Analysts remain divided about prospects for Burberry Group PLC (LSE:BRBY) ahead of its first-quarter trading update next Friday.
The British fashion brand and retailer is heavily exposed to China's recent Covid-19 lockdowns and its home market in the UK, meanwhile, remains plagued by the cost-of-living crisis.
Analysts estimate that over a third of Burberry’s business is exposed to the Chinese market and foresee this as having a potential impact on the retailer’s earnings for the recent trading period.
Barclays this week priced in a potential 26% upside in the retailer's shares with its share target of 2,070p, expecting "the key focus will be on China...reassurance around the US and resilience of demand in the country in light of a weakening macro outlook [and] any comments from new CEO Jonathan Akeryod".
Some small and subtle shifts might be announced by Akeroyd, who joined in April, but it will not be until November interim results, when he provides a "much awaited strategic update".
The overriding consensus among analysts is a 'hold' rating on the shares.
Cheuvreux downgraded Burberry’s shares from ‘buy’ on Tuesday, while Exane BNP Paribas switched its guidance from ‘outperform’, while Morgan Stanley (NYSE:MS) and Societe Generale both reduced their price targets.
Analysts' future forecasts for the retailer are much more upbeat. The consensus forecast for the year ahead are that group revenue will grow 4% to above £3bn, based on 17 estimates for the year to March 2023, according to the retailer’s website.
Hargreaves Lansdown equity analyst Sophie Lund-Yates said: “Back at the full year mark, underlying revenue rose 23% to £2.8bn, which was 10% ahead of pre-pandemic levels.
“Analysts are expecting a 44.7% drop in the first quarter, which reflects ongoing uncertainty on consumer spending in China. Heightened by renewed lockdowns in recent months. The market has already reacted to this, with the valuation coming under pressure over the last few months. However, a worse than expected dip in revenues, or a shaky outlook statement could see further market reactions.”