Jefferies has warned that hopes for a swift recovery at Burberry (LON:BRBY) are overpriced, reiterating its “underperform” rating on the British luxury group and setting a price target of 680p, which implies about 40% downside.
The brokerage said optimism around Burberry’s ability to rebuild profit margins is entering a critical test period.
“Upbeat views of BRBY’s margin rebuild thesis will face their sternest test in the months ahead,” Jefferies said.
The brokerage cautioned that “the emergence of broadly unchanged sales productivity in Q2, despite all the right commercial steps having been undertaken, would weaken the bullish narrative as H2 profit delivery demands a clear acceleration in momentum.”
Jefferies forecast first-half earnings before interest and tax of £22 million, compared with consensus expectations of £15 million.
The group has signaled comfort with delivering £153 million in EBIT for the full year, but Jefferies highlighted that performance is weighted to the second half.
Cost savings of £16 million in the first half are expected to offset 2% cost inflation, while a 291 basis-point gross margin recovery is projected, reflecting last year’s 270 basis-point inventory provision and the impact of price rises on pre–tariff hike inventory.
The brokerage said attention will focus on momentum in the second quarter, as this marks the first season fully developed under Burberry’s new leadership.
Consensus assumes retail comparable growth of 0.1% in the first half will accelerate to 1.9% in the second half, with the two-year stack improving from a 20% decline to a 3% decline.
Jefferies flagged this as a key risk area. “Any commentary around current trading and how the first season
fully developed under the new leadership is being received will be fully scrutinised, in our view,” the brokerage said.
Jefferies acknowledged progress under the company’s “Burberry Forward” strategy, which refocused around heritage codes and recalibrated merchandising and marketing to halt steep sales declines.
But it said the challenge is shifting, “from here on, we think it will be the group’s ability to build from a more stable base of performance which will validate the journey back to c.20% margin peaks,” the brokerage said, warning that industrywide footfall challenges are offsetting stronger in-store conversion.
The note also pointed to competition from rivals who are targeting lower price points for the holiday season, leaving Burberry’s outlook more reliant on its core collections.
Jefferies said capturing gifting spend during seasonal peaks was crucial to momentum last year, a dynamic it expects will again play an important role.
Jefferies’ base case projects ex-currency retail and wholesale sales declining 2.1% in fiscal 2026, before rising 4.8% in 2027 and 4.9% in 2028, with EBIT margins reaching 6.4%, 8.8% and 10.4% over the same period. It values the stock at 25.6 times 2026 earnings, equating to a 680p price target.
The brokerage’s upside scenario sees the stock reaching 1,150p if brand resonance and execution improve faster than expected, while its downside scenario puts shares at 390p if sales shrink and margins remain stuck near 3%.
“We remain of the view that a very significant build in sales densities is needed in order to fully underwrite the 20% recovered margin thesis.,” Jefferies said.
Source :
https://www.investing.com/news/stock-market-news/jefferies-warns-burberry-recovery-hopes-are-overpriced-keeps-underperform-rating-4250332
