2019-08-01_Shares_Magazine

01 August 2019 | SHARES | 3 

EDUCATION

out the ‘worse’ bit.

>ŽŽŬŝŶŐĂƚƌĞĚŇĂŐƐĨŽƌ

earnings in the retail sector,

analysts at Liberum call the

ĂďŽǀĞ͚ƉƌŽĮƚƐŵŽŽƚŚŝŶŐ͛ĂŶĚƐĂLJ

that when a company adjusts its

ƉƌŽĮƚŚŝŐŚĞƌLJĞĂƌŝŶ͕LJĞĂƌŽƵƚ͕

ĂŶĚƐŽŵĞƟŵĞƐĨŽƌƚŚĞƐĂŵĞ

reason each year, it is a ‘clear

ƐŝŐŶĂůŽĨůŽǁĞĂƌŶŝŶŐƐƋƵĂůŝƚLJ͛͘

They add that restructuring

costs are a staple adjustment

ĨŽƌŵĂŶLJĐŽŵƉĂŶŝĞƐ͕͚ďƵƚ

there are some observers that

ƋƵĞƐƟŽŶǁŚĞƚŚĞƌƌĞƐƚƌƵĐƚƵƌŝŶŐ

costs should be considered

ĞdžĐĞƉƟŽŶĂůĂƚĂůů͕ŐŝǀĞŶƚŚĞ

ĨĂĐƚƚŚĂƚďƵƐŝŶĞƐƐĞƐĂƌĞĂůŵŽƐƚ

ĂůǁĂLJƐŝŶĂƐƚĂƚĞŽĨŇƵdž͛͘

REPEAT OFFENDERS

In the retail sector, Liberum

analysts highlight Mothercare

(MTC) ĂƐ͚ďLJĨĂƌƚŚĞǁŽƌƐƚ

ŽīĞŶĚĞƌ͛ĨŽƌĂĚũƵƐƚĞĚĞĂƌŶŝŶŐƐ͘

/ŶŝƚƐĨƵůůͲLJĞĂƌƌĞƐƵůƚƐĨŽƌϮϬϭε͕

ŝƚŵĂĚĞĂŶĂĚũƵƐƚĞĚůŽƐƐŽĨ

άϭϭ͘ςŵ͕ĐŽŵƉĂƌĞĚƚŽĂƐƚĂƚƵƚŽƌLJ

ůŽƐƐŽĨάϭκϮ͘ΘŵŝŶƚŚĞϮςǁĞĞŬƐ

ƚŽϮ:ƵŶĞ͘

ƵƚƚŚĞĮŐƵƌĞKĐĂĚŽǁĂŶƚƐ

you to look at is its adjusted

ĞĂƌŶŝŶŐƐďĞĨŽƌĞŝŶƚĞƌĞƐƚ͕

ƚĂdžĂƟŽŶ͕ĚĞƉƌĞĐŝĂƟŽŶĂŶĚ

ĂŵŽƌƟƐĂƟŽŶ;/dͿ͕ǁŚŝĐŚ

ƐƚŽŽĚĂƚάϭΘ͘ϳŵ͘

/ŶƚŚŝƐĐĂƐĞ͕ŝƚŝƐƉĞƌĨĞĐƚůLJ

reasonable to go on the

ĂĚũƵƐƚĞĚ/dĮŐƵƌĞďĞĐĂƵƐĞ

ƚŚĞŽǀĞƌĂůůƉƌĞͲƚĂdžůŽƐƐĮŐƵƌĞ

ŝŶĐůƵĚĞƐƚŚĞŝŵƉĂĐƚŽĨƚŚĞĮƌĞ

ĂƚŝƚƐŇĂŐƐŚŝƉƌŽďŽƟĐŶĚŽǀĞƌ

warehouse in February, which

ĐŽƐƚŝƚάεεŵ͘

dŚĞƌĞĨŽƌĞ͕ƚŽƚŚŝŶŬƚŚĂƚƚŚĞ

