Supply Chain Issues, COVID Restrictions Slow Revenue Growth at Dr. Martens

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Dr. Martens Plc saw a dip in its stock on Thursday as it reported slowing revenue growth in the third quarter due to continued supply chain issues affecting its wholesale business as well as renewed COVID restrictions across the world in December.

Despite these issues, the UK-based footwear company still reported revenues in the third quarter rising 11% to £307 million, or $412 million at current exchange. This marks a slowdown from the 16% growth of £369.9 million, or $487.9 million, in the prior quarter.

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“We remain confident in achieving market expectations and doing exactly what we said we were going to do at the time of our IPO,” CEO Kenny Wilson said on the company’s third quarter earnings call on Thursday. “This is a great result and testament to our DOC strategy to the phenomenal brand that we have and also the passion of our people.”

The brand’s direct-to-consumer store and e-commerce business stood out as the star this quarter, making up 64% of sales in the period. Online sales growth accelerated in the third quarter to +16% year-on-year despite the re-opening of stores, with e-commerce accounting for 39% of all third quarter sales, 85% higher than the same quarter in 2019.

Turning to wholesale, Wilson noted on Thursday’s call that inventory levels were impacted due to closures at the brand’s factory in South Vietnam over the summer. The closures coupled with extended shipping times resulted in constrained supply during the third quarter, Wilson said.

“We took the decision to prioritize the inventory that we had towards direct-to-consumer and that has resulted in wholesale being down 14%,” Wilson noted. “However, the vast majority of Q4 wholesale pair have been manufactured, and they are in transit to our distribution centers and then we’ll ship them on to our wholesale customers. We have [what we need] to make our wholesale numbers in the fourth quarter.”

Regionally, Italy, which the company converted to a directly owned and operated country at the start of the financial year saw “particularly strong” performance in the EMEA region. Dr. Martens now has three stores in Italy with Milan opening in December.

America’s direct-to-consumer performance was “very good,” according to Wilson. Still, the company’s wholesale issues resulted in a moderate hit in the performance in the region. Asia Pacific was weaker with revenues down. But, the biggest impact was seen in its distributor markets, namely Australia, and specifically, its third-party operated stores in China as the impact of renewed COVID restrictions and concerns were felt in these two markets.

Looking ahead, Wilson said: “We remain confident in achieving market expectations for the full year and I would like to thank everyone at Dr. Martens for their exceptional hard work and dedication. Our strategy is delivering results. Our long-term custodian mindset continues to guide our decision-making, and I have never been more enthused to lead the Dr. Martens brand forward into the future.”

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