Dr Martens PLC

LSE:DOCS

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to this morning's Q3 Trading Update Call and Webcast for Dr. Martens plc. I would now like to turn the call over to Chief Executive Officer, Kenny Wilson, for some introductory remarks before the question-and-answer session. Please go ahead.

[Kenneth Wilson, CEO & Director]

Thank you very much. Good morning, and welcome, everyone, and thank you for joining our Q3 trading statement conference call. I'm joined this morning in the room by Jon Mortimore, our Chief Financial Officer; and also Bethany Barnes, who heads up our Investor Relations department. So if you've any got further questions following this call, please do reach out to Bethany directly for clarification. .So before we open it up for Q&A this morning, I just wanted to take the opportunity to share my perspectives on our third quarter. Overall, I'm really pleased with our Q3 performance. This is our largest trading quarter, and I'm particularly pleased with our direct-to-consumer results, up 33% year-on-year to 64% of our revenue mix. Growing direct-to-consumer is a key part of our long-term doc strategy, as I think most of you are aware and the success we continue to have on our website and in our own stores, shows that this strategy is working and gives me significant confidence in the future growth and direction of the business. Our Q3 results with revenue up 15% constant currency and against a continued tough backdrop with our supply chain teams in particular, having to navigate continuing long lead times and operational complexity and also our retail teams face renewed COVID restrictions across the world in December. Despite all of the challenges that we've had to deal with this year, we remain confident in achieving market expectations and doing exactly what we said we were going to do at the time of our IPO. This is a great result and testament to our DOC strategy to the phenomenal brand that we have and also the passion of our people. To just give you a little bit more color and detail on our Q3 performance. E-commerce growth was strong, up 16% versus last year and 85% up on a 2-year view. In Q3, e-comm represented 39% of our revenues and is now at 30% year-to-date, and this gives us significant confidence around our medium-term 40% mix target for e-commerce. Our retail revenue accelerated on the prior quarter, up 16% on a 2-year view and double the rate we recorded in the second quarter, with conversion remaining very strong everywhere. Given the emergence of Omicron and the renewed restrictions, December was a little bit weaker than October and November. But as with previous periods of COVID disruption, we saw strong e-commerce performance. Turning my attention to wholesale. As we've previously told you, our largest manufacturing area, which is South Vietnam, was closed for around 3 months over the summer. And South Vietnam is about 1/3 of our overall production. We took the decision, as we've told you before, to enter the current financial year with relatively high inventory levels. However, the Vietnam closures coupled with extended shipping times that we've been facing, mean that we have had constrained inventory levels during the third quarter. Against this backdrop and reminding ourselves of the fact that our third quarter is our key direct-to-consumer trading period. We took the decision to prioritize the inventory that we had towards direct-to-consumer and that has resulted in wholesale being down 14%. However, the vast majority of Q4 wholesale peers have been manufactured, and they are in transit by sea to our distribution centers and then we'll ship them on to our wholesale customers. We have the pairs that we need to make our wholesale numbers in the fourth quarter. Turning my attention to the regional performance. By region, EMEA was strong with good growth across all channels. We don't report by individual countries, as you know, but I will pull out Italy, which we converted to a directly owned and operated country at the start of the financial year as being a particularly strong performer. We now have 3 stores in Italy with Milan opening in December, and we're really pleased with the progress that we're making in the Italian market. America's direct-to-consumer performance was very good, and the wholesale dynamic, as I've just described, moderated the overall regional performance as we expected. And America is obviously our biggest wholesale market. So it was the most impacted by the shipment timing. Asia Pacific was weaker with our revenues down. The biggest impact here was seen in our distributor markets, namely Australia, and specifically, our third-party operated stores in China as the impact of renewed COVID restrictions and concerns were felt in these 2 markets. So if we look to our full year outturn, having completed Q3 and being well through January, when we spoke back in December, we said we had 2 big jobs to do as the Dr. Martens brand to deliver this year. The first was to have a strong direct-to-consumer peak trading period, and the second big job was to manufacture the pairs for the fourth quarter, get those pairs onto boats and get them over to our distribution centers so we could ship them to our wholesale customers. As we sit here today talking with you, we've achieved the first. We've delivered a very strong direct-to-consumer third quarter and we are on track to deliver the second, i.e., we have manufactured the wholesale pairs we need and those pairs are on boats on the route to our individual markets. So overall, we sit here today, our strategy is delivering results. Our long-term custodian mindset continues to guide our decision-making, and I have never been more enthused to lead the Dr. Martens brand forward into the future. With that, I'm going to hand back to the operator, and Jon and I are happy to take questions from the floor.

