Dr. Martens H1 2025 Earnings Call Transcript

There are 8 speakers on the call.

Operator

Good morning, everyone, and welcome to our FY 'twenty five Half 1 Result Presentation. I'm joined today by Giles Wilson, our Chief Financial Officer and EJ Wakodi, our Chief Brand Officer. So our agenda for today, I'm going to provide a short introduction before handing over to Giles, who will walk us through our half one financial results. Then I'll provide a business update before E. J.

Operator

Informs us on our brand and how we are refocusing it. Our first half performance is in line with our expectations. Back in May, we communicated 4 key objectives for this year, and I'm pleased to say that we are making good progress on all of them. The action plan we are executing in the USA direct to consumer business is working, and we'll return this business to growth in the second half. We've pivoted our marketing to relentlessly focus on our product, and EJ will pick up on this in detail.

Operator

We've reduced our operating cost base ahead of schedule, and Giles will walk through this. And we have strengthened our balance sheet while delivering on the reduction in inventory that we promised. We said that FY 2025 would be a year of action and we are taking focused action. Now over to Giles, who will now walk us through the results.

Speaker 1

Thank you, Kenny, and good morning, everyone. As Kenny has set out, our first half has been about delivering on our plan, setting the foundations for the key peak trading period. Before I run through the financial results, I would like to highlight 4 key areas. I set out back in May that we would take out $20,000,000 to $25,000,000 of costs from the business on a full year basis with the full benefit in FY 'twenty six. I'm pleased to report we have delivered at the upper end of that range at 25,000,000 of annualized savings.

Speaker 1

We have reduced inventory through reduced purchases and are on track with our target. Last week, we successfully completed the refinance of the group's banking facilities. During this process, we use excess cash generated from the reduction in inventory to pay down the term loan by circa 40,000,000 and reduce the level of the rolling credit facilities to be aligned with future liquidity requirements. We are on track to deliver our financial results for the full year with our key trading months still ahead of us. The swift action taken on the cost plan and the tight cost management helps underpin our full year results.

Speaker 1

I said at the full year, I would focus on delivering more clarity in our financial results presentation. At this half year and going forward, we will set out our financial results both on the reported currency and a constant currency basis versus the prior year. This will allow us to show the true impact of underlying trading, taking out the impact of foreign translation on our reported numbers. For this year, we have also introduced adjusted profit metrics due to the one off costs largely related to delivering the cost action program. Turning to the financials themselves, in later slides, I will give more detailed explanations of the key financial metrics.

Speaker 1

Our key financial headlines are as follows. Total payers are down 20%. However, due to better D2C mix, revenue is only down 16% at €332,000,000 on a constant currency basis and in line with our expectations. Gross margin is down in line with revenue with gross margin rate broadly flat year on year. Operating costs have been well controlled with strong cost management allowing for extra investment in demand generation to support the brand as we head into the busy peak period.

Speaker 1

Overall adjusted EBIT is a loss of 2,400,000 and adjusted PBT loss of 16,100,000 dollars both significantly back on last year, but in line with our expectations. During the period, we incurred $9,300,000 of exceptional costs mainly related to the cost action program and 1,600,000 due to the currency gains and losses impact on our accounts receivables and payables and our euro debt.

Speaker 2

At the

Speaker 1

EPS level, there is a loss at adjusted EPS of 1.1p. Dividend is set at 1 third of the previous year's total dividend in line with our guidance in May. Turning to revenue by channel. As explained on the previous slide, we are showing constant currency for year on year comparison. We guided in the full year results that wholesale revenue would be down by about a third with actual results slightly better than guidance delivering 27% or $55,000,000 down on year on year.

Speaker 1

D2C revenue was down by 5% or $9,000,000 with total revenue down 16% or $63,000,000 on a constant currency basis in line with guidance given in May. I'll explain the movements on the next slide. Our D2C mix improved driven by fallback in wholesale. The owned store estate increased by 13 stores year on year and was broadly flat in the half. I introduced this slide at the full year.

