Hi. Good morning, everyone. Thank you for joining us today, both in person here in the room and on the webcast for our first half of FY23 results. I'm Kenny, the CEO of Dr. Martens, and I'll be joined as usual today by Jon, our Chief Financial Officer. Also in attendance from Dr. Martens today is Emily, our Company Secretary. If you've got any questions in the coming weeks following this presentation, then please reach out to Mark Blythman and Beth Callum from our Investor Relations team. Our agenda for today, I'm gonna take us through the key takeaways from our first half, and then Jon is gonna pick us up and take us through a detailed financial review.
I'm going to come back and talk through our strategic performance and why I feel confident that our future growth will continue despite the economic headwinds that we see ahead of us. At the end, we'll have a Q&A, both for people here in the room and on the webcast. The key takeaways from our first half. Brand equity and long-term brand health is our top priority at Dr. Martens. Sales follow equity. Later, I'll share some numbers with you from our quarterly global brand survey, which show that the Dr. Martens brand is stronger than it's ever been before. Secondly, our DOCS strategy continues to deliver for us. As per our DTC first approach, our growth in the first half is DTC led with first half revenues in our own channels up by 21%. Our strategy has always been that price will offset inflation.
Our pricing plans for autumn/winter 23 next year are now in place, and the recent pricing study that we've just done demonstrates that consumers see our products delivering strong value for money. We continue to invest for long-term brand value and growth given the vast untapped potential that still lies ahead of Dr. Martens around the world, and we will update on our investment plans today. Overall, we remain confident in the performance and future growth of the business and our brand. Today, we are increasing our interim dividend by 28% year on year to reflect our confidence. For those of you who followed Dr. Martens since our IPO, which was nearly two years ago, this is gonna be a very familiar slide. It's the custodian mindset, and this is how we lead Dr. Martens.
Right now in what is a difficult economic environment, it could be very easy to think short-term, to be a much more promotional business, to sell to the wrong customers and drive short-term volume. At Dr. Martens, we never take shortcuts. We will continue to take long-term decisions to drive sustainable growth and to build brand health over time. As you will see later in this presentation, in the first half, we've invested in stores, we've invested in marketing, we've invested in people, we've invested in technology, and also inventory at the peak time of the year to support the medium-term growth of the business. We believe passionately that the best brands think brand first, they focus on long-term brand health, and that's what you're going to hear from us today. With that, I'm going to hand over to Jon, who's going to take us through the financial review.
Thanks, Kenny. Good morning, everyone. I'll walk you through the story of our first half, touch on implications for second half and the full year as well as we go. Click forwards. Click forwards. Financial overview. The results in our first half year ending September 30th 2022 were solid and were led by a very strong D2C performance, which had revenues up 21%. We have a balanced global economic footprint with only 15% of revenue from the U.K., which results in natural US dollar hedge at the global level. The COVID-19 challenges in our supply chain are now resolved. Remember last year, three factories in South Vietnam were closed from July to September, affecting about a third of our volumes, and this was compounded by significantly extended lead times from factories in Asia to our DCs. As anticipated, we've now caught up and restocked the business.
We can carry high levels of inventory because a significant proportion of our product is continuity in nature. Boots, shoes, and sandals that are always in the line. In addition, given four or five pairs we sell tend to be black, we have minimal markdowns. We are able to plan for growth via strong availability without P&L risk. Finally, we have a strong balance sheet with spot leverage of 1.2 times and average leverage of 1times . On an actual currency basis, underlying revenues grew by 18% with total revenue up 13%. Total revenue was GBP 419 million. Within a financial year, wholesale shipments are non-linear or lumpy. This is particularly so in our first half, as this represents the peak wholesale shipping period, such that volumes falling one side or another of an arbitrary accounting date are not unexpected or unusual.
In the current period, approximately GBP 10 million of wholesale revenue, representing 0.2 million pairs, that was pretty much picked and packed and ready for dispatch, was shipped in early October rather than September. The EBITDA value of this would be around GBP 4 million. For the first half only, I've introduced the concept of underlying storytelling for revenue in pairs. In the prior year, we ceased supply to Russia following the invasion of Ukraine. In the autumn of last year, we took the decision to not renew a number of distribution agreements in South America, taking the opportunity to increase our focus on the USA. On a full year basis, the financial impact of this is not material, representing only around 1% of revenues of last year and marginal impact on EBITDA.
At the half year, to properly understand performance, it is better to exclude these items. For clarity, this does not affect D2C. Gross margins expanded by 0.3 percentage points, mainly D2C mix shift, held back by timing of price increases versus inflation. I'll return to this topic presently. We continue to invest for growth in the period with OpEx increasing by 23%, mainly marketing, new stores, and tech. EBITDA was level with last year at GBP 89 million, with growth impacted by the timing of wholesale shipments across the accounting cutoff period and our decision to continue to focus on the DOCS strategy investment thesis. First half growth was led by D2C, which grew by 21% on an actual currency basis and 15% on a constant currency basis.
The D2C channels have continued their steady recovery from COVID-19 restrictions in prior years. We are keeping a very close eye on how both physical retail and e-commerce are evolving post the pandemic as consumers become much more adept at shopping both channels and seamlessly moving between the two. It is better to view these channels together. Through the first half, consumers have continued to rediscover the delights of visiting shops over the functional ease and speed of e-commerce. We believe we will return to pre-pandemic trends, with e-commerce growth being stronger than retail growth. While we are still in a recovery phase, it is likely retail growth will grow more strongly than e-com. The strong e-com retail growth was led by continued good like-for-like traffic recovery in EMA and America, with traffic recovery at a more conservative pace in Japan.
At the 30th September, all of our stores, once mature, were profitable. The average EBITDA return on sales, including rent, so old school, was at pre-pandemic levels of profitability of around mid-30%. In the first half, we opened 21 new stores and closed five stores at lease break date. Of the five stores closed, three represented relocations, which represent more of a move to a better located larger unit. For example, in Dublin, we moved to a larger unit on Grafton Street. We are on track to open a further 13-15 locations in the second half, resulting in full year new stores gross of 34-36, less the five stores closed. We'll end up with a net figure in the middle of the guidance range. In addition, we're all on...
We are also on track with the franchise store transfer in Japan and will be transferring 14 stores from franchisees to our own stores at the back end of Q4 of this financial year. These will be in addition to the owned stores I just mentioned. We grew underlying wholesale by 15% on an actual currency basis, which was up 8% on a constant currency basis. We were particularly pleased because this was from 13% fewer accounts as we continued to focus on quality over volume. We continues to review wholesale in market inventory and rate of sell through. Availability is significantly better than in prior year, and the order book is in set in excess of our full year estimate. The excess of order book over estimate gives us the financial headroom to cancel future orders should we want to.
Underlying revenue grew by 18% and followed the DOC strategy, first underpinned by volume, pairs grew by 66%. Secondly, D2C grew faster than wholesale with mix expansion of three percentage points. Thirdly, we continue to focus on full price sales with price increases to fund inflation across the year. We have benefited from approximately six percentage points of growth from the strength of the U.S. dollar versus the pound and euro, and I'll return to the workings of our natural hedge in a few minutes. At the beginning of this financial year, our guidance assumed we would not benefit nor be negatively impacted by exchange. Since this time, the U.S. dollar has materially appreciated. Whilst EBITDA is not impacted by this appreciation, revenue has benefited.
