Burberry Provided Areas of Reassurance But Valuation Still Demanding

Burberry’s (LON: BRBY) recent Q3 trading update offered stronger-than-expected results, with comparable store sales declining 4%, ahead of market forecasts. 

Assessing the quarter, Goldman Sachs highlighted three key areas of reassurance in its assessment of the results while maintaining a Neutral rating on the stock due to concerns over valuation.

Despite being early in the turnaround strategy, Goldman Sachs noted that Burberry demonstrated strength in core segments, an increase in new customer growth, and a reduced reliance on markdown activity.

These factors are said to provide encouragement about the brand’s ability to regain momentum following weaker performance in prior quarters.

Goldman Sachs also pointed out that Burberry now expects its H2 results to broadly offset the adjusted EBIT loss from H1, which adds confidence to its earnings trajectory. 

However, the firm cautioned that while this update provides more clarity on Burberry’s performance, valuation remains demanding at current levels.

“We note this update provides increased confidence on Burberry’s earnings trajectory, but valuation remains demanding,” said the bank.

Last week, Burberry’s stock surged over 9% following the Q3 update. However, the stock has since given back some of those gains and now trades slightly above its pre-rally level.  So far on Thursday, it is up around 2%.