Adam Crocker of Logbook Investments presented his thesis on Dr. Martens (UK: DOCS) at European Investing Summit 2024.
Two Years On: Premium members, scroll down for an automated review of how this thesis played out from October 2024 to October 2026.
Thesis summary:
Dr. Martens is the British bootmaker whose first 1460 boot came off the line on April 1, 1960; few brands have held 60+ years in the public consciousness. FY24 revenue of about £880m splits across EMEA (49%), the Americas (37%) and APAC (14%). Originals make up 45%, Fusion 30%, and four of five products sold are black boots. Self-inflicted wounds and a waning boot cycle have pushed sentiment and valuation to trough levels; Adam sees an investor turnaround, not a damaged brand.
The model is high-margin: 80-90% of volume sells at full price, prices have risen more than 50% since 2013, and a narrow, mostly black range lets delayed inventory sell without markdowns. ROIC peaked at 37% in 2021 and EBIT margin at 26% in FY22, against a 10% peer median. Direct-to-consumer is the lever: a 1460 pair sold direct yields 2.5x the revenue and 4x the gross profit of a wholesale sale. DTC exceeds half of revenue, against a 60% target.
Trouble began at a new Los Angeles distribution center, where inventory arrived faster than it could ship, choking US wholesale. Prior management cut FY23 guidance in January 2023, soon after raising it; FY24 revenue fell 10% and EBIT margin slid to 14%, mostly on wholesale volume. Inventory days swelled to 250, yet free cash flow stayed positive. Adam recalls the early 2000s, when sales fell 60%+ with boots made in England and wholesale in disarray. Today’s global, Asia-made, DTC-led business is better placed to recover.
CEO Ije Nwokorie, a former Apple Retail senior director who led brand consultancy Wolff Olins, joined the board in 2021 and became Chief Brand Officer in November 2023. CFO Giles Wilson, formerly CFO and CEO of John Menzies, adds operating experience. Leverage under 2x, a 25-35% dividend payout and steady cash generation buy them time. Guidance calls for a mid-single-digit revenue decline in FY25 and growth in FY26. Catalysts are soft: a revenue floor, renewed investor favor, a fashion upswing or a takeover.
At 60p, Dr. Martens has an enterprise value near £780m, or 3.7x LTM EBITDA and 6.3x EBIT; stable peers trade at twice that or more. Adam’s base case (flat revenue through FY26, 10% EBIT margin, 12x EV/EBIT) yields 79p, about 32% upside; the bull case (5% growth, 14% margin, 17x) reaches about £1.90, over 200%. The bear case implies 71% downside. Real risks include a failed turnaround, a weak 2H FY25 and DTC operating leverage; discounting of the black 1460 would end the thesis.
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European Investing Summit 2024 was held from October 29 to 31, 2024. The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.