Speaker 1

The boxes in the bridge set out the key movements by channel and market. Starting with Americas, the key driver in the revenue decline was £27,000,000 of wholesale as expected. Kaddy will pick up later the time lag on wholesale recovery. Americans D2C was marginally down by £3,000,000 driven by weak retail footfall offset by slightly better performing e commerce all again in line with our expectations. Turning to EMEA, wholesale was again in line with our expectations and partly impacted by shipment timing differences due to the timing of Easter.

Speaker 1

EMEA DTC as indicated in May was also impacted by the timing of Easter and sale together with weaker sandal performance in the summer, particularly in retail delivered a €7,000,000 year on year decline. However, as we entered the boots season towards the end of quarter 2, we saw D2C performance improve to be back in positive territory in both Americas and EMEA. Finally in APAC, the slight decline in wholesale is as planned and in D2C we saw continued year on year growth in Japan, partially offset by weaker performance in Hong Kong and South Korea. Overall, our regional and channel performance was in line with our expectations. Our DCC revenue performance was better in the 2nd quarter with retail in quarter 1 generally weak across the group.

Speaker 1

The underlying EBIT drops from 39,700,000 H1 last year to a 2,400,000 loss on an adjusted basis this year. Stepping through the bridge 50,100,000 reduction from the impact of volume at standard gross margin predominantly due to the decline in wholesale revenue as explained. The impact of better DTC mix and price adding 8,300,000 dollars As indicated at the full year results, we increased support behind our brand by 1,800,000. We tightly control costs even before the impact of the cost action program delivering 2,300,000 reduction in operating costs. A small increase in depreciation due to the increase in stores, the exceptional costs and FX translation as I explained earlier.

Speaker 1

A key area of focus has been reducing our inventory. This slide sets out the planned inventory reductions over the 2 years split into the 2 halves. This chart starts at FY 'twenty three with inventory at $258,000,000 During the first half of FY 'twenty four, we built up levels to $315,000,000 And then during the second half of FY 'twenty four, we use that inventory to sell during peak period closing the year with R255 1,000,000 of inventory. As we entered FY 'twenty five, the reduced plan purchases can be seen on the chart with the half year inventory position slightly down versus the FY 'twenty four year end. And as we enter the second half of FY 'twenty five, we sell down inventory during our peak period.

Speaker 1

For the avoidance of doubt, our plan reduction in inventory is part of an organized reduction of purchases of core product in FY 2025 not through significant discounting or selling stock below cost. We remain on track to deliver our year on year target for a decrease of $40,000,000 We will continue the inventory reduction into FY 'twenty six with purchases planned to again be below our forecasted sales. Turning now to cash flow. There has been a significant positive reduction in both net bank debt and total debt year on year. The gray boxes are the net bank debt being the bank debt less cash and the red boxes show the lease liabilities.

Speaker 1

Total debt drops from RMB479 1,000,000 at the end of H1 FY 2024 as shown in the column on the far left to RMB349 1,000,000 as shown on the column on the far right, a total of RMB130 1,000,000 reduction year on year split RMB85 1,000,000 decline in net bank debt from cash generation and 45,000,000 decline in IFRS 16 debt. The bridge sets out the cash flow from FY 'twenty four year end position. Starting with the 2nd column, which is the net debt at FY 'twenty four close, the next 4 boxes show underlying operating cash movement in period. We've tightly managed our cash position this period with a particular focus on bringing down inventory as I have just talked through. Overall, the impact of EBITDA and working capital movements deliver 39,000,000 cash inflow.

Speaker 1

This is then offset by lease payments of 28,000,000 and interest and tax payments of 13,000,000. CapEx accounts for 11,000,000 and with a positive impact of FX on our euro debt sees overall net debt marginally increased by 9,000,000 since the full year. As I explained on the previous slide, we would normally expect to see a larger inventory purchase in H1 in advance of peak, which would see our net debt increase significantly from the prior full year position. However, this is not the case this half given the planned reduction in purchases. Our net debt to EBITDA finished the half at 2.3 times well below our bank covenants leaving significant headroom.

