FTSE 250 movers: Dr Martens, Dechra Pharma in favour

(Sharecast News) - FTSE 250: 19,311.72, +1.27%.

Shares in Dr Martens surged on Friday, despite the UK bootwear maker lowering profit guidance for the third time in five months as operational mistakes at its Los Angeles distribution centre cost more than anticipated.

The company, famed for its chunky lace-up boots and shoes, issued a profits warning in January and said it now expects core earnings of £245m for the full year, down from a previous range of £250 - 260m. However, shares in the company had gained 10% in midday London trade.

Fourth-quarter wholesale revenue was down due mainly to Los Angeles distribution centre operational issues and planned shipment reduction to Dr Martens' China distributor, offset in part by growth in EMEA, the company said in a trading statement.

Incremental costs at the Los Angeles centre rose to £15m from the £8 - 11m forecast, due to higher- than-anticipated container costs.

"We are maintaining full-year 2024 revenue growth guidance of mid-to-high single digits on a constant currency basis," it added.

In a separate announcement, chief financial officer Jon Mortimore said he has decided to retire and would continue in his role until a successor was in place "to ensure a smooth transfer of responsibilities".

Dr Martens said shipment volumes at the distribution centre, where operational issues had caused bottlenecks and hit its America wholesale channel at the end of last year. The company opened three temporary warehouses to release excess shipping containers and store stock.

It also started enlarging and reconfiguring its New Jersey centre to store, pick and pack for both direct-to-consumer and wholesale channels in America and a successful, initial test shipment took place in March.

On a group basis fourth quarter revenue was up 6% and flat on a constant currency basis, driven by strong direct-to-consumer (DTC) growth in EMEA and Asia-Pacific, offset in part by continued soft DTC in America.

Wholesale revenue fell 4% on an actual basis. Full-year revenue grew 10%, with DTC up 16% and wholesale increasing 4%.

"Ultimately, Dr Martens has a strong brand, but investors would like to see some further momentum on both the top and bottom line. The shares have fallen almost 70% since they listed in 2021, which was partly a function of a frothy valuation, but also raises questions about the long-term growth trajectory for the famous shoe brand," said Hargreaves Lansdown analyst Sophie Lund-Yates.

Shares in Dechra Pharmaceuticals surged on Friday after it announced late on Thursday that it was in talks with Swedish private equity firm EQT about a possible £4.6bn takeover.

Under the terms of the offer, Dechra shareholders would receive 4,070p per share in cash. This is a 47% premium to the closing share price on Thursday.

Dechra said it's being discussed that the private equities investment department of the Abu Dhabi Investment Authority (ADIA) would be a co-investor with EQT.

Having considered the offer with its financial adviser, Investec, the veterinary pharmaceuticals group said it would be prepared to recommend the deal to shareholders should EQT announce a firm intention to make an offer.

It added that there can be no certainty any firm offer will be made and that a further announcement will be made as appropriate.

Under takeover rules, EQT has until 11 May to either announce a firm intention to make an offer or walk away.

At 1000 BST, the shares were up 36% at 3,766.50p.

Victoria Scholar, head of investment at Interactive Investor, said: "Dechra fared extremely well during the pet boom during the pandemic as a strong stay-at-home stock. However it has struggled since, issuing a profit warning in February, citing unpredictable trading conditions.

"Although shares in Dechra are soaring today on the M&A speculation, the stock is not fully pricing in the all-cash off suggesting there is still some uncertainty about whether the deal will cross the line. Before today's surge, shares had fallen sharply over the last year from 3,822p in April 2022 to 2800p by Thursday's close."