We increased prices in EMEA by around 7%, I think GBP 10 or EUR 10 on a 1460 boot, and by 13% in America, I think $20 on a 1460 boot. We chose not to take price increases in Asia-Pacific as we wanted to narrow the pricing corridor between our markets. These price increases were implemented from the autumn/winter season, which began in July. Average inflation across the six months was 6%, with the largest driver being cost of goods or COGS. For the full financial year, the annualization effect of the price increases will fully fund the locked in inflation of 6%. Turning to full price mix, within D2C, the full price mix was 90%. The continuity nature of our product range means we have minimal markdown risk with markdowns only in relation to seasonal product.
Given the strong product margin structure we have, markdowns tend to be above cost. In the period, we benefited from lower markdowns on clearance lines. In effect, whilst we discounted seasonal products clear, we achieved this with lower discounts than the prior year. We will continue to target around 90% on average full price mix. However, I do not anticipate we will benefit from even lower discounts on clearance product going forwards. Gross margins were up by 0.3 percentage points to 61.6%. D2C grew faster than wholesale, worth 1.1 points. The timing effect of price increases versus COGS inflation was a negative by 1.3 percentage points, but will be fully offset across the full year.
Full price mix was worth 0.5 percentage points. As a reminder, the typical trading patterns of our business mean stronger margin D2C revenues represent a higher mix of business in the second half than the first. For example, D2C mix in FY21 was 34% in the first half and 50% in the second half, last year it was 40% in the first half and 56% in the second half. The stronger gross margins associated with D2C drive higher profitability and EBITDA margins H2 versus H1. Here you can see in the first half of FY21, the EBITDA margin was 27.1% and the second half 30%, last year, first half was 24% and the second half, 32.4%. As expected, in the first half this year, EBITDA margin was lower.
Positive D2C mix was worth 1.1 points. The timing impact, the price net inflation on COGS was -1.3 points. Marketing inflation, sorry, marketing investment in line with strategy was up 0.5 percentage points. Finally, investment in D2C cost us 2.1 percentage points. The 2.1 percentage point investment in D2C mainly reflects three areas of targeted investment. Firstly, new stores. All stores, once mature, are profitable with average return on sales of mid 30%. It takes around two years for a new store to achieve these typical returns. A new store has a target payback on CapEx of no longer than two years, and typically, a store takes around six months to achieve break-even EBITDA. Therefore, when we open a new store, there is a period of negative short-term impact on EBITDA and EBITDA margin.
This is more prevalent in a period of step increase in new store openings. You think the base last year, we opened 13 stores. The half year this year, we opened 21 stores, so nearly double year-over-year. Second is people. In the half, we continue to improve the quality of our people in the business as we scale. In particular, we focus on e-commerce, retail support, marketing, and product. Third is IT and technology. We successfully implemented our global ERP solution in Japan. Now, using last year's numbers, 95% plus of our global revenues are on a single cloud-based platform. We also implemented a new order management system in the U.K. to give us the foundation to trial click and collect and return to store in the U.K. from the fourth quarter of our current financial year.
Kenny will build further on the theme of investing for future growth presently. We have a balanced global brand and a balanced global economic footprint. America is our biggest market and has the largest D2C opportunity with a D2C mix lower than the group average and only 46 stores at the balance sheet date. The U.K. is our second market. It is important for the brand being our home market and whilst it's expected to grow, that growth will likely be slower than the average, resulting in reduced economic influence. Japan is our third market and cements this position after the transfer of 14 franchise stores. Following this transfer, we'll have a D2C mix here of approximately 80%, which we expect to grow towards 90% over time.
Given the very strong margin structure of D2C and Japan pricing being our highest globally, Japan is our strongest EBITDA margin business and will become the APAC growth engine for the next few years. In EMEA, growth was led by D2C, which grew by 22%. Region D2C mix increased by five percentage points and was led by Germany and Italy, which both expanded by eight percentage points respectively. Whilst e-commerce grew in the period, retail growth was a lot stronger with growth rates broadly following group averages. Like-for-like retail traffic recovery was strong and only part offset by an in-store conversion decline. The in-store conversion decline was part due to maths of higher traffic and part due to a higher proportion of customers being in browse mode rather than purchase mode.
Trading was strong in London and larger cities in continental Europe, with U.K. provincial stores and stores outside larger cities experiencing slower growth than expected. In the period, we opened seven new stores and closed three stores to end the half with 83. In the U.K., we had 33 stores, down from 35, with 50 in continental Europe, up from 45 at the 31st of March. Of the three stores closed, two represented relocations, being Dublin and London, Stratford. Underlying wholesale revenue was slightly lower than prior year and all due to timing of the GBP 10 million of revenue that fell in October rather than September. In America, underlying revenue grew by 31% on an actual currency basis and 15% on a constant currency basis.
We had good growth from all channels with D2C up 26% actual currency, 11% constant currency, and underlying wholesale up 35% on actual currency basis, 19% constant currency. Both e-com and retail grew in the period with growth slightly stronger than the global average, particularly in the first quarter. Growth was led by retail traffic recovery being similar to EMEA recovery profile and story. Across the period, D2C growth was weaker than expected in the back end of Q2, part strong prior year base, part later than optimum delivery of sandals and shoes, and part weakening consumer environment. In the period, we opened six new stores compared to three in the prior year, including two in Texas and one each in Chicago, L.A., and San Francisco. We also relocated a store in Minneapolis.
We are on track to roughly double the number of new store openings in the USA across the full year. We took a decision to proactively build inventory and improve availability in American D2C. This was twofold. First, America was the most impacted region in the prior year from COVID-related supply delays, both factory shutdown and also extended sailing times. Second, we have historically had weak availability from December as D2C has been stronger than we have anticipated. In effect, we have historically underestimated demand in this market. Given our low levels of markdown, we can take this investment in inventory with low risk. The nature of our product allows us to plan for growth. In Asia Pacific, revenue grew by 9% of that on actual currency and 6% on a constant currency basis.
Growth was led by Japan, which grew D2C by 17%, expanding D2C mix by two percentage points. As I mentioned previously, retail recovery in Japan was traffic led similar to EMEA and America, but at a more conservative pace. As is typical of e-commerce in Japan, penetration is lower than the Western world. From a low base, our e-commerce trading had strong growth. We opened three new stores to 25 owned stores and including the 14 transferring franchise stores, we will operate from at least 39 stores in Japan by the year end. Similar to America, we took the decision to invest in inventory to drive availability in Japan. In China, our own e-commerce trading was severely impacted by lockdowns in Shanghai earlier in Q1. Shanghai is where our DC is located, and during this lockdown period we were unable to ship any product.