Speaker 1

Finally, some new metrics on this slide showing our average lease term to break across our store and distribution center portfolio. As explained in previous results, the group tightly manages its store portfolio with all leases having no longer than 5 years before the 1st break. For H1, the average lease exposure to break was 2.8 years marginally down on the full year average. Overall, as I set out to have the full year results, cash flow is a key focus and we have significantly decreased net debt year on year, predominantly driven by our strategy to turn inventory into cash. At the full year results, we said we would deliver between CAD20 1,000,000 CAD25 1,000,000 of cost savings.

Speaker 1

We undertook a detail and swift process to tackle our cost base. The key process and principles we adopted were as follows. A detailed analysis of FY 'twenty four costs were carried out versus prior years by function, by region and cost line. Each global leader was then tasked to identify savings against these FY 'twenty four costs. Direct demand generating marketing cost and frontline retail teams were not included in the project.

Speaker 1

The focus was predominantly on support, operational and back office costs. Cost saving targets were not against future or uncommitted costs and therefore had to be true reductions from actual costs. Headcount reduction took place across all levels in the organization. There was an establishment of a steering committee with a dedicated team to support the cost action plan. This also aided the speed of execution.

Speaker 1

Programs were put in place to exit levers on a fair basis and also support the teams going forward. And finally, during the first half, certain guardrails around recruitment, discretionary operational spend and capital spend were put in place over and above the normal controls. The process was effective and completed in advance of our peak period. The outcome of this swift detailed and well controlled process is the cost action program was completed with the servings at the top end of the range of €25,000,000 in FY 'twenty six. The makeup of these savings are approximately 2 thirds through headcount reduction, leading to an exceptional charge booked at the half year of circa €7,000,000 as explained earlier.

Speaker 1

The remaining third will be through efficiency and procurement savings. I'm pleased to share that on the 19th November, we've refinanced the group with a new facility of 250,000,000 term loan replacing the existing €337,000,000 term loan and a €126,000,000 rolling credit facility replacing our previous €200,000,000 rolling credit facility. Our previous facilities were due to expire in early 2026 and therefore I felt it was sensible to secure the new funding facilities slightly ahead of time to give certainty as we go into FY 'twenty six and return to growth. The key features are as follows an initial term of 3 years with the option to extend both facilities by 2 additional 1 year term subject to lender approval an interest rate ratchet relating to key net debt to EBITDA ratios, a maximum covenant of 3 times net debt to EBITDA. We have 12 banks in the facilities made up of a mix of existing and new banks.

Speaker 1

The facility is structured to meet the future liquidity requirements of the Group and it was clear with the planned inventory reductions that there was excess funds to allow us to reduce the term loan to 250,000,000. In addition, the rolling credit facility, which has only been used a couple of times since the IPO has also been reduced from 200,000,000 to 126,500,000. The new facility gives us more than enough liquidity to meet the group's future requirements. We don't foresee any changes to net finance costs compared to consensus expectations as a result of the refinancing. So to conclude, overall the first half has been about delivering what we said we would do.

Speaker 1

We have delivered in line with our expectations. We have focused on our cost base and delivered our cost action plan. We have managed cash tightly and seen inventory and net debt significantly reduced year on year. Finally, we are pleased to have successfully refinanced the group's borrowing facilities. I will now hand over to Kenny.

Operator

Thank you, Giles. I'm now going to talk a little more about each region before moving on to systems and product. Turning first to the U. S. A, which is a high priority market for us.

Operator

As you can see from the SARCANA data, the total boots market in the U. S. A. Continues to be challenging, with a 12% decline year on year. We're assuming that this weak backdrop will continue into the second half.

Operator

And as previously communicated, we expect our USA Wholesale business to be down double digit year on year. However, despite the external environment, we're pleased with the progress we're seeing in our USA Action Plan. On the left, you see what we said we would do, and on the right, you see what we've done. In marketing, we increased our investment in the USA as a percentage of revenue. We focused on talking specifically about our products, and as you'll hear from E.

