," she said.

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Shares of Hush Puppies parent Wolverine World Wide Inc. (WWW) are up 0.7% Tuesday and shares of Sorel parent Columbia Sportswear Co. (COLM) are up 0.9%. Shares of VF Corp. (VFC), parent of the Vans and Timberland brands, are up 2.5%.

Jeffry Bartash contributed.

-James Rogers

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04-16-24 1246ET

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