Daniel Lee’s appointment as Burberry Group PLC (LSE:BRBY)’s chief creative officer in September 2022 came with high hopes of a turnaround for an iconic British fashion brand struggling with lagging top-line growth and industry-wide headwinds.
Not unique to Burberry, reduced China demand, labour shortages and cost-of-living pressures were all sources of concern for Burberry that Lee had to contend with.
However, UBS analysts today poured cold water on Lee’s performance to date, noting that “the increasingly challenging sector context, combined with so far muted reaction of the trade and consumer to the new brand aesthetics, means that the turnaround may have to be more costly to succeed”.
“Our discussions with selected wholesalers suggest its price point is too high for the targeted consumer, thus driving a reduction in orders year on year, while some of the social media trends also don't suggest any ‘hype' among the consumers,” UBS stated.
UBS also said Burberry needs to take some risks on the spending side. “Years of cost control in an increasingly competitive and polarised luxury sector, means that the company may need to step up its spending and gross margin reinvestments… otherwise it risks being stuck in its £500 million EBIT 10-year range.”
UBS’s earnings forecast for Burberry has been revised down by 9% for the year ahead, which is 9% below consensus estimates.
As a consequence, UBS cut its rating from 'neutral' to 'sell' with a 1,614p 12-month price target against a publication price of 1,911p.