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(Sharecast News) - HSBC downgraded Burberry on Wednesday to 'hold' from 'buy' and slashed the price target to 1,200p from 1,350p as it took a look at global luxury goods.
The bank said Burberry's turnaround has progressed well, but there is not much scope for upwards sales and earnings revisions from here. It pointed out that the shares have already risen around 51% since November 2024 (versus the FTSE 100 index up 35%) when chief executive Josh Schulman did his first strategic presentation.
It argued that going forward, the aspirational consumer will continue to struggle in luxury's key China market and potentially in the US, due to the K-shaped economy.
"This softer consumer spending should impact Burberry, given the aspirational gearing of its price points, and given the global retail comparable basis gets progressively tougher in the next three quarters," HSBC said. "We believe that September accounts for a good portion of the coming quarter's sales too. The brand is also less seasonal than Moncler (which we keep on a Buy); combined with the challenging macro environment, this offers investors limited visibility into H2."
As far as China is concerned, HSBC said that despite Q1 27's particularly solid performance in the region, Burberry needs to accelerate significantly on a two-year stack to meet consensus estimates.
It noted that China retail comps get particularly tough in the rest of FY 2027e, at +3%/+6%/+10%, and consensus is assuming the two-year stack accelerates from 3.6% in Q1, to 11.4%/12.7%/15.7% in Q2/Q3/Q4 2027e.
"We note that Burberry has been using its monthly product drop strategy (B Series) - limited-edition 24-hour releases via its WeChat mini-program - to help the brand in the region, but we still view consensus China expectations as too high, instead expecting a two-year stack of 8.2%/9.2%/13.3% in the region in Q2/Q3/Q4 2027e," HBSC said.
The bank was a little more positive on the US, where it said momentum should remain solid even though it should eventually normalise, especially on a tougher basis of comparison.
In the same research note, HSBC downgraded LVMH to 'hold' from 'buy' and cut the price target to 490 from 600. It said sales growth momentum in Fashion & Leather could remain subdued in the second half, despite remaining optimistic on the division longer term.
HSBC maintained its 'buy' ratings on Moncler, Kering, Richemont and Prada, and its 'hold' ratings on Hermes and Swatch.
At 1255 BST, Burberry shares were down 3.1% at 1,044.50p.