Burberry – and other major luxury names – are likely to see a very slow recovery due to the global decline in tourism caused by the coronavirus pandemic, analysts at UBS have said.
The investment bank sees the unwillingness of many key consumers to travel as the “biggest single risk to earnings in the luxury goods sector” and reiterated its belief that investors should sell their Burberry shares.
It thinks the company won't be achieving the mid-term growth targets that it has set itself beyond 2021, with the entire luxury sector at risk of seeing its growth aims curtailed.
The Swiss bank cited studies that show around 80% of consumers being unwilling to travel in the next three or four months. That could have a huge impact as around 40% of spending in the luxury sector is accounted for by tourist shoppers.
But the issues could extend well beyond the next few months. “We see a slower recovery in tourism as the key risk to the luxury goods sector in the next 12-18 months, which we think investors should watch,” it said. Analysts originally expected some weaker consumer sentiment after the outbreak but are now thinking that the tourist issue is an additional negative factor that needs to be taken into account.
It means UBS now thinks the overall luxury sector will see its earnings estimates lower by an average of 5%, but with the risk of greater declines. And it sees Burberry as being at the greatest risk.