In the half, this resulted in e-commerce revenue declining double-digit. We have four owned stores in Shanghai. We are now trialing the full DOCS strategy. D2C first with own retail supporting e-com. Having reviewed the strategic and economic effectiveness of the legacy distributor contract, we will not now renew this contract at the end of the term in summer of next year. Region EBITDA grew by 22%, reflecting the increased influence and superior margin structure of our Japanese business. EBITDA was level in the half. The higher depreciation and amortization costs from previous investments in stores and IT systems resulted in profit before tax declining by 5% to GBP 58 million. Net finance expense was up a smudge compared to the prior year.
Whilst we expect to see higher interest charges on our debt, these are expected to be broadly funded by higher interest receivable on cash. For net financing costs, guidance is maintained at around GBP 15 million across the financial year. Tax charge was 22.8% in the period and is expected to be in line with full year guidance around 21% of PBT by year end. We recognize there are economic challenges ahead. However, we believe we are well positioned for future growth. As a result, we have increased the dividend per share by 28% to 1.56p. This represents a payout ratio of 35% of earnings and is at the top end of the guidance we gave at IPO. As I said earlier, we have a balanced global brand and a balanced global economic footprint.
One of the many benefits of this is we have a natural hedge against movements in the US dollar, both up or down in pounds and euros. I'll walk you through this example, which looks at the impact of a 10% appreciation in the US dollar on prior year figures. This hedge works because the America and EMEA regions are broadly of a similar size and also approximately 95% of our COGS are paid for in US dollars. From left to right, US dollar on translation is worth 10% more, resulting in more pounds in revenue being GBP 38 million higher and more pounds for EBITDA being GBP 12 million higher. In EMEA, the US dollar cost of inventory purchases is 10% higher, resulting in EMEA EBITDA being GBP 13 million lower.
On the right-hand side, you can see at group level, EBITDA is roughly a similar number. Higher revenue has diluted EBITDA margin by 1.3 percentage points in this example. As a result of our balanced global economic footprint, group EBITDA is not impacted by importing inflation due to currency change. We are not a U.K. domestic business. We typically generate all our cash in the second half of the financial year with a cash outflow of around half a turn of EBITDA in the first half. As I have explained, we took a decision to increase inventory to drive better availability in America and Japan through the second half of this year. Inventory purchases were unusually low in the first half of last year due to the factory closures for three months, which resulted in much lower levels of inventory being available to buy.
CapEx represented 4.6% of revenue, with full year guidance at top end of the range of around 4.5%. At 30 September 2022, we had GBP 133 million of cash, with average leverage measured as average 12-month cash to recognize the cash swing H1 versus H2, net of bank debt and leases divided by LTM EBITDA of around one time and similar to the average leverage calculated at 30th of March, the balance sheet date last year. As anticipated, all our factories are open and operating at target capacity with lead times almost caught up.
In the half, we opened larger 3PL DCs in the Netherlands and Los Angeles to support more efficient e-com pick and pack, and also support a larger retail store network. We typically fix factory prices six to nine months prior to the season and have now fixed prices for autumn/winter '23 season, which is from July '23 through to December '23 at +6% versus the prior year. We now have visibility of our largest cost for the next 14 months after previously fixing autumn/winter '22 and spring/summer '23. The increase is an aggregate of a number of moving parts, but mainly due to leather, which is the largest item of cost, increasing low single digits and also sea freight being slightly lower. We have continued to reduce our exposure to manufacturing in China, and for autumn/winter '23, only 5% of production will be located there.
Given the high proportion of continuity product we sell and our track record of strong full price D2C mix, we have minimal markdown risk. As I said, we have taken the decision to invest in higher inventory to drive stronger availability, particularly in America and in Japan. It's also worth remembering inventory at P6 last year was unusually low due to COVID-19 impacts, factory shutdowns, and extended lead times. At the balance sheet date, inventory was just over double prior year at GBP 261 million. This would represent a look-back calculated stock turn of 1.3 times and look-back weeks cover calculation of around 40 weeks. If you think about it, though, inventory at September represents volume for future sales during peak trading, and a look-back calculation will overestimate weeks cover for a growing business. In the prior year, inventory was low.
We had 20 weeks look-back cover and excluding sailing time on a boat, only around 7-10 weeks cover because you can't sell boots if they're on a boat. It's not really surprising to see we had weak availability through the second half of last year. Regarding quality of inventory at the 1st of September 2022, 84% is continuity products and four out of five pairs were black. Through the first half of last year, this year, sorry, as I said, 90% of D2C revenue was sold at full price. The quality of our inventory is very strong. We have rebuilt our inventory for growth and will have better availability than prior year. We maintain our capital allocation philosophy as discussed at the year-end. We're an old school, highly cash generative business. First call on cash is investment in DOCS strategy and growth. Think better availability.
The second is dividends. We're now at the top end of the IPO dividend target of 35% of earnings payout. Finally, excess cash will be returned to shareholders when average leverage, as I've described, is consistently below one times. At 30 September, this measure was one times and similar to the calculation at 30th of March 2022. Trading since September for D2C has been variable on a week-to-week basis and has been slower than originally expected. We attribute this to the weaker consumer environment, particularly in the U.S. Our peak trading weeks are ahead of us, and availability is much stronger than the prior year. We have maintained full year revenue guidance on the high teens growth. Clarity, this is on an actual currency basis. We have a weak base, to achieve this growth, for D2C, we have two principal assumptions.
Firstly, in EMEA, from November, we will benefit from the weak base in the prior year due to increasingly tight COVID restrictions. If you think about last year, I know we've all forgotten it, we were in lockdown this time last year, particularly in London. Very recently, we are seeing data points supporting this assumption, particularly in London, Germany, Netherlands, and Ireland, where sales have recently popped. Secondly, in America and in Japan, we will benefit from much stronger availability from late November. In wholesale, the GBP 10 million revenue timing has been shipped and our order book is stronger than the full year estimate. Through the first half, we decided to continue investing in future growth as set out in the DOCS strategy, namely brand marketing, D2C, including new stores, targeted people, and tech.
We have also decided to continue this investment thesis through the second half and will not be making short-term cuts to achieve short-term profit that would put our long-term growth prospects at risk. We will also not promote or discount our icons to drive top-line revenue. In addition, while our natural currency hedge protects EBITDA at the cash margin level and appreciation of the U.S. dollar does dilute the EBITDA margin. As we've decided to hold investment spend, changes in revenue will impact EBITDA at the gross margin amount with minimal direct OpEx flex. For example, a 1% increase or decrease in last year's revenue would impact EBITDA margin by approximately 65 basis points.
This is at last year's gross margin percentage, which has a roughly 49%, 51% D2C wholesale mix split and a 100% D2C-driven change will have a higher impact because of the higher margin structure. Given these factors for EBITDA, I expect margins to be lower than last year with a range of between 100 to 250 basis points. For FY24 and beyond, we maintain guidance at mid-teens revenue growth with D2C mix of at least 60% of revenue and e-commerce at least 40%. As a leading indicator, think Japan. The EBITDA margins will be at least 30% or a little bit more across the medium-term. Thank you.
Great. Thank you, Jon. I'm now gonna walk us through the major elements of our DOCS strategy and provide some more detail on the key points which give us real confidence in the future growth of Dr. Martens. This is our tried and tested DOCS strategy. We review it on an annual basis to ensure that we align with market conditions. However, I think the key point here is that DOCS has been unchanged now for five years because of the overall strategic direction of the company is working. The D is all about direct to consumer first. This is about increasing our own stores, about growing our e-commerce business, developing omnichannel capabilities as Jon's talked to, and building a profitable repair and resale business over time. The O is about organizational and operational excellence.
