Barclays upgrades Burberry to "equal weight" as brand risks ease

Investing.com -- Barclays (LON:BARC) has raised its rating on Burberry (LON:BRBY) to "equal weight" from "underweight," reflecting a reassessment of earlier concerns about the brand’s luxury positioning and operational trajectory, in a note dated Tuesday.

Shares of the luxury fashion house were up 3.2% at 05:37 ET (10:37 GMT).

The brokerage also increased its price target for the British fashion house to GBp 1,000 from GBp 720, marking a 39% upward revision.

Analysts at Barclays said that the risks of brand dilution that prompted a downgrade in September 2024 have not materialized. 

Despite markdown activity in November 2024, Burberry has maintained its premium image. 

Barclays flagged that the company’s renewed focus on core products such as outerwear and scarves, along with more aligned marketing campaigns, has started to gain traction. 

The analysts cited Kantar metrics showing Burberry has reached its highest levels of brand desirability and affinity in three years.

Burberry reported a return to profit at the EBIT level in the second half of fiscal year 2025 after a loss in the first half. 

Barclays expects this margin recovery to continue into FY26, supported by a GBP 56 million cost-saving initiative announced by the company. 

While the macroeconomic environment remains volatile, the additional savings are expected to cushion potential downside risks, including tariffs and softer consumer demand in key markets like the U.S.

Still, the outlook for sales remains muted. Barclays anticipates negative retail comparable sales of -6% in the first quarter and -2% for the full fiscal year, in line with management’s recent commentary that trends remained consistent through March. Wholesale revenue is projected to decline by 8% on a constant currency basis.

The analysts raised their adjusted EBIT forecast for FY26 to GBP 134 million and lifted their earnings per share estimate to GBp 19.2, up from a prior projection of GBp 12.6. 

The new price target is based on a discounted cash flow model incorporating a weighted average cost of capital of 9.3% and a long-term growth assumption of 2.5%.

Barclays noted that Burberry’s turnaround is still in its early phase. Although the company has managed to steer through a strategic shift without harming its brand image, pressure on revenue continues. 

Potential gains could come from a better-than-expected reception to new product lines and stronger operational delivery from the leadership team. 

However, the recovery could be hindered if early signs of brand interest fail to translate into higher sales or if there is disruption in management.