HSBC downgrades Burberry, laments lack of topline growth

Analysts at HSBC downgraded their recommendation on shares of Burberry Group from 'hold' to 'reduce', telling clients the company would continue to underperform its peers for longer than the market was expecting.

Above all, the company needed to reinvigorate its top line growth.

"All in, every shareholderfriendly initiative seems to have been looked at to enable Burberry shares to be protected in the absence of what, in our view, would be the only real solid booster: a sustainable rebound in sales growth," they said.

To that, one also had to add the shares' demanding valuation at 23.8 times analysts' forecasts for its 2018 earnings.

Incoming management, including its new boss Marco Gobbetti in early July, might succeed in boosting sales "but that could take a while", the analysts said.

Following Burberry's miss on fourth quarter sales, HSBC lowered its estimates for the firm's earnings per share in 2018 and 2019 by 8% and 6%, respectively.

Together with the recent rebound in sterling, those downwards revisions led HSBC to lower its target price on the fashion retailer's shares from 1,630p to 1,580p.