[Operator]

[Operator Instructions] We will take our first question today from Richard Taylor from Barclays.

[Richard Michael Taylor, Analyst]

I guess you've talked a lot on the call about the sort of the inventory cycle and so on. Just looking for a bit more commentary on the degree to which the weakness in wholesale was sort of entirely driven by the absence of inventory and you're prioritizing that further channels or whether it was a demand issue for consumers. So sort of any update on kind of brand heat demand versus supply will be welcome.

[Kenneth Wilson, CEO & Director]

Okay. Thank you very much, Richard. I can start and Jon can add in where appropriate. Effectively, the weakness in wholesale in the third quarter is 100% down to lack of inventory. This really dates back to what we talked about in December, where, obviously, we lost the production from Vietnam for 3 months with those factories being closed. We knew that we wouldn't have all the pairs that we needed to meet consumer demand in the third quarter. And we took the decision as a management team to prioritize those pairs towards our direct-to-consumer channels, which are obviously the most profitable channels for us.The pairs that we need now are on boat. We know that. We know exactly where they're going and they're heading over. The great news is that the demand is still there for the brand from the wholesale channel. So we've not received any significant cancellations for stock and the wholesale customers know that Dr. Martens is a brand that's performing really well right now, which I think our DTC numbers show. So they're ready to take that stock.

[Jon W. Mortimore, CFO & Director]

And just a little build for our top 20 wholesale accounts in Americas and also EMEA, we see weekly in-market inventory and sell-through data and sell-through data for those hold accounts has remained strong. .

[Richard Michael Taylor, Analyst]

And just a follow-up on the inventory. I think you're at sort of 3 months producing actually being in the distribution centers. Any sort of update in terms of whether that's got better or worse than your last update to the market in December, please?

[Jon W. Mortimore, CFO & Director]

I think what we said in December was all of the inventory needs to be made and on boats by about now and as Kenny said, that is the case. Our assumption is it will take -- this is mainly for the U.S. from Asia to the U.S., it's 90 to 95 days, which was the shipment times we're seeing before Christmas that underpins our confidence in landing for the fourth quarter. What we are seeing is a slow improvement in those days. We don't -- assuming any step change and our forecasts do not assume an improvement from the 90, 95 days. But the mood music is slowly getting better. .

[Kenneth Wilson, CEO & Director]

So we believe, Richard, that we've taken a conservative assumption, i.e., we've taken the worst that we've seen over the last couple of months. And as Jon has just said, the reality is slightly better than that.

[Operator]

We'll go to our next question now from David Roux from Bank of America.

[David Roux, Associate]

Good day, Kenny and John. So I've got 3 questions from my side. I'm just going to ask the first and then the last 2 I'll ask together. I hope that's okay. Firstly, on the shipment impact for 3Q. Can you remind me, was there any specific guidance on the net sales impact from shipment delays for 3Q? And then just following on from that, perhaps what was the actual net impact from shipment delays in 3Q given the fact that you also saw the benefit of some shipments being delayed and rolled over from 2Q.

