Battered luxury stocks face fresh setback Ffom Burberry warning

Luxury stocks are off to a rough start this year, adding to their 2023 drop, with Burberry Group Plc’s surprise profit warning crushing hopes for a near-term rebound.

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Burberry shares slumped as much as 15% on Friday, its biggest one-day decline in more than 10 years, after slashing its profit forecast due to a slowdown during the key Christmas quarter. While the stock pared some losses to trade 7.5% lower as of 9:35 a.m. in London, the move triggered a selloff in peers LVMH, Kering SA and Richemont SA, wiping out as much as $7 billion from the sector.

Friday’s drop follows a more than $200 billion rout in major luxury stocks since April last year, as China’s reopening that fueled a splurge on pricey handbags and jewelry quickly ran out of steam. Analysts have been cutting their estimates for the sector, with Goldman Sachs Inc. analysts the latest to slash their industry growth forecasts earlier this week. 

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“Self-help is difficult in the best of times, and close to impossible when the market is tough,” Bernstein analyst Luca Solca wrote in a note following Burberry’s update. “Disappointing update during the crucial fourth calendar quarter of last year is the nth demonstration of this tenet.”

A day before Burberry’s warning, Bank of America analysts led by Ashley Wallace warned that it was “still too early to buy the luxury pullback.” 

“We are not yet there,” she added, saying the earnings momentum for the sector could stay soft for at least six months, seeing no catalyst for a re-rating until a turnaround is visible.