This is about investing in our people, investing in the resilience of our supply chain, and building out our technology. The C is consumer connection, which for me is our most important pillar. This is about our product, it's about our marketing, and it's about driving sustainability through durability and innovation. The S is all about supporting brand expansion through B2B, the wholesale business. Here, we want to partner with fewer but better wholesale accounts so we can reach more consumers globally. We wanna convert targeted distributor markets to own sub-subsidiaries, so that we can implement the full Doc strategy. Jon talked about investment. We will continue to invest in the Doc strategy and in long-term brand health despite the headwinds.
We believe strongly that those brands that continue to invest in difficult times are the ones which will win in the long-term, the custodian mindset in action. In the first half of 2023, we've invested in 21 new stores. These are profitable brand beacons, which in their own right, add to the brand, but they also support our e-commerce business. We will deliver on our full year guidance of 25-35 stores this year and a similar number as we look ahead to next year. In terms of marketing, we've increased our marketing spend this year by 50 basis points. We will continue to invest at 50 basis points per annum. On people, we've really targeted our headcount investment this year to support our direct to consumer business, but also our growing markets.
Think about markets like Italy, Germany, and Japan, which I'll talk about later. In technology, we've invested in an ERP solution in Japan, and in the European business, we've invested to support omnichannel initiatives, which will deliver for this next year and will support the medium-term growth of the direct to consumer business. In terms of inventory, we've rebuilt our inventories from a difficult situation last year, especially in America and Japan, where we were significantly understocked in Q3 and Q4. Given 84% of our inventory is continuity, this is a low-risk investment, which as Jon said, has got minimal markdown risk. We can make these type of investments because we've got strong brand, we've got continuity product, which is iconic, we've got vast untapped potential for growth with small market shares, and we've got very strong balance sheet, as Jon has described.
As I said earlier, my number one priority is the brand. Strong brand equity is a leading indicator for sales and profit growth. We've just completed our latest quarterly study, our July study, and that shows that we've maintained global awareness year-over-year, and we've grown familiarity, so top of mind awareness, by four percentage points versus last year. Meaning DMs is known by more consumers than ever before. Our last 24-month purchases are up one percentage point to 8%, which reflects the growth that we've seen in pairs, but it also shows the opportunity that still lies ahead. There are many consumers who still have to buy their first pair of Dr. Martens. I think the best statistic, though, is we're ranked number one in boots for unprompted awareness around the world.
We do rank lower in shoes and sandals, which is a great growth opportunity for us, which I'll talk to you. We have a larger study with consumers which we carry out across October and November. We haven't got the results yet on that, but we will report on this at our year-end. Our product strategy is unchanged. It is led by timeless, iconic product with the 1460 boot at the absolute center. Originals and Fusion, which are our two most important categories, make up 85% of our revenue, and these are our most profitable products, but they're also our most brand distinctive products. Sandals is now 8% of our revenue on an LTM basis, up from 6% at year-end. Collaborations are at 3%, when they were 1% at year-end as we continue to focus on driving brand heat and brand equity.
I want to call out a couple of areas in the product collection. The first is one of the fastest-growing parts of our business, which is platforms. This is a business that Dr. Martens absolutely owns. Our product approach is always icons and innovation. In platform, at the center of the image there, you see the icon product, which is Jadon, which actually is gonna be 10 years old next year. Around the Jadon, we innovate with boots like Audrick, Janick, and Jetta, and in the shoes category with the iconic 1461 Quad and the 8053 Quad. All of these products drive distinctive Doc's DNA. Sandals is DMs fastest growing category. This is a real medium-term opportunity for the business. We grew 43% in sandals in the first half.
I think Dr.
Martens is relatively unique in that consumers see us as having authority across the footwear category, boots, shoes, and now sandals. We rank number one in boots, we're number 15 in sandals. This presents us with a real opportunity, which we will take advantage of going forward. In the photos here, you see examples of both our sandals and our mules. Once again, all are very clearly Dr. Martens products badged with our DNA. To support our products, we've got strong, compelling marketing campaigns. In the spring of this year, we focused on a campaign called All Access Summer. This was around raising awareness of our shoe and sandals product ranges with consumers. This was the first summer since 2019 where consumers could get back out to festivals and gigs, Dr. Martens were there across the world.
Since running this campaign, we've seen an increase in consumer awareness in both shoes and sandals in our recent brand study. We're gonna build on this next year as we increase the importance of both of these categories alongside our strength in boots. In September, we switched our focus back to the core, and we continued with our Unpolished campaign globally, which supports our original icons. For those of you in the room, you can see the products around here and elements of the campaign. We supported the 1460, the 1461, the 2976, and Jadon, the iconic platform. Here, we also highlighted one of the iconic features of Dr. Martens, which is the yellow stitch.
We're gonna continue to support icons through the key holiday period, and we'll specifically market our winter boots as the weather turns colder over the next five to six weeks of peak trading. We said many times before that we take a consumer-led approach to our pricing. We've just completed in the last few weeks a detailed price study which we ran in all of our key markets from July through to the middle of October 2022. The key headline from that study demonstrates that consumers continue to see Dr. Martens products as good value for money given their quality, their timeless style and appeal, and the durability of the brand.
Consequently, we have taken the decision that we will increase prices in all three of our regions from July 2023, which is the beginning of our autumn/winter 23 season. This will offset the COGS inflation of 6% that Jon talked to. The study took a long-term view on consumers' views of pricing, and we believe that our pricing headroom will increase further as we continue to invest behind the Dr. Martens brand and our DOCS strategy. We are reiterating our strategy that price will offset inflation for the Dr. Martens brand. Moving on, I wanna talk just briefly about our three regions. For EMEA, the conversion markets continue to drive a multiyear opportunity for us as we expand our direct-to-consumer business. The U.K. is our most penetrated market, but it's still growing and growing nicely.
As Jon said, it only represents 15% of our group revenue now. We're highly diversified. The United States is our biggest and our fastest-growing market. It also represents the largest direct-to-consumer opportunity for the company given we have a lower DTC share there. As we were significantly understocked in the United States at the key holiday period last year in both DTC and wholesale, we have invested in inventory this year and also in increased marketing in the United States to support the USA potential over the peak trading period but also, more importantly, over the medium-term. In terms of Asia Pacific, Japan is now 40% of all APAC revenue. We've got excellent brand health. You've got a cough though, Jana.
The franchise transfer of 14 stores is progressing well. Everything is on hand to make that happen within the year as we outlined. China's a very small market for us with 1% of global revenues. We are starting, as we hinted at six months ago, to trial the DOCS strategy in China, and we now have four company-owned stores in Shanghai, which have obviously been impacted by the open and close of the zero-COVID policy in the Chinese market. Just going into each region a little bit more. Firstly, in Europe, DTC growth is a real opportunity for us in our conversion markets. If you look at the first half for us as a company, direct-to-consumer mix grew globally by three percentage points from 40 to 43. If you look at Germany and Italy, the mix expanded by eight percentage points.
