Burberry Group PLC (LON:BRBY) has been upgraded to ‘hold’ from ‘sell’ by analysts at Jefferies, who said that most of the luxury clothing brand’s “bad luck [and] bad choices” were mostly priced into the stock following a 45% drop in like-for-like sales in its first quarter due to a reduction in luxury demand during the coronavirus pandemic.
In a note on Monday, the broker also upped its target price to 1,400p from 1,250p, however they said they expected Burberry will “take longer to recover vs the better peers” in the industry, saying a catch-up could be faster but required “better brand heat in the West and a more accelerated return to long haul tourist travel than we currently anticipate”.
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“We expect 2023 revenue levels to be only 8% higher than 2015 with EBIT flat...this would imply a market share loss quantifiable in almost £800mn top line”, Jefferies said, although they added that the firm was seeing “better brand resonance in China” compared to other locales as well as a “step-up in digital marketing and a slight uptick in local brand heat”.
However, the broker concluded that they estimated Burberry’s revenues will grow by around 10% over the 2014-2024 period, compared to their forecast of 50% growth for the while luxury goods sector, which they said “does not, in our view, point to resilience with its fans, but rather a significant loss of traction in the West broadly equal to new customers in [Asia-Pacific]”.
“This is just about OK rather than good given profitability has dropped in the process. We like recent measures taken but think the relaunch story, if it materialises, will take rather longer given what was inherited and lower multiples are still warranted”, Jefferies said.
“[Burberry] remains very much work-in-progress, at a time when weaker brands are losing share”, they concluded.
Shares in Burberry were 0.6% higher at 1,407p in late-morning trading.