Burberry Group PLC (LON:BRBY) has been downgraded to ‘sell’ from ‘neutral’ by analysts at UBS, who said the luxury brand’s momentum was “weakening at a crucial point in its strategic plan”.
In a note on Thursday, the Swiss bank, which also cut its target price to 1,415p from 2,258p, said the share price was currently pricing in gains that they said were “unachievable given limits to cost cutting and the need to ramp up brand investments”, and as a result, they saw “risk of another strategic reset”.
READ: Burberry shuts over a third of China stores amid coronavirus disruption
The bank added that Burberry was one of the companies that could be “most impacted” by the coronavirus outbreak, with the retailer having derived 40% of its revenues from Asia last year.
The firm has had to close over a third of its stores in China due to the outbreak, with the remaining outlets suffering “significant” declines in customer footfall.
Looking ahead, UBS said Burberry could maintain its “generous” levels of shareholder returns, however, it would need to “step-up investments in the near-term”.
“We expect Burberry to remain very cash generative… and estimate that a continuation of c£150mln [per annum] share buy-back programme is possible given the strong financial position”, the bank said.
Burberry shares sank 4.1% to 1,679.5p in late-morning.