As we open stores in key cities, you see some examples there on the slide. Alongside that, we saw resultant uplifts in the e-commerce business where we opened the stores. I think the exciting part here really is that these DTC shares are still well below the group average. We'll continue to expand these markets as we move forward and take some of that flight space that lies ahead of Dr. Martens in Continental Europe. Just as a reminder, DTC growth gives us increased brand control and also very strong financial returns. Moving on to the United States, this is our largest DTC opportunity. In the first half, we opened six new stores in the United States, and we will open slightly more than that in the second half of this year.
At the full year, we gave an example of Texas, which is one of our focus states. Today, I want to really focus on L.A. as an example and probably more broadly, the greater L.A. area, which is a more established market for Dr. Martens. Recently, we've expanded our store presence in greater L.A., we've moved from eight to 10 stores, opening in both Brea and Santa Anita, which are suburbs of L.A. Anyone who's been to L.A., though, knows it takes a long time to drive even a very short distance. Hence, the reason why we're now at 10 stores already. Even in a more established city like Los Angeles, what we see when we open stores is the e-commerce sessions grow.
In Brea, sessions grew by 142% in that zip code and in Santa Anita by 62% since we opened the stores. This is exactly the same effect that we showed you in Texas. It's exactly the same as we've seen in all parts of the world. Our stores are profitable brand beacons with great returns, but more importantly, they drive consumers to our website. If you look at the brand stats from the L.A. area, you see a real big brand effect. Familiarity is up by 23 percentage points in L.A. versus last year. Ever purchased is up by 10 percentage points versus last year. Just showing the effect as we build out the Dr. Martens brand, what we can really accomplish.
Over the medium-term, we will continue to expand our store presence in the United States to deliver the 100-120 stores we've talked about previously. Moving to Asia, I really wanna focus on Japan today, which is now our third most important market globally. In the first half, we opened three new stores in and around the Tokyo area. We're making really good progress on the transfer of the 14 franchise stores to company ownership by the end of FY23, which will give us greater brand control in the important Japanese market and will improve further the profitability of Japan, even though it's already our most profitable market. For next year, more than 80% of our revenues in Japan will be D2C.
As Jon said, this really gives a future vision of the direction in which we are taking the company, DTC first. This year in Japan, we've invested in Microsoft Dynamics 365. We've invested in increased headcount ahead of this DTC growth, and we've increased our marketing investment. Brand sentiment in the Japanese market is extremely strong. On wholesale, our strategy is really simple. It's focused on ensuring that we drive greater control on how the Dr. Martens brand is sold in a wholesale environment. We're focused on elevating brand presence. In the back of the slide, you see an example of a shop-in-shop there, and we're driving out more shop-in-shops around the world. We're expanding and managing the product assortment better, and we're working with fewer but better strategic wholesale partners.
What that strategy has delivered in the first half of this year is 15% wholesale growth, but from 13% fewer accounts. Every account is becoming more productive and therefore, consequently, wants to treat the Dr. Martens brand with the respect that it deserves. For the second half, our order book in wholesale more than covers the guidance which Jon gave. Oh, little fly there. We're in a strong position that we can manage our cancellations effectively. Over the medium-term, we will continue to focus on the right strategic partners with a focus on bricks and mortar retailers. He likes my glasses, that fly. Let me sort it. There we go. Sorry about that. Yeah. We're really focused in wholesale on bricks and mortar retailers, and we will support fewer customers with a focus on try on and brand expansion.
I don't know why this fly likes me so much. There we go. Nice to be popular, though. It really likes my glasses. Sorry on the webcam. You can't see this, but there's a fly landing on my glasses. There we go. Last but not least, a short update on sustainability. From a product perspective, we've been working with third parties to trial alternative materials to leather and PVC, which is where the brand has its biggest impact. So far, the trials seem to have been really encouraging, and the next step now is to achieve Dr. Martens levels of durability in mass production. Obviously, these alternative materials have to be as durable as the product that we already have, which is incredibly sustainable.
We've significantly reduced the levels of single-use plastic in the packaging of our boots and shoes in the first half. We will continue to focus on this as we go forward. I've said this before, but I think that repair and resale will be an important part of Dr. Martens' future. We've extended the trial of reconditioned DMs on Depop in the U.K. We're also looking into a similar trial of selling repaired and reconditioned docs in the USA next year. Our goal is to play a much more active role in the second-hand market for Dr. Martens, given the incredible durability of our product. In conclusion, most importantly, our brand is stronger than ever. The DOCS strategy continues to deliver for us, with direct to consumer being the fastest growing part of our business.
We are investing for long-term brand health, even in difficult economic times, because that's what the best brands do. Our pricing headroom will allow us to offset inflation in the go forward. As Jon said, we've increased our interim dividend, showing our confidence in the future growth of the brand and the company. With that, we're gonna open up for questions. Luckily, the fly has now gone. If we can take questions first from people here in the room and then from those on the webcast. Also, if you could just let us know your name and the organization you represent. Thank you very much to all of you for giving Jon and I your attention. We appreciate it. Karina, go ahead.
Thank you very much for taking my questions. It's Karina Nugent from Goldman Sachs. I would like to just drill in a little bit in terms of your cost structure, and specifically OpEx. Thank you very much for giving us the bridges. They were very helpful. But in terms of your kind of OpEx structure, can you just help us think about the drivers of that and then operational leverage both on the upside and the downside? Following on from that, you know, you have changed your margin guidance for the full year. Can you talk us through kind of what's changed since you gave that initial guidance in July? Presumably those investments you're making with regards to technology and the new stores that were known back in July.
Finally, you know, there is quite a wide range in terms of that -100 to -250 basis points. Can you help us think about what growth assumptions you're embedding for the full year to kind of reach that kind of low end of that guidance range?
Yeah.
Thank you.
So
OpEx structure. The largest cost we have in OpEx is people. not surprisingly. mainly people in stores probably. after that, you are looking at DC costs, the costs of the distribution centers themselves, and picking costs. picking costs is cost in terms of where highest picking cost is e-commerce, single pick, then it's retail, then it's wholesale. then after that, you're into remarketing spend, which we said we'd increased by 50 bips, and then staff for a better description. That's the biggest choice, the biggest OpEx costs. We have, as we said, you know, what's changed in the guidance, but what we have said, we have continued to open new stores in line with what we thought. as I said, you open up a new store. First it takes about six months to break even EBITDA.
Makes money across a 12-month period. It gets the full returns across the 2-year period when it takes to reach maturity. Obviously, doubling number of stores year-on-year, roughly in the first half, you increase the amount of costs in a store in the new opening period year-on-year, which pushes the cost base up. We put 50 bips on marketing spend. We have invested in people and in tech as we described. In terms of what's changed in the guidance, well, that's probably linked to the EBITDA margin point. I think it's fair to say that particularly in the back end of the second quarter, D2C growth was lower than we expected. There's a number of reasons. I think the principal emerging reason is one of a weakening consumer environment, mainly in the U.S.
