On Friday, Jefferies issued a downgrade for Burberry Group (OTC:BURBY) PLC (BRBY:LN) (OTC: BBRYF) stock, adjusting the rating from Hold to Underperform. The firm also set a new price target for Burberry at GBP 4.90, a significant decrease from the previous GBP 8.00 target.
The downgrade comes in the wake of anticipated changes in Burberry's management, which analysts expect will lead to a shift in the company's strategic direction. These changes, coupled with a challenging demand environment, contribute to a forecast of an uncertain future for the luxury fashion brand.
The revised price target is based on a projected calendar 2025/2026 P/E ratio of 29.2x/15.3x. Jefferies' report includes key forecast assumptions, predicting quarterly retail comparable growth to fall by 20% and 10.9% in the next two quarters of the fiscal year 2024/2025, followed by a modest increase of 3.6%. For the fiscal year 2025/2026, a 2.3% growth is anticipated.
The downgrade reflects concerns over Burberry's market share losses and lack of clarity regarding the brand's commercial trajectory. The company's recent approach to balancing its heritage as a luxury brand while attempting to democratize its offerings has not been met with unanimous approval.
The Spring/Summer 2025 collection, in particular, received mixed reviews, with some critics suggesting that the accessible fashion line lacked the "wow-factor" expected from a luxury label.
Jefferies' analysis indicates that even if Burberry manages to recover from the current gross margin pressures, the valuation case for ownership of its shares remains less compelling compared to its industry peers. This assessment suggests that the stock may continue to be affected by the uncertainty surrounding the company's direction and performance.
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