Should I buy this FTSE fashion stock after its recent impressive results?


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FTSE 250 incumbent Dr Martens (LSE:DOCS) last month posted surprising, but impressive, full-year results. In addition, it also outlines an ambitious growth plan. Should I buy shares for my holdings?

FTSE fashion stock

As a quick reminder, Dr Martens is a fashion brand that specializes in footwear and accessories. It is perhaps best known for its iconic boots. As with any fashion business, trends have changed, and Dr Martens has moved with the times over the last century since its founding in 1901.

So what’s going on with Dr Martens stock right now? Well, as I write, they are traded for 261p. At this time last year, the stock was trading for 399p, which is a 34% drop over a 12 month period.

I’m not worried about the drop in Dr Martens stock price. The business was only registered last year on the FTSE through an initial public offering (IPO). Management later confirmed a £80.5 million fee was linked to the listing and this caused the stock to drop. Moreover, in recent months, many stocks have retreated due to macroeconomic headwinds and tragic events in Ukraine.

Risks to watch out for

Recent macroeconomic headwinds include soaring inflation, rising raw material costs, and the global supply chain crisis. This could all have a negative impact on Dr Martens and other FTSE stocks. Rising costs mean that profit margins can be squeezed. This in turn affects performance, returns and investor sentiment. Supply chain issues can also affect operations and sales.

With inflation soaring, a cost of living crisis has emerged here in the UK, as well as problems in many of the other leading world economies in which Dr Martens operates. In times of savings, premium brands may suffer if consumers turn to cheaper alternatives to save cash.

The bull case and my verdict

Dr Martens’ full year results for the period ending 31 March 2022 are impressive. Sales totaled £908 million, generating a profit of £181 million. This is higher than the estimated £155m. Interestingly to me, the gross margin grew 63.7% compared to the previous 2.8%. I see from the update that the shift in focus on retail sales, rather than distribution, is driving the company’s balance sheet and resulting in this impressive performance.

As part of the trade update, Dr Martens outlined an ambitious growth plan for an area he felt had a lot of untapped potential. This includes gaining more entry into lucrative markets such as China, the US, Germany, and Japan.

Based on Dr Martens stock price, the stock currently looks decent for the money with a price-to-earnings ratio of 13. Additionally, impressive returns see its dividend increase, which will increase my passive income stream. Its current dividend yield is just over 2%. This is in line with the FTSE 250 average. I am aware that dividends can be canceled at any time.

Overall, I am tempted to add Dr Martens stock to my holdings. I believe the recent results are impressive and could be the start of a period of continued growth. My only problem is that if he doesn’t live up to his own high expectations, his stock could take a big hit. However, I will continue to monitor progress.