Shareholders appeared unconcerned with Nanjing Xinjiekou Department Store Co., Ltd.'s (SHSE:600682) lackluster earnings report last week. Our analysis suggests that while the profits are soft, the foundations of the business are strong.

The Impact Of Unusual Items On Profit

For anyone who wants to understand Nanjing Xinjiekou Department Store's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by CN¥78m due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. If Nanjing Xinjiekou Department Store doesn't see those unusual expenses repeat, then all else being equal we'd expect its profit to increase over the coming year.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of Nanjing Xinjiekou Department Store.

Our Take On Nanjing Xinjiekou Department Store's Profit Performance

Unusual items (expenses) detracted from Nanjing Xinjiekou Department Store's earnings over the last year, but we might see an improvement next year. Because of this, we think Nanjing Xinjiekou Department Store's earnings potential is at least as good as it seems, and maybe even better! Unfortunately, though, its earnings per share actually fell back over the last year. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Nanjing Xinjiekou Department Store (of which 1 shouldn't be ignored!) you should know about.

Today we've zoomed in on a single data point to better understand the nature of Nanjing Xinjiekou Department Store's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks with significant insider holdings to be useful.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.