Burberry Group PLC (LSE:BRBY) recent share price weakness reflects growing investor concerns that the luxury group's turnaround may struggle to deliver another round of earnings upgrades, according to UBS.
Shares in the British fashion house have fallen around 19% since the start of the year, including 6% over the past month.
Analyst Zuzanna Pusz at the Swiss bank noted that the shares have underperformed the broader luxury sector, which has risen 6% in the past month.
This reflects "concerns around the sustainability of top-line growth and limited visibility on earnings upgrades" have built.
Investors are also debating "to what extent future EPS upgrades will need to be driven primarily by opex discipline rather than further margin upside" after the company delivered a stronger-than-expected gross margin in the 2026 financial year.
Ahead of first-quarter results on 17 July, Pusz expects a continuation of Burberry's "healthy momentum", forecasting underlying sales growth of 5%, helped by double-digit growth in Greater China and the Americas.
Even if the upcoming update does not "fully alleviate these concerns", the analyst believes that "consistent quarterly delivery should, over time, rebuild confidence in the durability of Burberry's turnaround story".
More broadly, Pusz said the luxury goods sector is "nearing an inflection point" after almost three years of earnings downgrades, with an acceleration in sales growth and signs of an "AI-related wealth effect" beginning to improve sentiment.
A 'buy' rating was reiterated for Burberry, with the price target raised slightly to 1,425p, arguing that Burberry's valuation of around 17 times forecast 2027 earnings is "attractive".
UBS's caution comes as sentiment towards the wider luxury goods sector begins to improve.
Pusz said the industry may be "nearing an inflection point" after almost three years of earnings downgrades, with an acceleration in second-quarter sales growth and signs of an AI-driven wealth effect helping to stabilise expectations.
Burberry Q1 results are due on 17 July.
