Burberry (LON: BRBY) share price is hovering near the year-to-date low after a rating downgrade by Jefferies. The stock plunged by more than 2.85% on Tuesday and moved below the important support at $1,500. It has crashed by more than 42% from its highest point in 2023, making it the worst-performing luxury goods stock.
Burberry stock retreated after an analyst at Jefferies slashed his estimate for the company. He warned that the company’s full-year guidance could be vulnerable if the new products by designer Daniel Lee fails to pick up. He believes that the company will likely not meet its sales target for the year.
The statement came a few weeks after Burberry warned about its performance citing weaker demand. It cited its relatively weaker financial results. Its revenue in the 26 weeks to September rose slightly to £1.39 billion while its operating profits dropped to £223 million.
Its quarterly comparable store sales increased by 1%, helped by the EMEIA region. America’s revenue crashed by more than 10%. The company also concluded its share buyback program worth about £200 million.
Burberry is not the only luxury brands that is struggling as wealthy shoppers keep off. Some of the biggest companies like LVMH (EPA:LVMH), Kering (LON:0IIH), and Richemont (LON:0QMU) have all reported weak financial results this year. They have all cited weaknesses in Europe, the Americas, and China.
The challenge for Burberry is its size. Unlike companies like Hermes and LVMH, Burberry is a relatively small company valued at over £5.2 billion. It also has a less prominent brand compared to the likes of Dior and Hermes.
Still, there are some positive signs. For one, the company’s cheap valuation can make it an acquisition target. Recently, we have seen some foreign buyers acquiring British brands like Hotel Chocolat and Smart Metering Systems.
The other ray of hope is that there is chatter about interest rate cuts in the US and Europe. In its decision last week, the Fed pointed to three rate cuts in 2024 and analysts believe that it could deliver more cuts during the year. There is hope that the ECB and BoE will also cut rates.
Luxury brands do well when interest rates are falling. Further, there are signs that the important Chinese economy is recovering. The most recent data showed that the country’s retail sales rose in November. China is an important market for Burberry and other luxury goods companies.
Analysts have a mixed outlook about Burberry share price. Those at Royal Bank of Canada see the stock recovering to 1,700p while UBS has a sell rating.