[Jon W. Mortimore, CFO & Director]

Thank you for that question. We are not going to give that level of detail. However, what we did say back in December was we referenced that we did have scarcity inventory in the third quarter and then would target our D2C channel in the third quarter because that's seasonally the peak holiday trading period to target those channels. And we said we would then target wholesale restocking into the fourth quarter. So D2C quarter Q3, that's where we make the money for D2C. Wholesale catch-up in Q4. We communicated that to our larger wholesale customers. We also communicated the fact that we now have made everything. It's on boats the product will land through the fourth quarter. And one of the benefits of having a high level of continuity product, about 80% of product is continuity, a pair of 1460 black boots you can buy any month of the year.

[David Roux, Associate]

Great. And then just my last 2 questions. So I think if we take a step back, shares on our trading at sort of 14x PE for business growing top line at mid-teens according to your targets. I mean given where shares are and I think the fact that it's below the IPO price, it seems the markets either pricing and either a demand problem for the product or perhaps is no longer confidence in the long-term targets. Can you tell me whether there is a demand problem or if your confidence is that all being tested in those medium-term targets from the IPO?

[Kenneth Wilson, CEO & Director]

I can be unequivocal in that, which is there is no demand issue for the Dr. Martens brand. I mean I think to use your phrase, if you stand right back, revenues in direct-to-consumer grew 33% in Q3. And I think if I remember correctly, we're 50% up on a 2-year stack. We gave numbers at the IPO where we said we would grow this brand, high teens growth this year. We will grow high teens growth even with the headwind of our largest manufacturing country, Vietnam being closed for just over 3 months. .So I think from our perspective as management, we don't control the share price, what we control is performance. And we will deliver exactly what we said we would do 12 months ago, and we feel very confident as we look at the guidance we've given for the outlying years. The Dr. Martens brand is strong with huge potential around the world.

[Jon W. Mortimore, CFO & Director]

Yes. And to build, we guided out here as the medium term mid-teens revenue growth and on a journey to a 30% EBITDA margin, and we remain confident in those guidance numbers.

[David Roux, Associate]

And just last question. As it stands today, can you remind me, does DOCS have approval for share buybacks from the Board. And what are your thoughts around this, just considering where shares are trading and also the fact the balance sheet has the headroom?

[Jon W. Mortimore, CFO & Director]

And -- the whole question about capital allocation is one that the company will look at, at the appropriate time. At this moment in time, carrying a larger amount of cash on the balance sheet as we come out of COVID,I think is a sensible thing to do. We also -- well, we didn't see this year because of time and manufacturing, but we did guide about the year-end. We have a typical cash -- an intra-year cash swing from opening balance sheet to the half year of about 0.5 turn of EBITDA. That is something we'd expect to see going forward, but we are a highly generative cash company at the appropriate time, we will look at all options for that cash.

[Kenneth Wilson, CEO & Director]

Yes. And I think the only thing I'd add to that is, as Jon said, we will look at this with the Board. But our #1 priority is to invest in organic growth projects within the company. There's an enormous total addressable market for the Dr. Martens brand, and we have key projects that we want to invest in, and that's what we'll update on at the full year.

[Operator]

Our next question now comes from Ed Aubin from Morgan Stanley.

[Edouard Aubin, Head of Luxury Goods]

Yes. So maybe, sorry, the first question, sorry to come back on the third quarter. But I guess maybe the growth pattern is a bit more back-end loaded than expected by some, right, because you just print '21 and you're guiding or you say you're comfortable with around 55% increase year tack in Q4. Was that exactly in line with what you were expecting when you reported the first half result back in December? Or there was there a change in the exit rate in December in your sales? So that's kind of the first question. And then the second question is on the price increase. So I think you said over the past few months that you're quite comfortable that you would have -- it would be relatively easy for you to pass on the price increase based on the studies you've done and the reaction of wholesalers so far. There's been, as I'm sure you've seen over the past few weeks, months, a number of worries about the purchasing power of consumers in the U.S., in the U.K. and so on and supposedly relatively imminent utility bills and so on and so forth. I know it's a difficult question to answer, right, because you're not macroeconomists, but would you -- are you still as comfortable that this price increase will be passed on easily as of July, if my memory is correct?

