Bank flags Burberry as a standout UK pick in 2026 luxury outlook

RBC Capital Markets’ luxury-sector deep dive names Burberry as a top UK pick for 2026 after a weak 2025, citing a product-strategy reset, “low-hanging fruit” in retail execution and expectations of significant earnings and margin recovery — noting consensus estimates are already being revised up while the broader sector has seen downgrades. Watches of Switzerland is highlighted as a structural growth story driven by consolidation and its sizeable Rolex agency footprint, but RBC warns the stock has rerated and faces US tariff risk from late 2026. Dr Martens shows early signs of improvement under new management, yet RBC flags its lifestyle positioning and heavy US reliance as ongoing headwinds.

Analysis

RBC Capital Markets’ 9 December 2025 deep dive frames 2025 as a weak year for luxury due to soft demand, geopolitical uncertainty and generative-AI related worries, but the bank expects a more supportive 2026 backdrop for selective names. The report elevates Burberry (LSE:BRBY) as a top UK pick for 2026, citing a product-strategy reset and “low-hanging fruit” in retail execution as drivers of a margin rebound.

RBC explicitly forecasts “significant” earnings growth for Burberry in 2026 as margins recover from a depressed base and notes that consensus estimates for Burberry are already being revised up while the broader sector has seen downgrades. That divergence implies upside is at least partly priced through accelerating analyst revisions rather than current operating leverage alone.

Watches of Switzerland (LSE:WOSG) is highlighted as a structural growth story supported by consolidation and a sizeable UK Rolex agency footprint, but RBC warns the stock has rerated and is exposed to potential US tariff headwinds from late 2026. Dr Martens earns a cautious appraisal: RBC sees early progress under new management but flags its lifestyle-footwear positioning and heavy US revenue reliance as material risk factors to near-term earnings recovery.

Key Decisions for Investors

• Consider increasing exposure to Burberry ahead of expected 2026 margin recovery while monitoring continued positive consensus revisions and quarterly retail KPIs as confirmation
• Maintain selective exposure to Watches of Switzerland for structural Rolex/market-share upside but trim or hedge positions given recent rerating and monitor US tariff developments into late 2026
• Avoid initiating or scale back positions in Dr Martens until management demonstrates sustained margin improvement and reduced US concentration, or use hedges to protect against US-demand risk