Burberry Group PLC's (LSE:BRBY) recovery from one of the most dramatic falls from grace in British retail is gathering momentum, with the luxury fashion house's pivot back to its heritage strengths (outerwear, iconic branding and more accessible price points) showing early signs of working.
UBS, which has been positive on the stock since last year, expects the company's full-year results in May to confirm the new strategy is taking hold, forecasting fourth-quarter retail sales of £554 million, up 6% on a like-for-like basis.
Gross margins are expected to show sharp improvement, with UBS forecasting a full-year figure of 67.1%, up around 4.6 percentage points year-on-year and ahead of the company's own guidance, driven by a shift towards full-price sales and a reduction in discounted outlet activity.
The Middle East conflict is seen as a limited headwind, given that Burberry's exposure to the region amounts to around 3% of sales.
Investors will be watching closely for any update on Chinese consumer spending, which returned to growth in the third quarter, as well as any guidance on the timing of a potential dividend resumption. UBS does not expect a payout until 2029, though.
The Swiss bank kept its 'buy' rating and trimmed its 12-month price target to 1,410p from 1,570p, reflecting sector-wide de-rating rather than any change to its earnings forecasts, with the stock trading at 1,027p.