[Jon W. Mortimore, CFO & Director]

I'll take the first question, and Kenny will do the second one. With regards to Q3, Q4 performance, it is exactly in line with what we anticipated was going to happen. We prioritized pays to DTC in the third quarter, we saw 33% growth. We will be prioritizing pays to wholesale in the fourth quarter. Wholesale by definition, is a lumpy business. So you can't do a trend from Q3 into Q4 in wholesale. It just doesn't make sense, particularly when you had a supply chain challenges. The key for wholesale delivery is to ask the question, have you made the third pair? Yes we have. Are they in transit? Yes, they are. Do those transit times assume a sensible period? Yes, they do, no improvement. That's the key for wholesale. The other one, if you look at trends, you can do trends for DTC, Q4 for DTC is a very quiet quarter. So plus or minus a bit here or there for DTC won't make much difference. It's purely -- Q4 is about wholesale delivery. We've made the pairs, the pairs are on boat the lead times are sensible.

[Kenneth Wilson, CEO & Director]

If I pick up on the second question, Ed, which is around the price increases. I first of all point out, you're right, I'm definitely not an economist. But what do we know? We know that we have done the vast majority, but not all of the sell-in yet for Autumn/Winter '22. And you are correct, the price increases take effect from July. Sitting here today, we feel very good about the way that those price increases have been received by the wholesale trade in our 2 biggest markets because that's what really matters in North America and in in EMEA. And overall, we feel extremely good about the decisions we've taken. They're backed up by consumer research and the wholesale trade believe that these are the right things to do for a brand that has strong demand in an environment of higher consumer inflation.

[Operator]

Our next question now comes from Karina Shooter from Goldman Sachs..

[Karina Shooter, Business Analyst]

I have 2 questions. So the first one, just in terms of an update on the capacity situation in Vietnam. I remember back in December that you said it was back at around 80%. Is that still the same today. And as we see increasing COVID cases around the world and more restrictions, particularly in China, are there any other production constraints that you're seeing that could arise on your global production base more broadly? And then -- the second question is just with regards to the promotional environment in Q3. One would assume that, that would be lower given the inventory constraints that you saw in the period, but just most will check that with you.

[Kenneth Wilson, CEO & Director]

Thank you, Karina. I can take the first one on production. So the first thing to say is -- for this financial year, the pairs that we need are made already and they're on boats, as Jon has just said in answering Ed's question. So anything I'm about to say has no impact on this financial year. In terms of our capacity in Vietnam specifically, we're still about the 80% mark. All of our factories globally are open. The tax holiday happens in Vietnam at the end of this coming week. So we would have had a break in production anyway. And we believe that post the tech holiday, the capacity will build back into the '90s. That's what the factors are telling us. So we feel good about that situation. In terms of China, we have no restrictions at the moment in terms of our production. Everything is at normal levels pre-COVID levels. So there are absolutely no issues there. And we have no production issues as we sit here today in any market in the world. I think the bit that we don't know is that we don't know what will happen with Omicron in Southeast Asia. So that's the big unknown and fundamentally, though, we're always in a period that we can make more pairs in spring/summer than the business actually needs. And clearly, with uncertainty, we will make as many pairs as we possibly can right now. So the short answer would have been no production issues.

[Jon W. Mortimore, CFO & Director]

On your second question in relation to promotional environment, the third quarter in relation to promotions was get the termination, we did very few promotions in the third quarter. That's it's got multi reasons behind that. The core reason how our strategy is to not promote our core icons. -- an end of a season, you would clear, but that's not promotional activity. So we do not promote core icons. If you recall back to the first half on the revenue bridge, we showed -- we generated an extra GBP 13 million in the first half from improved full price mix. Part of that was in relation to having less clearance activity year-on-year and part of it was less promotional activity year-on-year and those trends continued through the third quarter. And also, if you stand back, when you have scarcity of supply, you focus on full price sales, that is exactly what we've done and seeing a lot of other brands report. That's exactly what everyone else has been doing. There's no need to promote when you have scarcity supply. And any way, our strategy is not to promote our core icons.

