Dr. Martens PLC (DOCS.L)
A growing small cap with a 20%+ ROIC and the owner of the famous Dr. Martens brand selling for a P/E of 12.2x and an EV/EBIT of 11.1x amidst planned stock buybacks.
Key Facts
Description: Dr. Martens (DOCS.L) is a British producer of leather boots, shoes, sandals, and other accessories under its “Dr. Martens” brand. Approximately 57% of the sales are from its original models from the 1960s and 70s with ~80% product continuity (always available for sale at a full price). Dr. Martens boots or “Docs” have occupied a strong space in various subcultures and alternative social groups until today. The company never marks down its product prices as a part of its strategy and invests heavily in marketing. Dr. Martens was founded in 1945 and is based in London, United Kingdom.
Track record: Over the last 5 years Dr. Martens grew its revenue at a 21.8% CAGR and both EPS and book value at 8.7% and 28.7% respectively over the last 3 years. The company’s 10-year average ROIC is 17.8% (5-year 27.5% and 3-year 30.1%) and its 10-year average gross margin stands at 54.7% (5-year 60.3% and 3-year 62.1%). The company went public in January 2021 and used to be owned by a private equity firm beforehand as such it’s been deleveraging and maintains high liquidity with a current ratio above 3 and 16.5x interest coverage. It has also begun repurchasing its shares.
Market cap: Its market cap as of the 5th of September 2023 is £1.573 billion ($1.98 billion). It has fallen 65% since its IPO in January 2021. It is also ~40% up from its 52-week low.
Valuation: DOCS.L trades at a TTM P/E of 12.15x, EV/EBIT of 11.12x, and a dividend yield of 3.72%. All while the average forward industry multiple is 26.6x and DOCS.L has above industry returns.
Business Overview
Background
Dr. Martens (DM for short) is one of the leading leather footwear producers in the world. The sales are split into a few categories. Approximately 46% of revenue comes just from the 3 original models: the 1460 boot, the 1461 shoe, and the 2976 Chelsea boot. These three models also typically have around 80% continuity product life cycle contribution (more on that later). Another 38% of sales come from what the company refers to as “Fusion” models, which are mixes of the original DM style with other styles like Sinclair, Addina, Jadon, or sandals, which have been growing especially fast as part of DM’s product mix and represent 9% of revenue as of today.
The third main category is casual and accounts for approximately 9% of revenue. This range includes models like Combs or Boury and is meant to address a wider and more casual customer base as the original DMs have been known for being popular in certain niches. The fourth category is the DM kids’ range, which is “mini” and children-branded versions of the originals. It accounts for 3% of revenue. The remaining 4% is accessories, which is a miscellaneous range with various DM-branded products like shoe care, leather bags, or socks.
Part of the original range is also what the company calls collaborations and it constitutes approximately 1% of the total revenue. These are original or fusion models that are made periodically in collaboration with well-known artists and designers and are sold in limited premium drops. Their goal is not really to generate strong sales or margins but to generate “buzz” around the company’s products and strengthen the brand equity by doing so.
The names of the original models are based on the dates of their first release. As such, 1460 stands for 1st of April 1960 (01/04/60) and 1461 for 1st of April 1961 (01/04/61). The same goes for the Chelsea boot 2976 (02/09/76).
More recently in the fiscal year 2023, the company started a subsidiary in a resale, repair, and end-of-life business model. The management intends to create a large second-hand market for Docs in the mid to long-term.
What makes DM special when compared to other shoe/boot companies is that it’s much less than a typical fashion brand. This is rooted in the company’s tradition and history as the “rebel” shoes, which have captured a niche space for people in various alternative and cultural groups. For example, they tend to be popular amongst subcultures and groups like metalheads (heavy metal music fans, etc.), emos, punks (historically), alternative cultures, and groups built around “gender fluidity” like Trans and others. Generally speaking, DM boots have appeal to various niche groups due to their unisex, rebellious character and a long history of being associated with those groups and individuals.
Brief History
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