Operator

J, we've recently launched our boots like no other campaign. We've elevated the quality of our retail windows in key cities, and we've utilized more social media to drive consideration of our brand. In digital, we have driven double digit improvements in conversion by improving the quality of our product detail pages and optimizing our checkout process. And we have also implemented order in store, which we already had in our EMEA business. In wholesale, we knew this year would not be about growth.

Operator

However, we've been working closely with our key wholesale partners in continuing to reduce in market inventory and building plans for the year ahead. Since the start of autumn winter 2024, our direct to consumer business in the U. S. A. Has been encouraging with improved consumer demand.

Operator

As we have outlined before, there is a lag between consumer pool and wholesale orders. In the months ahead, our partners will place orders for autumn winter 'twenty five, and more encouraging consumer demand today should lead to stronger USA order book for autumn winter 'twenty five. As product momentum continues to build next year, there is the opportunity to take in season reorders to drive growth. Turning our attention to EMEA. We have continued to see good strategic progress in our EMEA conversion markets.

Operator

Italy, Spain and the Nordics saw good growth in H1, while German revenues were flat. We remain confident in the future gross prospects of these markets. We launched our first stores in 3 new European countries with the opening of Stockholm, Copenhagen and Vienna. These markets provide further runways for growth. Also, we've seen real success in key cities where we've opened 2 stores.

Operator

Some examples include Milan, Berlin and Barcelona, and we see further opportunities ahead in more markets, both in EMEA and globally. Back at our full year results in May, I shared an update on our Japanese market, which continues to perform well and which remains a significant growth driver as we have high brand engagement and low penetration at only 4 pairs per 1,000 people nationwide. Japan remains our largest DTC market with 80% of revenues through our own channels, and we continue to target new store openings in and around both Tokyo and Osaka. We have a healthy franchise business with great partners, and this remains an important part of our growth strategy. Our franchise partners help us in extending our reach beyond Tokyo and Osaka and growing the brand across Japan.

Operator

In H1, we opened 3 new DTC stores and 2 franchise stores, And we have a strong new store pipeline in H2 and the year ahead. As you're aware, we've been investing in critical systems for our future growth. And I'm pleased to say that 2 of our biggest projects are now live or close to final implementation. The customer data platform, which gives us a single consumer view across both direct to consumer channels, is now live in EMEA and the USA, and this will enable more targeted marketing and personalized journeys. The benefits from the CDP will increase over time as we gather more data.

Operator

Our demand and supply planning system will be live by end H1 FY 'twenty six. This will help us to improve availability whilst reducing working capital. And again, we expect the benefits to build over time. Our product performance in H1 was in line with our expectations with direct to consumer payers down 3% on the year. As expected, boots were down 12% and we have made changes to our marketing approach from July, which will drive boots demand in H2.

Operator

Shoes performed well with pairs up 7%, driven by core product and new styles like the Lyle shoe, which is shown in the middle picture here. Sandals were flat year on year, a disappointing performance following several years of growth. This is an area for improvement in springsummer 2025. Within sandals, we saw strong performance for mules, a growing category. We have strong product pipeline coming through.

Operator

And as we called out in our statement, current trading has been driven by good DTC sales of new product supported by a product led marketing approach. I'm now going to hand you over to EJ, who will walk us through AW24 focus to date. Thank you.

Speaker 2

Thank you, Kenny, and hello, everyone. I'll now share the progress we've made with one of our 4 focus areas, pivoting our marketing towards relentlessly promoting our products. I'm 9 months in as the Chief Brand Officer, a new role created to pull together our product, marketing, sustainability and strategy efforts to drive the brand. And it'll be an honor to take over as CEO of Doctor. Martens next year.

Speaker 2

It's a brand that I not only love, but have always marveled at its resonance across demographics and cultures from generation to generation. While we have a lot of hard work to do, I'm encouraged by the progress we are making and excited by the opportunities ahead. We pivoted our marketing approach and organization this year based on 3 strengths that I found we were underplaying in our marketing. 1st, a premium position in the category, by which we simply mean that the consumer is willing to pay more than the category norm for our products because they recognize the higher quality, design and craft of those products. 2nd, the consumer connection with our iconic DNA that allows us to connect both new and core products so we get more bang for our marketing buck.

