Analysts at Credit Suisse were left scratching their heads after a meeting with Burberry management and a visit to the Spring '13 showroom on Thursday night. What has gone wrong in the two weeks through September 8th, they ask themselves.

"Our recent conversations with peers and initial checks with luxury operators makes us guess that Burberry's warning possibly reflects a combination of sector-wide factors (e.g. slowing economy and pull-back in gift giving in China, slowing US) and company-specific issues," they write.

In that same vein they remark: "Recall that the present autumn collection has been in stores since June."

Even so they came away with the knowledge that Burberry's merchandising teams are analysing the potential factors above and accelerating initiatives to add more appealing items and greater wow factor to stores in coming months.

Thus, for now Credit Suisse opts to maintain its investment outlook (outperform) while it looks for more clarity after extra channel checks, particularly given that the stock has de-rated (to 14.4x the company´s estimated 2013 calendar year price-to-earnings multiple versus the luxury sector´s average multiple of 15x). Nevertheless, its analysts have cut their target price to 1400p from 1600p previously.

Lastly, the broker notes how the whole board has recently bought shares, sentiment on the stock is overwhelmingly negative, the group sits on a large net cash position and the business is more replenishment-driven than before. As well, they believe that the long-term growth story is still valid, "with menswear long-term potential re-emphasised yesterday and supported by our emerging market brand survey work."

AB

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