business was ordinarily making

ĂάϭκϮ͘ϳŵůŽƐƐŝŶŚĂůĨĂLJĞĂƌ

would be wrong. This is a

ŐĞŶƵŝŶĞŽŶĞͲŽīŝƚĞŵ͘

IGNORING THE BAD STUFF

While adjusted earnings are

ŵĞĂŶƚƚŽŐŝǀĞĂƚƌƵĞƌƉŝĐƚƵƌĞŽĨ

ĂĐŽŵƉĂŶLJ͛ƐŚĞĂůƚŚĨŽƌďĞƩĞƌŽƌ

worse, an increasing percentage

ŽĨĮƌŵƐĂƌĞĐŽŶǀĞŶŝĞŶƚůLJůĞĂǀŝŶŐ

Apparently designed to give a truer picture of a company’s health, investors should

take them with a pinch of salt

What are adjusted

earnings and why do

companies use them?

W

hen companies report

ƚŚĞŝƌĮŶĂŶĐŝĂůĮŐƵƌĞƐ,

ŽŌĞŶƚŚĞĮŶĂůĮŐƵƌĞ

they want you to see is not the

one that simply represents all

ŽĨƚŚĞŝƌŝŶĐŽŵŝŶŐƐŵŝŶƵƐƚŚĞŝƌ

outgoings.

ŐƌŽǁŝŶŐŶƵŵďĞƌŽĨĮƌŵƐ

ƚŚŝŶŬŝĨLJŽƵũƵƐƚƚĂŬĞƚŚĞ

ƐƚĂƚƵƚŽƌLJĮŐƵƌĞƐƚŚĞLJƉƌŽǀŝĚĞ͕

ǁŚŝĐŚƵƐƵĂůůLJƐƟĐŬƌŝŐŝĚůLJƚŽ

ŝŶĚƵƐƚƌLJͲƌĞĐŽŐŶŝƐĞĚĂĐĐŽƵŶƟŶŐ

standards, it doesn’t always

ŐŝǀĞĂƚƌƵĞƌĞŇĞĐƟŽŶŽĨŚŽǁƚŚĞ

ďƵƐŝŶĞƐƐŝƐĂĐƚƵĂůůLJƉĞƌĨŽƌŵŝŶŐ͘

^ŽŽŌĞŶĐŽŵƉĂŶŝĞƐǁŝůůĂĚũƵƐƚ

ƚŚĞŝƌĮŐƵƌĞƐ͕ĂŶĚƉƵƐŚŝŶǀĞƐƚŽƌƐ͛

ĂƩĞŶƟŽŶŝŶƚŚĞĚŝƌĞĐƟŽŶ

ŽĨƚŚŝŶŐƐůŝŬĞƚŚĞŝƌ͚ĂĚũƵƐƚĞĚ

ŽƉĞƌĂƟŶŐƉƌŽĮƚ͕͛ǁŚŝĐŚĞdžĐůƵĚĞƐ

ŽŶĞͲŽīŝƚĞŵƐĂŶĚƉŽƚĞŶƟĂůůLJ

ŐŝǀĞƐŝŶǀĞƐƚŽƌƐĂƚƌƵĞƌƉŝĐƚƵƌĞŽĨ

ĂĐŽŵƉĂŶLJ͛ƐƉĞƌĨŽƌŵĂŶĐĞďĂƐĞĚ

ŽŶŝƚƐĚĂLJͲƚŽͲĚĂLJĂĐƟǀŝƟĞƐ͘

Ta ke Ocado (OCDO) as

an example. The grocery

ĚŝƐƚƌŝďƵƟŽŶƚĞĐŚŶŽůŽŐLJĮƌŵ

ƚĞĐŚŶŝĐĂůůLJƌĞƉŽƌƚĞĚĂƉƌĞͲƚĂdž