Luxury goods sales are likely to suffer knock-on effects from the sharp slowdown in the travel and tourism sector caused by the coronavirus pandemic, analysts at UBS says, meaning Burberry Group PLC (LON:BRBY) is unlikely to achieve its mid-term growth targets.
Around 80% of consumers are not planning to travel in the next three to four months, according to a survey of around 4,000 people in China, Japan, South Korea and the UK by the Swiss bank.
A slower return to international travel is the “biggest single risk to earnings in the luxury goods sector”, with tourist money accounting for around 40% of total spending for the sector, the bank's analysts said in a note to clients on Wednesday.
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“Our forecasts had factored in some weaker consumer sentiment post the [coronavirus] outbreak. However, we now believe that a slower than expected recovery in tourism constitutes potentially an additional downside risk to estimates”, they added.
As a result, UBS reduced its 2020 earnings estimates for the sector by an average of 5%, although warned that “prolonged disruption” in global travel could “weigh further” on the industry, posing a risk to both earnings and market valuations.
Burberry, which is due to publish full-year results next week, specifically was the bank’s least preferred stock among its covered companies, rating the stock at ‘sell’ while raising its target price to 959p from 912p.
“The combination of weak social media and Google search trends, which point to limited brand heat at a crucial point in Burberry's turnaround plan, make us believe that the company is unlikely to achieve its mid-term growth targets beyond [its 2021 financial year] and we no longer see the mid-term >20% EBIT margin target as achievable”, analysts said.
Shares in Burberry were 1.8% lower at 1,355.5p in late-morning trading.