The informational role of inventory writeoffs:pic.twitter.com/HBx7WCvtQI
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The tax dimension isn't taken into account in this reasoning, the focus is on operations. We value retailers who write off with a lower multiple because they have been growing inventory of low quality and/or facing low demand.
One shouldn't always do that for the reason that I gave in the previous tweet. The very act of writing down inventory depresses earnings and is a signal that the retailer isn't a bullshitter, both of which suggest a higher p/e multiple.
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It is suggested that the music eventually has to stop, meaning they are doing it because they can't defer the marking down any longer. Bad incentives can also make management focus on the short term. On the chart they are two companies that are valued higher after the writeoff.
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Thanks makes sense. Best to look at this mark down as a small part of a bigger picture, imo.
End of conversation
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