Citi has lifted its price target on Burberry Group PLC (LSE:BRBY) to £16, up from £12.50, citing growing signs that the British luxury brand’s turnaround plan is starting to gain traction under chief executive Jonathan Akeroyd and newly appointed creative director Daniel Lee.
The broker kept its ‘Buy’ rating and upgraded earnings forecasts slightly across the next three financial years, following a third straight quarter of improvement in like-for-like retail sales.
The upgrade comes despite ongoing challenges in global tourist spending and footfall, particularly in Europe and Japan.
Burberry’s latest trading update showed enough progress to prompt Citi to revisit its estimates, even though top-line revenue forecasts remain broadly unchanged.
The bank now expects small increases in adjusted operating profit and earnings per share over the next three years, supported by modest sales growth, improving gross margins and tighter cost control.
Management comments were also encouraging. According to Citi, Burberry struck a confident tone on several fronts, citing stronger brand visibility, an encouraging wholesale order book, improved in-store conversion rates, and signs that the brand is attracting new customers.
Crucially, Citi believes Burberry’s like-for-like sales could turn positive in the second quarter of the current financial year, the first time in two years, with consensus expectations pencilling in a 1% rise.
Gross margin guidance remains intact, with year-on-year gains of 330 basis points, 100 basis points and 90 basis points, respectively, forecast for the next three financial years, taking margins to just under 68% by 2028.
The ongoing £100 million cost-saving plan is also helping shore up profitability.
This note from Citi reflects renewed confidence that Burberry’s efforts to reposition its brand are beginning to filter through to the numbers. Investors will now be watching closely to see if the promised sales turnaround materialises in the coming quarters.
The shares were off 0.7% in afternoon trading at 1,357p.