At first look, shares in shoemaker Dr Martens (LSE: DOCS) might seem to be a discount. Final 12 months, for instance, the corporate generated primary earnings per share of 7p. With the Dr Martens share price in pennies, meaning the price-to-earnings (P/E) ratio is round 12. Not solely that, however these outcomes reported in the present day (30 Could) had been really sharply decrease than the earlier 12 months. If the corporate can get again to its prior 12 months efficiency, the valuation seems to be even cheaper, with a potential P/E ratio of round 8.

However that may be a massive ‘if’. The outcomes have finished a lot to appease my issues in regards to the well being of the enterprise. But I don’t see the Dr Martens share price as a discount a lot as a doable worth lure. For now I’ve no plans to speculate.

Iconic enterprise with distinctive model

Let’s begin, although, with some strengths.

Due to its immediately recognisable boot design, coupled with a powerful model, the corporate is ready to cost a premium price. Regardless that earnings after tax fell sharply final 12 months, they nonetheless got here in at £69m. With revenues of £877m, meaning the enterprise delivered a internet revenue margin of seven.8%.

Direct-to-consumer gross sales have been robust and grew in low-single-digits final 12 months. Dr Martens has been opening new shops itself and final 12 months elevated its rely of personal outlets by 35. It has targeted on enhancing its provide chain and in the present day introduced a cost-cutting plan.

Fighting weak client confidence

So why am I nervous about investing within the firm at this level?

Revenues final 12 months declined by 12.3%. I don’t see that as an indication of an organization in sturdy well being.

The important thing concern was not the retail however the wholesale facet of the enterprise. On one hand, which may not be seen as an issue. Dr Martens has made adjustments in its wholesale technique and says it purposely deliberate to ship decrease volumes into wholesalers in Europe, the Center East and Africa.

However smaller gross sales are hardly ever an indication of a client enterprise performing effectively. I feel on this case they replicate one thing the corporate commented on in its outcomes: difficulties within the US.

That’s Dr Martens’ greatest enterprise. Weak client confidence is hurting spending typically, whereas Dr Martens recognized the boots market as going through “particularly challenging” circumstances.

That bodes poorly. There’s a clear danger that ongoing financial weak point within the US will have an effect on gross sales this 12 months and maybe past. On high of that, if that financial malaise spreads to different markets, we might see extra income and revenue declines on the shoemaker. The corporate says the present 12 months is “a year of transition”.

Ready for the opposite boot to drop

The underlying enterprise is enticing and the corporate is taking steps to try to take advantage of a troublesome market.

However falling revenues, falling earnings, a decrease dividend and better internet debt all present the enterprise has its work lower out. The boot market setting makes {that a} more durable problem. For now I’ve no plans to speculate.