[Operator]

We have a question now from Doriana Russo from HSBC.

[Doriana Russo, Analyst]

Yes. Can you hear me?

[Kenneth Wilson, CEO & Director]

Yes, we can, Doriana, yes.

[Doriana Russo, Analyst]

Yes. Yes. Okay. I just wanted to come back to the promotion and the expected sort of the seasonality in the business. If I remember correctly, the last year, your rate of full price sales was incredibly high because of the pandemic. What shall we expect for this year given the sort of inventory constraints that you're still facing? And my second question is on Asia, you pointed out that the -- for the distributor-led market like China and Australia have been weak. Can you give us a little bit more color on Japan, please? And also on sort of the activities that you might be doing in China, which is one of the priority market, which has the top opportunity for revenue in the longer term.

[Kenneth Wilson, CEO & Director]

Okay. Why don't I start on and then Jon can build. In terms of your question around promotions, effectively, we do have -- if we take our direct-to-consumer business, I think we've quoted this number historically where we said about 90% of our sales are at full price and 10% is marked down. Obviously, with the fact that we've got 2 factors going on. One is, there's been scarcity of product and that basically means when you've got scarcity of product, you don't need to take any promotions. And we do have some seasonal products, which have arrived late and obviously, those seasonal products at some point will need to be marked down. But the reality is this is a continuity carry over a long-term business. So the 90%, 10% we think that will broadly be the same again this year. In terms of Asia Pacific, we've not gone into all of the detailed market by market. We did see during the third quarter when the national lockdown eased in the Japanese market that we really saw an immediate pickup in Japan retail sales and then Japan tightened down again in December, which made things a little bit more difficult I'll let Jon talk to the Australia and China piece. But overall, I think the thing to remember is that in the short to medium term, the largest growth of the Dr. Martens brand will come from the Americas and EMEA regions.

[Jon W. Mortimore, CFO & Director]

Yes. I think with regard to Omicron impact of COVID in terms of China and Australia, whilst -- we don't get the sort of key data that we get for European markets. It's more the concern around how those countries are actually individually managing COVID. And we did see weakness in our third-party retail stores, distributor-led retail stores in China. And similarly, in Australia, where we sell through a distributor, we saw weakness in that distributors wholesale stores and also that distributors branded Dr. Martens stores. It's just in line with, I think, what we've seen for a while that you see these things come and go and puts and takes. With regard to China, and your second part of the question, just remind everyone that China is a long-term opportunity. China today only represents 4% of revenues. We've made good progress in China. If you go looking back over the past year or so, Derek, the Regional President joined in September '19 with an experience and heritage of working in China. We're building in team in China. We've gone from 9 to 25 people by the end of the last financial year and further people have been added since then. And in the first half, we talked about recruiting our new General Manager for China Olga, who is a great track record in that market. With our new GM in place, you can expect will be looking at how we can build on the -- put implementing a DOCS strategy in China, which we haven't formally implemented to date, but it's too soon to talk about anything about that at this moment in time.

[Karina Shooter, Business Analyst]

Okay. But can you give us a sense of whether your direct channel in China did better than the overall country?

[Kenneth Wilson, CEO & Director]

We're not giving that level of detail. China was predominantly driven by a weaker distributor market, which is retail, health, which is the distributors of retail and as was Australia.

[Operator]

We'll go to our next question now from John Stevenson from Peel Hunt.

[John Stevenson, Analyst]

A couple of questions. I know, again, you want to go to this detail, but just looking at the U.S. market, I think the ratio of wholesale to retail ratio is 3:1. I don't know if you can sort of comment on how obviously suggest DTC has been particularly strong. Can you give more detail on the DTC in the states or maybe some of the flags in terms of just sort of showing progress over Q3?Second question, I think we've killed stop, but I've got one more. Just in terms of current availability and stock levels, I get that you can obviously rebuild over summer I get the Q4 orders are all for wholesale or on the water. But where are you now in terms of sort of current stock level current availability? Are you still basically chasing manufacturing into spring -- or are you sort of comfortable with where you are and being able to produce more over summer?

