Deutsche Bank has upgraded Burberry Group PLC to 'buy', alongside LVMH, signaling a significant shift in luxury sector sentiment as improving constant-currency sales indicate an early recovery, primarily driven by an anticipated rebound in Chinese demand through 2026. Despite acknowledging challenges like consumer price sensitivity and brand relevance, the bank views current softness as slower growth, not structural decline, expecting a brighter outlook from macroeconomic improvements and renewed financial discipline across luxury groups. Burberry, having undertaken brand revitalization and cost-cutting, is positioned to significantly benefit from renewed sales growth and operating leverage.
Burberry back on the menu as investors regain their appetite for luxury goods Published: 11:30 09 Oct 2025 BST Luxury investors have found their appetite again... and Burberry Group PLC (LSE:BRBY) is back on the menu. Deutsche Bank has upgraded the British fashion house to 'buy', alongside LVMH, arguing that sentiment across the sector has shifted sharply since the summer. Once it became clear that sales were improving on a constant-currency basis, even if only helped by easier comparisons, investors stopped shunning luxury. The bank reckons we are still in the early stages of recovery, with China likely to provide the next leg up. It expects any wobble in fourth-quarter sales, especially in the US, where comparisons get tougher, to be treated as a buying opportunity. The analysts say investors are increasingly keen to be part of the sequential sales recovery driven by an expected rebound in Chinese demand through 2026. That does not mean the sector’s problems have vanished. Price increases have tested consumer tolerance, aspirational shoppers remain cautious, and some brands are struggling to stay relevant. But Deutsche insists this represents slower growth, not structural decline. “We do not think there has been a change in consumer appetite for luxury,” it says, adding that the current malaise stems from “price increases with a lack of associated product innovation.” The outlook, though, is brightening. Softer inflation in 2025 and 2026, a steadier geopolitical backdrop, and recovering stock and housing markets should all help lift consumer confidence. Chinese spending, long the industry’s key driver, should gradually return, pushing volumes back into positive territory next year. Behind the scenes, the luxury groups have also rediscovered financial discipline. Deutsche notes that companies have pared back costs after the post-pandemic spending spree, creating scope for profit margins to recover quickly once sales growth resumes. Burberry, which has been under pressure to revitalise its brand and pricing, could be one of the main beneficiaries of that operating leverage. Alongside Hermes, Pandora and Zegna, already on Deutsche’s buy list, Burberry now finds itself back in favour. The message from the analysts is clear: luxury’s gloss may have dulled, but it is far from gone. Deutsche Bank has upgraded Burberry Group PLC and LVMH to 'buy', signaling a significant positive shift in luxury sector sentiment. This upgrade is driven by improving constant-currency sales, indicating an early-stage recovery, with China's demand expected to provide the next growth leg through 2026. Deutsche Bank suggests potential fourth-quarter sales wobbles, particularly in the US, could present a buying opportunity. The brighter outlook is supported by macroeconomic tailwinds, including softer inflation anticipated in 2025-2026, a more stable geopolitical environment, and recovering stock and housing markets. These factors are expected to bolster consumer confidence and gradually restore crucial Chinese spending volumes to positive territory next year. Challenges persist, stemming from consumer price sensitivity and a reported lack of product innovation, but these are viewed as slower growth issues rather than structural decline. Luxury groups have also initiated stricter financial discipline, reducing costs post-pandemic, which sets the stage for rapid profit margin recovery once sales growth reaccelerates. Burberry, specifically, is identified as a primary beneficiary of this operating leverage due to its brand revitalization efforts and cost-cutting measures, aligning it with other Deutsche Bank 'buy' recommendations like Hermes and Zegna.
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