Goldman Sachs downgrades Burberry to ‘sell’

GS, which cut its price target on Burberry to 1,490p from 1,730p, said balancing investment to reinvigorate growth against a tough market environment could result in a reset of the company’s margin profile.

It noted that over the past two years, there have been important brand initiatives implemented to reaccelerate brand growth, although like-for-like still materially lags peers.

"This highlights an important juncture for Burberry - balancing investment to support long-term market share in a current trading environment (Covid-19) where cost containment is crucial.

"Whilst Burberry’s sluggish LFL relative to peers is likely a reason for the underperformance year-to-date (-12% versus luxury average), our analysis focuses on the margin outlook where we think market expectations are optimistic."

GS said it expects adjusted EBIT margin to fall 360 basis points to 12.9% in FY21, rising to 14.3% by FY25.

"Our forecast for margin recovery may prove conservative, but we see inflationary pressures on customer acquisition/retention in a competitive segment as Burberry aims to rebuild share post a 1% sales compound annual growth rate over the past five years."