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When I think of iconic British brands, the likes of Burberry and Marks & Spencer come to mind. At the same time, Dr Martens (LSE:DOCS) is also on the list. The latter FTSE stock has struggled in recent years but has risen significantly in the past few months. Here are the main drivers behind it and why I believe the growth stock has further upside.
Getting the background information
For context, the Doc Martens share price has declined by 80% since the IPO in early 2021. A key driver behind this collapse has been a sharp weakening in US sales, where wholesale revenue suffered steep double-digit declines and order bookings slumped significantly. That prompted multiple profit warnings over the past few years, which have caused sharp declines in the share price on each announcement.
Decisions by management have also compounded problems. The opening of a new distribution centre in Los Angeles in 2023 created bottlenecks and elevated costs. This ended up costing the company millions and sapping operational efficiency. To make matters worse, inventory levels ballooned while net debt surged, pushing interest payments to consume as much as 25% of operating income.
However, with the stock up 25% over the past year and up 65% in three months, the winds of change could be picking up.
The direction from here
New CEO Ije Nwokorie has introduced a clear turnaround plan focused on addressing the core business issues. He’s said he’s putting the consumer first as part of his strategy. In practical terms, it aims to reduce over-reliance on boots and wholesale channels by expanding into shoes, sandals and leather goods.
Last year, the business put in place a £25m cost-saving programme. In the full-year results released in June, management confirmed that this target had been met. This, along with inventory reduction and more careful cash flow decisions, has helped slash net debt. The debt level as of the June results was £94.1m, down from the £177.5m from a year ago.
The biggest compliment I can pay the company is that management’s positioning itself for renewed growth rather than retrenchment. It acknowledges that, despite being a classic British brand with an iconic product, it needs to diversify and try new things to stay relevant. That’s one of the main reasons why I think the stock can keep going from here.
Don’t get me wrong, the US market remains an ongoing risk for the company, as do issues with fashion’s fickleness. But the company has now turned a page from the past few years, with a new CEO and a new game plan. Nwokorie’s clearly taking things seriously. As he mentioned in the latest report, he is “laser-focused on day-to-day execution, managing costs and maintaining our operational discipline while we navigate the current macroeconomic uncertainties”.
On the basis that the turnaround continues to yield results, I think it’s a stock for investors to consider buying.
