JPMorgan Chase & Co (NYSE:JPM, ETR:CMC) has warned that the ‘re-acceleration’ of the luxury sector could be slower than anticipated, leading to downside risk for luxury stocks including Burberry Group PLC (LSE:BRBY).
The luxury sector has undergone a dramatic de-rating over the past year, due in no small part to a fall off in demand in the key China market.
“Based on current newsflow and latest sector trends, we think the re-acceleration might happen at a slower pace than what is currently factored into consensus and hence that earnings revision for the sector might still be skewed to the downside,” wrote JPM.
Although shares are trading at “more compelling levels” following the de-rating, JPM expects an “uninspiring” reporting season ahead and with earnings cuts likely, “we do not see a catalyst short term to turn more constructive for now”.
Burberry’s first-quarter trading update is due on 19 July, with UBS expecting the focus to be on Chinese sales “as well as any signs of stabilisation/improvement among other consumer groups (i.e. Americans and Europeans)”.
According to UBS, the market is no longer pricing in a successful Burberry rebound, with projected sales growth floundering in the mid single digits.
Shares were up 0.8% this Friday, but remain 37% lower year to date.