Stifel cuts Burberry price target, sales forecasts

3rd Oct 2024 11:04

(Sharecast News) - Burberry was under the cosh on Thursday as Stifel cut its price target on the shares to 720p from 800p and reduced its FY25 and FY26 sales forecasts by 8% and 10%, respectively.

Stifel said it was cutting the sales forecasts as it lowered its retail comps assumptions for 2Q25, 2H25 and FY26. It now models retail comps down 23% for 2Q25 (from -16% previously), down 10% for 2H25 (from up 2% previously) and up 3% for FY26 (from up 5% previously).

The bank also said it now models an operating profit loss for FY25 of £38m, versus a previous forecast of an operating profit of £90m, reflecting a bigger loss in 1H25 and a more muted operating profit rebound in 2H25.

Stifel said that it and the market expect weak 1H25 results and a cautious 2H25 outlook.

"Investor focus should be on the new strategic vision from Burberry's new CEO, Joshua Schulman, to turn the brand's fortunes," it said.

"In July, Burberry Chairman, Gerry Murphy, said that investors should not expect a major shift in brand strategy but some rebalancing of products and price points more familiar to Burberry's traditional clientele. It looks to us that the aim is to make Burberry a more democratic luxury brand but within a genuine luxury context.

"We expect to see a heightened focus on pragmatic merchandising, with a bigger weight of classic timeless pieces in the assortment, more emphasis on its core outwear category and a reinforced offer at opening price points.

"We believe that deeper cost measures may be needed to right-size the organisation and provide funds for reinvestment to fuel top-line growth and deal with unforeseen bad stuff."

Stifel said market conditions are unforgiving for turnaround stories like Burberry lacking brand clarity and lacking "brand heat".

It also said that Burberry's market share erosion in the last decade resulted in reduced marketing firepower to compete "with deeper pockets from Continental luxury mega-brands fishing in the same pond".

Stifel said the stock offers perceived M&A optionality given its 100% free float, but it believes that potential sector consolidators like LVMH would not be interested in acquiring Burberry.

"Improving Chinese luxury demand thanks to stronger government stimulus measures or improving trends for aspirational luxury consumers would be positive for the stock," it added.

Stifel maintained its 'hold' rating on the stock.

At 1220 BST, the shares were down 3.8% at 636.20p.