[Kenneth Wilson, CEO & Director]

Okay. So why don't I start. On the U.S.A. market, as you point out, it is our biggest wholesale market in the world. And obviously, the decisions we take -- we took to prioritize inventory impacted the United States more. The direct-to-consumer performance in the United States was very strong in the third quarter and particularly strong in the period between Thanksgiving to Christmas. So overall, we feel very good about underlying demand in the U.S.A. As Jon also said, we get both sell-through and in-market inventory from our top 20 accounts in the United States. -- and inventories are low. I mean that's the reality of the situation. The demand is there for the brand, but the inventories are low. If we look at your question around current availability, are we still chasing production? Yes, is the honest answer. I mean we had the loss of 3 months of supply from Vietnam. I think we've used the inventory that we've had as well as we possibly could have done, and we prioritize that inventory to our highest margin channels. But there is no doubt that the demand for the Dr. Martens brand is greater than the availability that we've had. If you look at the first half of the year, as I said earlier, we can -- we have got capacity make more pairs than a normal demand. So we will start to rebuild our inventories as we move forward. But yes, short answer is demand has outstripped supply in this instance.

[John Stevenson, Analyst]

Okay. But I mean I guess the flip side of that is when you reckon you'll be able to sort of meet demand levels are you going to be we're talking kind of autumn time or?

[Kenneth Wilson, CEO & Director]

Yes. I mean I think it kind of links to a question we had earlier from Karina, which is all factories are now open, and all factories are open. We're making as many pairs as we can. The great thing is that these are continuity products. The reality is it's very difficult for me to answer that question because we don't know what we don't know right now. But -- if all things go well and there are no major Omicron incidents, yes, in the second half of the year, we'll be more close to the situation we want to be in.

[Jon W. Mortimore, CFO & Director]

But based on what we know now, we remain confident in the expectations for next year.

[Operator]

We'll go to a question now from Piral Dadhania from RBC.

[Piral Dadhania, Director of Premium Brands]

I just wanted to start by asking, as you prioritize wholesale in your fiscal Q4, is the DTC channel fully stopped. So are you still able to sort of meet demand and as and when it arrives. I appreciate it's not the biggest quarter. So just want to make sure that, that -- there's no sort of switching in the other direction away from DTC in Q4 as we saw in Q3? That's my first question. The second is, do you have any sort of view based on how the second half will play out as to what the channel mix might look like by year-end? Is there a chance that DTC is actually a bit higher than where us and maybe you were expecting from December or even before that? And on the back of that, is there any potential for a slightly better gross margin outcome just based on the higher retail mix. And finally, I just wanted to ask if you have any visibility on what the -- any potential distributor market conversions you might be doing in 2022?

[Kenneth Wilson, CEO & Director]

Okay. Thank you for the questions. I'll probably take 1 and 3, and Jon will take a question 2. To answer your question about the fourth quarter, are we fully stocked in direct-to-consumer I wouldn't say we're fully stocked. Are we well stocked? Yes. Our EMEA business, our Asia Pacific business and our Americas business have good inventories available for our websites and for retail. It's a relatively small quarter for direct-to-consumer. We have the product available to meet our numbers. So overall, we feel good about that. And then when Jon talked about the fact that we've prioritized pairs for wholesale those are to meet commitments to our customers. And with what we've got in boats, we're confident that we will be able to meet those commitments. So overall, it's not like you're going to see massive swing in the direct-to-consumer to underperform because we prioritize pairs to wholesale. We're entering the fourth quarter with decent inventories in our DTC business.