Speaker 2

So we will amplify the things that make docs docs, like the yellow stitch, the Groove sole, the heel loop, and our distinctive silhouettes. And third, the correlation between our product attributes, comfort, style, protection, etcetera, and the things that drive consideration for footwear buyers. Back in May, as part of this marketing pivot, Kenny shared this slide laying out the key product plan for autumn winter 24. We still have the height of the season to come, but I want to share some early progress. The product pipeline is strong, so we'll continue to have more great products to drive our marketing efforts for seasons to come.

Speaker 2

In July, we launched a variant of our core icons in our soft leather. We call it ambassador.

Speaker 3

We know comfort is one of those attributes that really matters to consumers. And while we have

Speaker 2

great comfort options, we haven't made it a big part of our marketing efforts. So we leaned in hard on comfort with the line, we've gone soft, and focused all our channels from social media to in store experiences and the organization on a whole, all the comfort message. This has done really well for a significantly outperforming comparable products from Honor Winter 23. We've continued pushing these products through the season and they have consistently been in our top selling products season to date. Comfort works really well for us.

Speaker 2

In August, we launched our Aniston boot, a biker boot style that borrows from our iconic and recognizable DNA to create a new silhouette for Doctor. Martens. It leans on our premium position compared to our iconic 14 60 boot, retailing at £210 in the UK versus a black smooth 1460 at £170 We're pleased with the performance so far with strong sell through metrics and consumer reaction. The future product line will continue to reflect this elevated style as our designers make the most of our premium position. Another example of the premium coming through in the new product is the Mable Square Toe which we focused on in September.

Speaker 2

At £160, the Mary Jane shown here sells at a £20 premium versus the related core product. Again, we've seen very strong sell through metrics globally season to date. The Chelsea Blues version you see on the right of the slide is a particular commercial and social media hit. In October, we switched our focus from new product back to the core and the iconic 1460 boot in particular, albeit with a few new friends. Let me show you the global campaign we made and then I'll share a few ways we've executed it in the market.

Speaker 2

Mayor Bruce, the actor in that piece, models the iconic 1460 boot alongside new products inspired by it. The Subbook Max, which is a big part of our cold weather lineup and the dramatic 14xx that showcases DOC's product innovation at its most avant garde. But the focus of the campaign is the 14/16 black smooth boots and the core of our brand. While fully reigniting our core icons will take several seasons, we're pleased with how much attention this campaign is getting. You can see on this slide some of the marketing in key cities globally.

Speaker 2

The campaign came to life on streets, in all our retail stores around the world and in collaboration with many of our wholesale partners. Since it launched, I've visited teams in Berlin, New York and of course London and the engagement and feedback we're getting from consumers on the ground is encouraging. It's work that we will carry forward. And this month, as weather turns cold in most of our markets, we've turned our market lens on another product benefit protection with the launch of our winterized line. This has only just landed, but again, the new product lines look great and early consumer feedback is positive.

Speaker 2

I hope that gives more color on the product led market in Pivot, observations and insights guiding the work the early results we're seeing. Thank you for listening. I look forward to getting to speak to you more in the coming months in my new role. Back to you, Kenny.

Operator

Thank you, EJ. As you've heard, we are on track to deliver on our 4 key objectives that we set out for this year. We will get USA DTC back to growth in H2. We have refocused our marketing on our product. We've reduced our cost base and we have strengthened our balance sheet.

Operator

EJ and Giles will update on our crucial Q3 period at the end of January. Today marks my last results presentation as the CEO of Doctor. Martens before handing over to EJ in the new year. When I joined Doctor. Martens back in 2018, it was a brilliant brand.