It's not all in the U.S., but mainly in the U.S.. I think also, if you go through what's been going on much more recently in terms of, in terms of current trading and the variable week-on-week trading performance we described, we didn't wanna write this, but it's been warm. And whilst October was a fantastic month for sandals from a very small base, the more boots we had much lower growth than we expected. It's been too warm. We need to see how when the weather changes, how things pop. So I think it's a, it's mainly the top line was a bit slower than anticipated, which is a higher margin D2C, which meant the investment structure stayed pretty much put, so it just dropped.
When you think about, okay, the full year as example, 1% of last year's revenue at last year's average gross margin would drop to about 65 basis points impact to EBITDA. That's on an average gross margin split, D2C is obviously more profitable than the average.
I guess the only other thing that's impacted the EBITDA % on a full year basis.
Okay.
strengthening of the dollar.
Yeah.
You know, in Jon's example.
Got it.
That has, you know, reasonably profound impact also.
Thank you.
One member forgot their microphone.
Morning. Kate Calvert here from Investec. A couple from me. In the presentation, you did mention wholesale cancellation rates quite a few times.
Yeah.
Have you actually seen any change in behavior yet, on wholesale cancellations? Second question, have you got any early thoughts on how you're going to tackle China, and when you might start to get going there? The third one is, your opening plans for next year in the States, which states will you actually be focusing on, with your opening plans? Thank you.
Okay. I can take a first stab, Kate. The question on wholesale, we haven't seen increased cancellations thus far this year. They're broadly in line with where they've been over the last two years. As Jon said, you know, with an uncertain economic environment, we've provided for higher cancellations between now and year-end. We don't know if that will come through. Actually what we're seeing in the last few weeks, just as the weather's turned both in Europe and United States, is we're seeing good wholesale performance. What we have to remember, though, is we had a weak base last year because this was the period when we didn't deliver a lot of product in. The numbers are starting to look really good, but we don't wanna get overly optimistic.
We haven't seen higher cancellations thus far, but we've provided just in case. In terms of, China and, you know, we've made the decision that we wanna get after the DOCS strategy there. You know, the cities are so big that what we're gonna do is we're gonna focus our efforts first on Shanghai, and then we'll look at Shanghai and Hangzhou as a cluster, given how close they are. We've opened four stores in Shanghai. Given everything that's happened there with COVID this year, we're quite pleased that we haven't opened too many too quickly. What we've seen is, you know, strong conversions in those stores, higher than we were able to achieve with our franchise partner. It's just too early because of the open up, close down.
In terms of the United States, you know, where will we focus? Well, you know, we're gonna continue to focus on Texas. We talked about Texas before. We're gonna continue to build out Texas. We're gonna focus on the Midwest, where we started opening stores this year. We're gonna build out the Midwest cluster, and then I'm actually going out to Florida in a couple of weeks because we're looking to build out Florida as well. Those would be my headlines. I don't know if you want to add anything.
Just to build on just on the first two. On the wholesale cancellation, the reason we wanna talk about that is we're absolutely paranoid about not stuffing the trade. I'd rather have an estimate that is lower than order book so that we always exit a year with the right size of inventory in market. We monitor that on a weekly basis, weekly inventory and sell-throughs for top 20 wholesale customers in each of our regions. It's paranoid about not making that error. Just on the China, Shanghai and Hangzhou, we take those two locations together. They've got a population size of a small medium-sized European country. It's about 50-odd million people.
If you think about it in that context rather than two cities, it is quite a big city conurbation of people to go after.
Hi, good morning. Edouard Aubin fr om Morgan Stanley. Jon, you talked about OpEx, you know, growth. Could you please just come back on the inflation you're seeing in terms of, you know, wages and rents, today and what you're expecting over the next few months? That would be helpful, number one. Number two, related to that, on terms of the EBITDA margin in the statement today, you reiterate that you are keeping your EBITDA margin medium-term guidance of 30%, around 30%. Obviously it's not gonna be that number this year. I know it's a bit premature, you know, and there are many uncertainties in terms of the macro environment and so on, but, you know, could that be achieved as early as next year?
That would be maybe ambitious also given the adverse geographic mix that you talked about, potentially for next year. Lastly, sorry, on the competitive landscape, are you seeing any increase in discounting activities from some of your peers and competitors? To what extent that can or could impact, you know, your sales given that you want to remain very disciplined in terms of full price sales ratio? Thank you.
Okay. Edouard, if I do the first two, Kenny will pick up the third one. On OpEx growth, biggest cost is cost of goods. That's fixed at 6% the next 14 months, so we're happy with that through to December 2023. The average wage inflation we've seen this year has been averaged about four, between 3%-6% across the world, so averaged about four. That's what we paid for the current financial year. Obviously, next financial year, we need to see. Again, being a global business, U.K. inflation's, what, just shy of 11. The U.S. is just shy of eight. In Asia Pacific, they're high, they're sort of small single digits. We've got this blended rate across the world. It's not all U.K.-centric.
In terms of rents, actually, rents are still, we're discovering when we're renewing leases in Europe, we are still going along, we'll renew your lease, we want to pay lower rent. If someone doesn't wanna pay lower rent, we're happy to walk, we're still getting lower rents coming through. Rents, we're still seeing rent deflation actually. EBITDA margin is interesting one. The reason we are still confident of journey to 30% and maybe a little bit more is all to do with the D2C mix drop. As at the full year, last year was 49% D2C, take the annual number. You've seen, we said we've got a target of 60% plus.
We're saying Japan will be 80% going to next year as a sort of leading North Star indicator. You've seen in the presentation today how small the D2C mixes are in the European conversion markets. Opportunity, headroom to drive there. Because of this, the margin structure of D2C, which you think in the examples I've given, the pricing of a boot, D2C is about 2.5 times more revenue per pair per boot and about four times the gross margin. That's where, that's the key underlying economic driver of our D2C mix shift. Your view on how far and how fast we drive the D2C mix shift will drive the underlying margin improvement.
In terms of pace, obviously that's in your model, the one thing that will move in our favor would be if the dollar were to depreciate against the pound and the sterling, because that bridge would then work the other way around. Parking that, because that's not under our control, what is under our control is focusing on D2C first.
Yeah. Your final question was about, you know, what do we think is gonna happen in the competitive landscape. You know, we're expecting, you know, quite a promotional environment in the next five weeks. We're expecting that more for the apparel companies than we are for footwear. I think for Dr. Martens, number one, we've got a brand that people want, and secondarily, we think it's really important to build brand trust with consumers. You will never see while the two of us are here, Dr. Martens marking down core iconic product in core colors, because we think it's absolutely the wrong thing to do. We think it's short-term thinking, and what it does is it boosts short-term sales and then gets people in a spiral when they start to annualize numbers. It just erodes brand trust. Will Dr.
Martens participate this weekend over this Black Friday, Cyber Monday? Yeah. You know, you might find a seasonal color of a boot or a shoe, so we'll have some offers there. If somebody wants to buy a 1460 in Black Smooth, they'll be paying full price, and they'll be paying full price for as long as I'm here. Up the front there.
