The following table shows the returns and valuations of selected listed retailers as at November 2015. The table is followed by an extract of an article reporting on challenges facing retailers.

Britain’s John Lewis, the department store that DJs and Myer dream about, just may be putting a toe in the Australian market. Chief executive Andy Street has become the post-crash darling of the UK high street due to his ability to keep pace with changing customer demand. Such is the lead that John Lewis has over its competitors in ‘omnichannel’ retailing, that Australian department stores openly hail it as the benchmark in results briefings to media and analysts.
In Australia, both DJs and Myer are trying hard to reinvent themselves. New Myer boss Richard Umbers is investing $600 million in a new five-year strategy. The whole company is currently valued at not much more than that and the share price has halved in the last 12 months. And in the past week came the shock news that DJs chief executive Ian Nairn is departing for personal reasons, although the speed of that departure under the new South African owners Woolworths has got the rumour mill turning. In recent times in Australia there has been board scandal, a revolving door of management and tough new international competition fighting for a share of the shopping wallet.

Required
a. Explain what is meant by ‘P/E times’.
b. Calculate the expected growth in EPS between 2015 and 2016 for each of the retailers.
c. Explain the impact on a retailer’s margins, inventory turnover and liquidity as a result of the retailer having a large sale offering goods at heavily discounted prices.
d. Explain how tightly managed costs and lean inventory contribute to profit.
e. Explain how you think the one-year return percentage is calculated.

Transcribed Image Text:

Myer Holdings Ltd Harvey Norman Holdings Ltd Billabong International Ltd Pacific Brands P/E (times) 7.75 16.24 33.56 17.6 1-year total shareholders' return (%) (44.4) 16 10.5 53.2 EPS 2015 (cents) 5.10 24.48 0.42 (10.66) EPS forecast 2016 (cents) 8.9 26.70 1.2 4.9