Operator

It is still a brilliant brand, but it is now a bigger and better company with more developed infrastructure and incredible people. The most exciting part is that the best still lies ahead for Doctor. Martens, and I look forward to watching EJ, Giles and the team realize that growth opportunity in the years ahead. Thank you. We will now turn things over to a live Q and A.

Operator

Please state your name and who you work for before asking any questions. Thank you.

Speaker 4

Thank

Speaker 5

you.

Speaker 4

Our first question is from Kate Talbot from Investec. Your line is now open. Please go ahead.

Speaker 6

Morning, everyone. 2 for me. You mentioned that you would reduce the purchase of core products again in FY 'twenty six. Is this likely to be less of an opportunity than you have achieved in the current year? And I suppose thinking a little bit further forward in the implementation of the new supply and demand system, will the benefits from that really be felt in FY 'twenty seven?

Speaker 6

Or do you think you can get any in 'twenty six? And then in terms of my second question, any thoughts on manufacturing cost price inflation going into next year? And how will this feed through into price for next year? Because I do note EJ's comments on the premium for the standing of the brand and the fact that people are perhaps prepared to pay more. Thank you.

Operator

Good morning, Kate. Thank you very much. Yes, you're correct. We do envisage that we will buy less product next year than we're going to sell. We've not quantified the scale of that reduction yet, but I think one would expect, again, a significant reduction in inventory year on year, which in the future Giles will clarify.

Operator

In terms of the impact of the new supply and demand system that would really benefit financial year 20 27 in terms of improving forecast accuracy. On the second question Giles is going to talk to manufacturing costs and then I can tell you what we've done on pricing.

Speaker 1

Yes. I mean, so manufacturing costs, we obviously as we do, we always have a cost inflation. We look to try and manage that the best we can. So no, we don't see any huge impacts from manufacturing price cost inflation in the New Year.

Operator

And in terms of the second part of the question, which was around consumer pricing, our pricing for Orphan Winter 2025 is already set. And on like for like products, you will see no price increases from the brand.

Speaker 6

Okay. Thanks very

Operator

much.

Speaker 4

Thank you. Our next question is from Ben Radomartin from Goldman Sachs. Your line is now open. Please go ahead.

Speaker 5

Great. Hi, Kenny, EJ and Giles. Thanks very much for the questions today. I've had 3, please. My first is just on the wholesale channel, particularly in U.

Speaker 5

S. And Europe. Just interested maybe if you can talk to, I guess, what you're seeing with your partners' sellout trends and inventory levels at the moment across both of those markets. Super helpful with some of those commentary around how you're thinking about the U. S.

Speaker 5

From here. I'm interested in, I guess, what you're seeing at the moment. And the second question would just be on gross profit margins. It might just be worth useful it might be useful stepping through, I guess, the drivers between the change year on year. I think it was slightly down versus last year's metric.

Speaker 5

And then finally, just on OpEx savings, excellent effort in terms of getting through those quite quickly. I'm interested now, do you think the cost base is kind of at a stable level where you can kind of reposition for growth? Or do you think there's still opportunities for efficiencies as we go forward?

Operator

Thanks. Great. Thank you, Ben. I'll take the first one on wholesale and then Giles is going to pick up on gross profit and OpEx. In terms of what we're seeing in the wholesale channel, I think as we've said, we expect wholesale to be down this year.

Operator

We know that because we know in the order book. In terms of the sellout, the trend is not as good as our DTC business. However, the really encouraging fact is the inventories at our wholesale customers both in Europe and in the U. S. A.

Operator

Are down more than the sellout. So the slide that I showed earlier today about the lag effect, the improving and encouraging trends we're seeing in direct to consumer, I think we'll see some of that translate into wholesale next

Speaker 1

year. Thanks, Kenric. In regards to gross profit or gross I think you're off to gross margin, you're right. It's actually broadly flat year on year, but I mean it's very, very slightly down. We've seen a positive move on D2C which obviously helps.