Good morning. Doriana Russo from HSBC. I've got quite a few questions to ask if I may. First of all, if you could go back to the current trading comments and give us a little bit more of color on what is actually happening right now, meaning in November. Whether you're seeing any changes and whether the slowdown in D2C that was mentioned in the release is particularly due to whether in the U.S. or anything else. What have you seen in Europe, for example? A lot of companies mentioning U.S. customers actually coming to Europe to buy rather than buying in the U.S. That's my first question. Second question is on the inventory levels.
You talked about restocking the market vis-à-vis last year. Fair enough. Is there a risk that perhaps your wholesalers might start to discount and therefore what sort of control or, I don't know, penalties might you have built in your relationships in order to avoid brand awareness coming from the wholesalers rather than D2C?
I've got one more question on the impact of USD on EBITDA. I noticed that in the presentation you didn't mention, you didn't call out the impact of current currencies versus actual currency on EBITDA. I wonder if you can give us a sense of whether, you know, what was the impact of, on EBITDA margin from USD strength in actual terms? I see that you've mentioned an example. You know, if you could correlate that to the actual numbers, I think that would be very helpful.
Okay. I'll take the first two, Doriana, and I'll let Jon answer the question on currency. We're kind of, you know, midway through November. Obviously not giving out specifics on November today, but, you know, I can give you some color, what we're seeing. You know, your point on weather is a very pertinent one. We don't like to moan about the weather, that's why we didn't put it in all the statements. The reality is, depending on, you know, which website you believe, October in America and Europe was either the warmest on record or in the top three. Clearly when you run a boots brand, you want it to be cold.
As the weather has started to turn, you know, those of us who live here in London have seen it in the last few weeks, we're seeing a resultant step up in trade, I think that's for sure. Jon talked about two big assumptions in the presentation about, you know, what's gonna happen in the next five to six weeks. The first was about the weak base in Europe this time last year. We're either facing lockdowns or restrictions in Europe, and we have seen the business move forward quite significantly. London especially, Germany especially, Netherlands has been strong, Italy's coming through. You know, we feel really good about what we're seeing in the European environment.
In North America, which was the market that weakened a little bit for us in the second quarter, that one, it's been so warm that it's only again in the last few weeks that we've really started to see the pickup coming. I've only been with the business four and a half years, Jon reminds me that there was back in 2017.
October.
we faced the same thing with a late winter, and it came through nicely. you know, the business is in the right place. To your question, which bridges into your second question, which is around inventory, you know, we just had nowhere near enough product this time last year because of what happened in the supply chain. We've restocked for success, and the reason we've, you know, bet on that is we've got a strong brand, and we're in the fortunate position of we've got continuity product. you know, if it doesn't come through to exactly where we expect, what happens, we've got, you know, a little bit too much cash invested in inventory.
Interestingly, in the United States, what we're starting to see is that, you know, the wholesale customers didn't have enough inventory last year. Their figures, to use Jon's expression, have popped quite quickly. We won't really see the low inventory effect in DTC until post-Thanksgiving, 'cause that's when it really hit us last year. In terms of your question around, you know, what can wholesale do, obviously, you know, in the United States we've got a Minimum Advertised Price policy. The price is fixed. In a European environment, that's illegal. You know, the wholesale partner is, you know, allowed to sell at whatever price they choose to do. The most important thing is, you know, we've not oversold in the trade.
You know, as Jon said, we have left ourselves in a position where we could take significantly more cancellations than we did last year, and, you know, we'd still make the wholesale guidance that we've given in the high teens guidance. We feel very confident that we're managing for the long-term in the wholesale trade. We're not overselling in the trade, and we're actively telling our salespeople, you know, "Watch the sell-throughs." Jon and I look at it, you know, on a weekly basis for the top 10 accounts. I've got absolutely no worries that we are overselling into the trade.
We're paranoid about wholesaling market inventory. The last thing we wanna do is to overstock and leave it there, 'cause you're right, they'll discount. That's why we've got a higher order book than the forecast. If we need to bring stuff back in returns from wholesalers, we will do, rather than them promoting it. We'd rather bring it back. On your last point, on the constant currency or actual currency, on the actual EBITDA for the first half, it would broadly follow the example, Doriana. The difference between constant currency and actual currency at EBITDA is not material. It's pretty much the same number. It is material, obviously, at the revenue basis, which is why we've given it.
When you go through that, the way the natural hedge works, it's not material at the EBITDA reported number.
It is material in terms of the margin?
% margin?
Percent margin is. Yes, because it is percent margin, because it's on that example, you've got more revenue from the U.S. on translation, which drops the margin, but the pound notes don't change.
Yes.
Thank you.
Hi. Morning. Piral Dadhania from RBC. Two questions. One is on your conversion markets in Europe, and the other one is on China. Could you just give us a flavor of how your conversion markets in Italy, Spain, and Portugal, which I think were all done last summer, are performing? Maybe break out what the EMEA DTC revenue growth in the first half would be if you strip out the benefit of the conversion markets. Secondly, on China, you've said that you're going to terminate your franchisee agreement with your distributor, I think it was Pou Sheng from IPO.
Right.
I think they operate something like 70 stores in that market. What's the plan for those stores? Are you going to take those on or are you going to shut, will your distributor shut those down and you'll just operate the ones that you currently have?
Okay. We start with the conversion markets. I mean, we're not giving out the detailed numbers market by market. What I can tell you, though, is, you mentioned Italy, Spain, and Portugal. I mean, Italy is performing very strongly. The stores that we've opened in the Italian market are doing extremely well, which gives us real confidence that we can expand the stores' network, and we've seen exactly the same effect in Italy that we've seen in other countries. We told you before that Milan and Rome, as we open those stores, it's helped e-commerce. We've seen the same thing in Turin and Verona. Right now we've got a team looking actively at new store locations in the Italian market. Spain, we opened the first store in Barcelona. It was super successful.
We followed it up with a store in Madrid, which has been even more successful. We opened in Valencia recently. It's too early to see how that's going. Obviously, that's a big city. We believe we can have multiple stores in both Barcelona and Madrid. We're actually opening the fourth store today in Spain, in San Sebastián. The Spanish numbers are extremely encouraging in terms of what we're seeing. In terms of Portugal, we've done nothing yet. I mean, the real focus has been Germany, Italy, and starting out in Spain. In terms of China, we've agreed with Pou Sheng that we are going to terminate the contract as of next year. We're still working through all the details of that right now. I would envisage that a large number of those franchise stores will close.
Potentially some of those stores, a bit like we've done in Japan, where we've transferred stores back, that could be a potential avenue. There's no decision. We're still in negotiation on how we're gonna work that through. I would, if you're thinking about the medium-term, I'd think about a direct-to-consumer business focused first of all in Shanghai and Hangzhou, and then over time, building out from there. That's what I would think about.
Just to build on the first one, obviously, as I said, strong growth in the EMEA was led by the conversion markets. All other countries grew but at a slower pace, and the biggest country obviously is the U.K.. The U.K. grew through the first half, but a slower pace than the average. All countries in EMEA grew.
Okay. I think we can take questions online if anyone has one.
No. Not at the moment.
Okay.
We don't currently have any questions on the telephone line.
Okay.
I'll come back to the room.
Okay. Oh, Doriana.
Doriana.
