Burberry Shares (BRBY) Upgraded on Hopes of a European Luxury Recovery

Burberry (LON: BRBY) shares have received a boost following an upgrade by Deutsche Bank, reflecting growing optimism about the recovery of the European luxury sector. The upgrade signals a shift in market sentiment towards the British fashion house, building on recent strategic changes and better-than-expected financial results.

The upgrade propelled Burberry's stock higher, with markets reacting positively to Deutsche Bank's revised outlook. The firm elevated its rating on Burberry to ‘Buy' from ‘Hold', and significantly increased the price target to 1,500 GBp from a previous 1,200 GBp. This adjustment reflects the bank's belief that the European luxury sector is poised for a rebound, and that Burberry is well-positioned to benefit.

Burberry has been undergoing a strategic overhaul under the leadership of CEO Joshua Schulman, appointed in July 2024. A key component of this plan has been a cost-reduction initiative, including a reduction of the global workforce by approximately 20%, or 1,700 positions, primarily in office roles. This restructuring is intended to deliver £60 million in savings by the end of 2027. These decisive actions have resonated with markets, initially demonstrated by an 8% increase in Burberry’s shares following the announcement of the plans in May 2025.

The company's adjusted operating profit for the financial year 2025 exceeded analyst expectations, reaching £26 million, despite a 6% decline in fourth-quarter sales. The first quarter of fiscal year 2026 also brought positive surprises reporting a smaller-than-expected 1% decline in comparable retail sales, surpassing market estimates of a 3% drop. Schulman noted that this improvement stemmed from stronger performance in core product categories and increased brand appeal, citing the favorable reception of the upcoming Autumn 2025 collection.

The strategic refocus on Burberry's British heritage and iconic products, such as trench coats and check-patterned scarves, appears to be paying dividends. This shift follows previous attempts to position Burberry at the high-luxury end of the market, which faced financial challenges.

Deutsche Bank's upgrade is particularly significant given their prior downgrade of Burberry from ‘Buy' to ‘Hold' in May 2025, with a price target increase to 1,000 GBp from 900 GBp. That earlier adjustment was based on the view that the company's strategic changes were already reflected in the share price. However, the subsequent upgrade indicates a reassessment, likely driven by Burberry's proactive cost-cutting measures, better-than-expected sales performance, and the improving outlook for the luxury market.

The bank emphasized that any signs of improvement in China would provide additional momentum for the sector, further bolstering Burberry's prospects. This highlights the importance of the Chinese market for luxury brands and the potential upside if economic conditions in the region improve.

Analyst Summary: Bull and Bear Cases

Burberry's strategic initiatives, including significant cost reductions and a renewed focus on core products, have begun to yield positive results. The recent upgrade by Deutsche Bank underscores a growing optimism about the company's prospects within the recovering European luxury sector, suggesting today's price movement could signal a future positive trajectory.