Speaker 1

We've seen a slight headwind in regards to our product mix. So there's lots of sort of moving parts in there. But overall we've managed to hold our gross margin flat. In terms of OpEx savings, I think what we said when we set out at the beginning of the year or sorry, at the full year results, we said that we would focus on operational back office procurement savings, those sort of things. We wouldn't cut into the muscle of the business.

Speaker 1

We wouldn't take any cut out of direct marketing or out of retail stores, which is exactly what we've done. We believe that we have now rightsized the cost base for the business today.

Speaker 5

Great. Thanks very much.

Speaker 4

Thank you. Our next question is from Richard Taylor from Barclays. Your line is now open. Please go ahead.

Speaker 7

Yes, morning. Thanks for taking my questions. I've got 3, please. Firstly, can I push you a bit more on inventory, please? I think this was just over €100,000,000 back in FY 2021, 2022.

Speaker 7

Realize that was during COVID, so perhaps not the right time to think about. But is there any chance that you can get down to that sort of level over the medium term with your current D2C and wholesale split? Secondly, Giles, you mentioned the lease duration being quite short on stores if you do want to come out. Just wondered, did you allude to this because you were considering making some cuts to the store portfolio? And more generally, can you update us on your approach between D2C and the use of wholesalers as you look forward?

Speaker 7

And then finally, thank you for the data on the boots market. Can you help us sort of match up how you performed versus this market over the last 12 months or so?

Operator

We start with inventory, Richard. We're not quantifying the number today. I think what we're saying is that we will buy less core product again next year than we're going to sell. So we'll start to see that inventory come down, but we're not going to quantify the exact number today. Do you want to talk about the leases?

Speaker 1

Yes. So turning to leases, we made reference to it really so that people understand the full extent to the lease liability and also the fact that we very tightly manage our stock portfolio and we never have anything longer than a 5 year lease or a break at 5 years. In terms of are we planning to exit? No, it's just it was focused solely around giving it an explanation by what we do to make sure that we manage very tightly our both CapEx and our leases.

Operator

I think in terms of your second part to that question Richard around DTC and wholesale, I mean clearly what we've said is that both channels are really important to the company. We've driven our growth over the last few years by building out the direct to consumer business and we'll continue to do that going forward. But we know that one of the things that wholesale does is it brings new consumers into the brand for those people who wake up in the morning and they haven't decided which brand they want yet and they go, we want to pay the boots and they go to a store and they discover a great assortment of Doctor. Martin. So both channels DTC and wholesale will continue to be important to us.

Operator

In terms of the boots market in the U. S. A. Where we gave the statistic of the boots market being down 12% year on year, I think clearly we've said that our business in the U. S.

Operator

A. Was down more than that. So in the first half of the year, this year, we've underperformed relative to that. Most of the action plans we put in place in the United States were intended to deliver getting the USA DTC business back to growth in the second half. And as we've said, we feel encouraged by where we are in terms of current trading in the United States, and we believe that we'll deliver on those numbers.

Speaker 7

Thank you very much.

Operator

Thanks, Richard.

Speaker 4

Thank you. Our next question is from Charlie Rothbart from HSBC. Your line is now open. Please go ahead.

Speaker 3

Good morning, everyone. Thank you very much, Steve, for taking my questions. I want to ask you about inventory, but I think another question on that might be overdone. Can I just push you a bit on your leases? There are I don't know, any company that says they aren't tightly managing leases.

Speaker 3

Across your portfolio, are you seeing rental costs come down in the areas you're in? Or are you seeing them stay flat? And the impact are you keeping your store portfolio, are you expecting to keep it constant across your region? Sorry, the proportion within your regions because I appreciate the guidance you gave before the U. K.

Speaker 3

Budget, so increases in NI might well impact how you viewed stores at a marginal level.

Operator

I think if we take the last question first, I think Doctor. Martens does 82% of its revenue outside the U. K. And 18% in the U. K.

Operator

So we're very much a global brand. And as we've said previously, we have no real plans to significantly increase the store to stay in the U. K. I think looking out, our focus will be on growing the brand outside the U. K.

Operator

In terms of new store openings. I think you see that this year in terms of the stores we've opened have been in predominantly in Europe and in Japan. I don't know if you want to talk to cost, Giles?

