On Wednesday, Deutsche Bank adjusted its outlook on Burberry Group (OTC:BURBY) PLC (BRBY:LN) (OTC: BBRYF), reducing the price target to GBP 10.30 from GBP 11.40. The firm maintained its Hold rating on the luxury fashion company's stock. The revision reflects anticipated challenges in the first half of the year, including the introduction of a new creative director and persisting weakness in key consumer markets.
The bank's analyst pointed to a more negative projection for Burberry's retail comparable store sales growth in the first quarter, now expected to decline by 17%, adjusted from an earlier forecast of a 12% decrease. This change is attributed to lower-than-expected performance indicators in China and the United States. Additionally, the gross margin forecast for the first half has been lowered by 250 basis points.
In light of these factors, Deutsche Bank has also revised its expectations for Burberry's adjusted earnings before interest and taxes (EBIT). The forecast for the first half's adjusted EBIT is now set at GBP 31 million, a significant drop from GBP 223 million in the previous year. Consequently, the forecast for fiscal year 2025's adjusted EBIT has been reduced by 11% to GBP 287 million, down from GBP 320 million, with the anticipation for fiscal year 2026's EBIT to fall just below GBP 400 million.
The analyst noted that while the potential for Burberry's turnaround is acknowledged, and the shares are currently trading at approximately 15 times the calendar year 2025 price-to-earnings ratio, a more positive stance would require evidence of success from the new product ranges, which are expected to arrive in stores in September.
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