Sorry, just a follow-up question on your capital allocation. The dividend increase was quite strong relative to the underlying, and obviously an indication that you feel like you're getting closer to that average level of one times net debt to EBITDA before you're prepared to give more money back. If that was the case in next year, the form would be given your capital structure a special dividend, or have you got any other sort of return form in mind?
You're absolutely right. When we are continuously less than one times, that is when we're into excess cash. As long as an excess cash is not needed for the business, it's not needed for dividends. We're at the top end of the range, we will be distributing that to shareholders. How that mechanics of that would work through, we have not made that decision yet. Apart from when we are consistently low that one times, we will be sending excess cash back to shareholders. Mechanic to be determined.
That could happen as soon as next year, then.
If we are consistently below one times at the balance sheet date next year, potentially, yes, but we need to see how things go, yeah.
Got one on the phone.
Okay. Got a question on the phone. Go ahead.
Thank you. We have a question from Richard Taylor from Barclays. Richard, please proceed.
Yeah. Morning, all. A few questions, please. The first one is on your perspective on brand strength, please. I can see your stats on brand familiarity being up, but I'm keen to know why that's the same as intent to purchase and just what else you do internally to monitor the brand strength in the business. Really try and get a handle on how much of this is macro versus how much might be to do with the brand. Another question is also on your revenue guidance for the out years. When I'm guessing you're speaking to the wholesale accounts fairly soon about how much you expect them to replenish next year. Can you just talk us through your confidence in how you can grow mid-teens next year?
Maybe if the environment's a bit soft, if you, that could be the case for your wholesale accounts as well. Why do you think you can grow strongly next year if indeed the macro is a bit tougher at the moment?
Okay. I'll take one.
Thank you.
you can go, Kenny.
Yeah.
Okay. Thanks, Richard. The first one on brand strength, I mean, we don't give out every measure that we track. We track a full basket of measures. The study that I quoted from this morning, which was done in July, is a smaller sample size than the one that is done across October and November, which is 70% bigger. That's the one that we'll quote to at year end. Basically, overall, you know, the measures moved forward on the global average everywhere. All countries moved forward. The reason I gave awareness familiarity in last 24 months purchases is 'cause they were exactly the same ones we gave at the year end. Familiarity, which brands are you familiar with and have you heard from recently, up four points.
We think that's a really strong indicator because it says Dr. Martens is more top of mind. The last 24 months purchased, again, continues to rise over the same period last year. Again, that's a good sign that more people are buying Docs. On the unprompted awareness question around boots, the number one boot brand around the world is Dr. Martens. I think what we're seeing is overall that, you know, the brand is in a strong position with consumers. We track a lot of softer equity measures around how rebellious do you see Dr. Martens, you know, questions like that. Again, the softer equity measures are also positive. We believe, to the best of our knowledge, that the brand is strong.
Yes, there are economic headwinds out there, but it's not a brand strength problem.
How'd you get mid-teens in the out years? I think we know price increases will give us 6% across the full year next year. That's based on a consumer survey similar to this year, and that we've done in prior years with minimal volume loss. There's a start of a 10 + six. Over the past three or four years, we've average grown volume by 10. This half, we've grown by six. Take a number that's closer to six than 10, that's a volume slowdown for the economic environment. Then it's your assumption on D2C mix. Last year we grew by three. If you take those random three numbers I've just given you, of six and three, you get to a number that's roughly mid-teens with a lower volume growth.
It's never that simple, Richard, if you stand right back, the key variables for next year would be It's probably the biggest variable, is what's your volume assumption?
Yeah.
We've grown 6% through the first half.
To your question, which was the other part of that question on revenue build, you're right. We're going out to sell autumn/winter 2023 in the weeks ahead. We've had pre-line meetings with most of our big customers already around the world, and as normal, as we've done over the last few years, we generally don't give people the volume they want anyway. We try and constrain the number of pairs that we sell into the wholesale market because overall, our goal is to grow D2C faster. As Jon said, we wanna grow D2C mix. In terms of the assumptions that we're building into that mid-teens guidance for wholesale growth, I think we feel really good about it, and we'll once again be working with fewer partners, and we will be working with people who wanna give us more managed space.
I think we feel good about the wholesale number that's in that medium-term growth.
Thank you. Just as a follow-up to that, I mean, you know, you talk a lot about long-term focus, custodian mindsets. In relation to the 6% price increase proposed for next year, can you just talk us through your thoughts there as well, whether it's talking to the wholesale accounts that you just highlighted or thinking about your own channels? Like, why is that the right number? Why don't you accept slightly less, accepting there's an inflationary environment? You know, how confident are you can push that through in a tougher macro, notwithstanding your desires to sort of protect profits as well?
Yeah, I mean, we did a pricing study across July through October, so pretty recent stuff with consumers in our seven most important markets, where we look at, as we increase price, when's the point where they say, "No, I wouldn't, I wouldn't be buying into Dr. Martens anymore." It's the same study we've done twice previously. When we've done it twice previously, we've implemented the price increases and lost zero volume. All of the modeling that we've done would suggest that at maximum, by putting through the price increases we plan to put through, we might lose 1% of pairs. If that were to happen, we're okay with that because, as we just said a moment ago, we would deviate pairs to the higher gross margin D2C channels.
That's the right thing to do because it enables us to control the Dr. Martens brand and enables us to improve the economic model. Consumers around the world see that there is more value in the Dr. Martens brand than we are currently charging. Last year, the year we're in now, we didn't take any price increases in Asia-Pacific because we wanted to close the global pricing corridor. The strength of the US dollar means that we've closed the global pricing corridor, and we've got quite a lot of headroom, and we're not taking all of that headroom. The reason we're not taking all of the headroom is we believe the macroeconomic environment will be difficult for the next 12 months. We've always said that our strategy is that price funds inflation.
Consumers are under pressure. We're gonna take enough pricing around the world to cover inflation. We are not taking all the pricing that the study would suggest that we could take.
Got it. Thanks very much.
Thanks, Richard.
Yeah. Hi. Edouard Aubin again from Morgan Stanley. Just a small follow-up on South America. I know it's relatively small in terms of sales in the context of the group, and you gave the figure, right, GBP 10 million. I think, you know, it was marginal in terms of profit contribution. Are you just no longer distributed now in South America? What are the plans for the medium long-term there?
If you wanna buy a pair of Dr. Martens and you live in Argentina right now, you can buy online. We have a border-free site that's serviced from our United States business where you can buy. It was really, as Jon said, it was just a focus question. I mean, you look at the size of the opportunity we've got in North America and, you know, we're already investing a lot of operating expenses into the business and we want to invest those operating expenses in the most focused way. For the U.S. business or the Americas business as it was, we wanted to invest those in the United States of America.
Given that short-term, the business wasn't making a lot of money, we decided that the right thing to do was to focus on the USA, put all of our investment against the USA, service that business digitally from our U.S. distribution centers. Do I believe over time that the brand will go back into Latin America? Yes. Right now, the priority is to build out the United States of America. I think that is it. Mark is giving me the thumbs up from the back of the room. Thank you, everybody, for your questions and for your time today. We really appreciate it. Have a good day.