Shares in iconic footwear brand Dr Martens (DOCS) are bouncing back after being in the doldrums since problems emerged last year with its US operations. 

The shares started rebounding in early July after a reassuring trading update, and have now gone up another 6% on reports that an activist investor has been building up a stake in the business.

According to Sky News, Sparta Capital has taken advantage of price weakness to buy an undisclosed amount of shares in the boot maker.

Anyone who acquires 3% or more of the voting rights in a company has two trading days to report this transaction to the stock market.

So far this week the only notification of major holdings has been from Singapore-based GIC, Dr Martens' third largest shareholder which has increased its stake from 4.21% to 5%. 

Interestingly, Dr Martens' chief executive Kenny Wilson took advantage of the recent flagging share price to pick up £400,000 worth of shares at 129p on 17 July.

WHO IS SPARTA CAPITAL?

Sparta is run by Franck Tuil, a former executive at fellow activist investor Elliott Management, where he was involved in campaigns against drinks group Pernod Ricard and chemicals firm Bayer, among others.

Private equity firm Permira Advisors is Dr Martens’ largest shareholder holding 37% of the company’s outstanding shares.

WHAT DOES THE ACTIVIST WANT?

Sparta is believed to have pressured management to address its distribution problems in the US and perhaps even encouraged the company to initiate a share buyback.

On 14 July Dr Martens commenced a £50 million share buyback programme which, when complete, will reduce the company’s share count by around 3% and increase earnings per share by the same percentage.

The buyback comes after Dr Martens achieved a milestone £1 billion of revenues for the year ended 31 March while pre-tax profit fell 26% to £159 million, impacted by higher depreciation and amortisation charges, a £3.9 million impairment charge and a foreign exchange translation charge.

The company anticipates mid to high single-digit revenue growth in the current financial year but a 1% to 2% lower EBITDA (earnings before interest, depreciation and amortisation) margin on increased investments to support long-term growth.

Meanwhile, one-off warehouse costs in Los Angeles are expected to cost £15 million, with £10 million in the first half. The company said addressing US performance remains top priority and actions to improve the direct-to-consumer channel will likely take until the second half to see any meaningful improvement.

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