UBS Predicts Burberry Stock Dip to 2010 Low, -12% Sales Fall

UBS analyst predicts Burberry stock to hit its lowest since 2010, citing challenges in turnaround and declining sales.

By Barry Stearns

5/16, 08:41 EDT

Key Takeaway

  • UBS analyst downgrades Burberry to 750 pence, predicting a third's decline in stock value, potentially its lowest since 2010.
  • Burberry faces a 12% fall in comparable store sales and challenges in China and the US amid efforts for a turnaround.
  • Despite brand rejuvenation attempts, Burberry struggles in key markets with significant sales drops, especially in Asia-Pacific and Americas.

Analyst Downgrade

Burberry Group Plc faced a significant downgrade from UBS Group AG analyst Zuzanna Pusz, who lowered her price target on the stock to 750 pence from 971 pence. This adjustment suggests a potential decline of a third in Burberry's stock value over the next 12 months, marking what could be its lowest point since 2010. Pusz's outlook stems from concerns over Burberry's near-term prospects, citing "The likelihood of a successful Burberry turnaround is limited in the near term," and highlighting issues such as weak wholesale guidance and a focus on cost-cutting over investment. Following this analysis, Burberry's shares experienced a more than 7% drop, reflecting investor reactions to the company's recent performance and future outlook.

Sales Decline and Turnaround Challenges

Burberry reported a 12% fall in comparable store sales for the quarter ended in March, with a particularly stark 25% forecasted decline in wholesale revenue for the first half of its fiscal year. This downturn is attributed to weakened demand in key markets, notably China and the US. Despite efforts to rejuvenate the brand under Creative Director Daniel Lee, who has emphasized Burberry's British heritage and iconic products, the brand's high price points and strategic direction have been questioned amidst moderating consumer demand. Analyst Luca Solca from Bernstein pointed out the difficulties Burberry faces in executing its brand development plan against such a backdrop.

Regional Performance and Product Development

Burberry's performance was notably poor in the Asia-Pacific and Americas regions, with a significant 19% sales drop in China. CEO Jonathan Akeroyd acknowledged the challenges, particularly highlighting "very quiet" mall traffic in China. The brand's struggle is part of a broader trend affecting luxury brands positioned in the middle of the market, as seen with Kering SA's recent warnings. In contrast, top-tier luxury brands like LVMH and Hermes have shown greater resilience. Akeroyd also mentioned the potential for Burberry to better leverage its heritage in menswear, aiming to broaden its appeal beyond a younger, fashion-driven demographic.

Street Views

  • Zuzanna Pusz, UBS Group AG (Bearish on Burberry):

    "The likelihood of a successful Burberry turnaround is limited in the near term."