Speaker 1

Rental cost, I mean, basically it's I mean, city by city, country by country, we focus, we do the best deals we can do. But actually interestingly enough where we feel the rental costs are too high, we will look to either exit that store or actually maybe not take on that store. And actually, you will have noticed this year that we have actually taken down the number of stores that we were planning to open, not because we don't want to open them, but because we couldn't find the right stores that delivered the right financial metrics.

Speaker 3

Okay. Understood. Thank you very much. And then sorry, finally, are you expecting a material difference in your finance cost on the back of the new on the back of the refinancing?

Speaker 1

As explained during the presentation, we expect consensus finance costs to stay in line with consensus already guided.

Speaker 3

So nothing about that. Thank you very much indeed.

Speaker 4

Thank you. Our next question is from Bob Pirall from RBC Capital Markets. Your line is now open. Please go ahead.

Speaker 5

Hi, it's Piral here from RBC. Thank you. I have one question on the product strategy, if that's okay. And I guess it's directed to Ajej. I'm just wondering really whether there is any inclination to transition some of the offer towards more technical categories.

Speaker 5

We've seen a strong growth profile in hiking and outdoor pursuits post COVID. I think some of your competitors have been perhaps better positioned to capitalize on that trend. And we note Doctor. Martens has a slightly more lifestyle focused positioning. So is that an area that you see as an opportunity?

Speaker 5

And can we expect to see some changes to the overall product portfolio? Thank you.

Speaker 2

Thanks, Vero. The first thing to say is I'm a real believer in our product strategy. And if you look at my presentation just now, the level of attributes we can talk to our products about really excite the market and work in the market. So I don't think this is about any new product strategy, but we will speak to functionality. And so things like comfort might create new wearing occasions for our users and for our wearers and that's a good thing.

Speaker 2

But no, we have no plans to go compete in other people's spaces. We're quite happy with where we're positioned. We just have to work harder to make sure that the customer is discovering the right product. And when we do that, we already show that that works really well for our brand.

Speaker 5

Okay. Thank you.

Speaker 4

Thank you. Our next question is from Kate Kalvert from Investec. Your line is now open. Please go ahead.

Operator

Doesn't sound like Kate's got another question.

Speaker 4

Kate, your line is now open. No worries. I will close your line. Your line is now open if you did want to ask a question.

Speaker 6

Can you hear me now?

Speaker 5

Yes, please.

Speaker 6

Okay. Just a question on your sandals performance because you called out as being disappointing. I'm just wondering why do you think it was disappointing? What do you think potentially you got wrong there?

Operator

Right. EJ has got to take that one, Kate.

Speaker 2

Yes. Thanks, Kate. It's a good question and one that we've really paid some attention to. The first thing to say is that that Sandoz performance is coming off of a few years of significant growth in Sandoz. I think over the 3, 4, 5 years, Sandoz has grown from 5% of our business to 9% of our business.

Speaker 2

So just a bit of context for that performance. We also would say to ourselves that our summer lineup needed a bit of refreshing. And there are products that did really well in there. We did really well with mules, but we needed a bit more newness in our summer lineup, we would be we'd have to admit to ourselves. And so I'm really excited about what we have in this spring summer.

Speaker 2

I think we're really excited about that line. So a bit of context that we're coming off of quite a few years of strong comps, but also we could put a few more things in the product line and we'll do that this upcoming spring

Speaker 6

summer. Okay, great. Thanks.

Speaker 4

Thank you. We currently have no further questions, so I'll hand back to Kenny for closing remarks.

Operator

Great. Thank you very much. So I think today really has been about demonstrating that we have delivered on the action plan that we set out back in May. Our results are in line with expectations, and we're delivering on our strategic objectives. We'd like to thank you for your time and for your attention.

Operator

And our next update will be at the end of January when EJ and Giles will update on our Q3 performance. Thank you so much.

Earnings Conference Call
Dr. Martens H1 2025
00:00 / 00:00