Burberry’s (LON:BRBY) share price is in a steep freefall as concerns about the luxury market continue. The stock crashed to a low of 1,135p on Tuesday, its lowest point since 2020. It has retreated by over 56% from its highest level in 2023, giving it a market cap of over £4.7 billion.
China concerns remain
Burberry’s stock has been in a freefall in the past few months after the company warned about its slowdown in key markets like China. In a recent trading update, the company said that its retail revenue retreated by 7% in the fourth quarter to £706 million. Its comparable store sales were minus 4%.
The company also warned that its full-year financial results would be weaker than its previous guidance. These numbers mean that its business is facing substantial headwinds as the management implements the new strategy that seeks to boost its revenue to £4 billion.
They also mean that Daniel Lee, a top designer it hired in 2022 is not replicating the success he had at Bottega Veneta.
The management also believes that its adjusted operating profit margin will expand to 20% in the medium term.
Burberry’s share price will be in the spotlight on Wednesday as investors reflect on the weak LVMH (EPA:LVMH) earnings. In a statement on Tuesday, the company said that its like-for-like sales in Asia – excluding Japan – crashed by 6% in the first quarter. Revenue in other places like the US and Europe rose by 2%.
These numbers mean that the outlook for luxury goods is not doing well in China, which could affect Burberry . In a recent report, analysts at Bain warned that sales in the luxury goods market will grow by between 1 and 4% this year, down from about 8% in 2024.
I believe that Burberry would be a good acquisition target by either a bigger name like LVMH or a private equity firm. Its valuation has improved recently and its brand can be turned around in the long term.
Demand for UK companies has been rising in the past few months. Just this week, International Paper, an American company, agreed to buy DS Smith in a £7.8 billion deal. Other recent acquisitions were firms like Hotel Chocolat and DX Group.
Burberry share price forecast
BRBY chart by TradingView
The weekly chart shows that the BRBY stock price has been in a strong freefall in the past few months. This sell-off started when the company peaked at 2,570p in April last year to 1,135p today.
It formed a death cross in January when the 200-week and 50-week Exponential Moving Averages (EMA) made a bearish crossover. The stock has also plunged below the important support level at 1,387p in January. This was an important level since it was its lowest level in May 2022.
The Percentage Price Oscillator (PPO) and the Relative Strength Index (RSI) have continued moving downwards. It has also moved to the oversold point of the Murrey Math Lines tool (MML).
Therefore, the outlook for the stock is bearish, with the next point to watch being at 1,000p, the extreme oversold point of the MML tool.