[Jon W. Mortimore, CFO & Director]

Yes. And then following on from that, would we see any material change to where average consensus is for DTC mix for the year, full year? Not really, no, it's going to be there or thereabouts, Piral. I think if you take the 1 an example. So e-comm mix after 9 months to 30% revenue mix in line with last year. And last year for the full year was 30% e-comm mix. We've guided to about 30% e-com mix for the full year this year for a number of months now. So we're going to be there or thereabouts. I don't see any material upside similarly the pairs will land the wholesale. I don't see any material downside either.

[Kenneth Wilson, CEO & Director]

On your third question, which was around distributor market conversions, as we look to FY '23, we're not planning new conversions next year. I think as we've said before that the conversion strategy where we implement DOCS in a country is a multiyear effect. So we've seen that with Germany, but it just keeps improving year-on-year. Obviously, we took Italy back in the second half of this financial year, so Autumn/Winter '21, we'll get that second year of growth in the Italian market as we continue to push on DOCS implementation. I think we said before also that we've taken back Spain and the Nordics, but we haven't really pushed those in the way that we put time, effort, energy and resources into the Italian market, as an example. So I think that's probably the biggest difference you'll see. Germany and Italy will continue to move forward and build the brand, we'll put more effort on Spain and the Nordics in financial year '23 than we have done since we took those markets back.

[Operator]

[Operator Instructions] We'll now go to our next question from Kate Calvert from Investec.

[Kate Calvert, Retail Analyst]

Just one from me. When you were proactively managing this business through COVID and shipping issues over the last quarter, stroke, I suppose, Q2. Were there any projects which had to go on the back burner in terms of manufacturing supply chain sort of any inefficiencies, which you'll be able to go after in the year ahead, which you haven't been able to do in the last year?

[Kenneth Wilson, CEO & Director]

Okay. Kate, we're about speaking over the top of each other. I think my view would be the only thing that we would probably have got after that we haven't would be optimization of country to origin to country of sale because when we were losing pairs in Vietnam, obviously, we moved some pairs to China. And we know for certain markets like China to Japan, there's reasonably high duty on that, whereas Vietnam to Japan is a 0 duty route. So we prioritize enabling growth and getting the pairs we needed over duty optimization. So for sure, at the point where we've caught up, and we've got all the peers we need then we can start to look at that duty optimization opportunity. But I don't know what Jon was going to say because we were both back to start at the same time, but that would be the one for me.

[Jon W. Mortimore, CFO & Director]

Exactly the same thing.

[Kate Calvert, Retail Analyst]

That's good that you agree. And can I just have a second question. On Europe, how much of the growth in Europe was driven by the conversion markets of Italy and Germany or put another way, can you give a bit more color on what was happening outside of those markets?

[Kenneth Wilson, CEO & Director]

I think our growth was very broad-based in unit. So our oldest and most established in home market, the U.K. grew strongly. Germany grew strongly the conversion market of Italy grew strongly. So -- and it was -- as we said in the statement, it's also multichannel as well. We saw good channel growth as well. So I think it was pretty broad-based, our growth. I wouldn't -- I called that Italy specifically and earlier because of the fact that it is larger than the average, but we had very broad-based growth.

[Jon W. Mortimore, CFO & Director]

Yes. And this thing with Italy as well is there's been a lot of questions we've had around how is the conversion going because of the multiyear opportunities that successful conversion gives us. So we're calling out to say we're very pleased with the conversion opportunity, and we're tracking exactly in line with where Germany would expect us to be.

[Operator]

As we have no further questions at this time. I'd now like to hand the call over to your Chief Executive Officer, Kenny Wilson, for any additional or closing remarks.

[Kenneth Wilson, CEO & Director]

I'd just like to say thank you very much for everyone who asked us a question and also to everyone who's attended the call for your interest in the Dr. Martens brand. As we said at the beginning, -- we've had a good quarter, driven by very strong e-commerce and retail performance, and we are very confident that we will achieve market guidance as we outlined in our statement. Thank you very much.

[Operator]

Thank you. This will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.