In this blog post, we will dive into the definition, calculation formula, and provide an example of how comparable store sales are used. Examining same-store sales figures is helpful to investors in determining what portion of a company’s current sales revenues are a result of sales growth in existing locations and what portion is accounted for by the opening of new stores. If comparable store sales are up from a previous period, it is a sign that the retail company is moving in the right direction. An increase in comparable store sales could be interpreted to mean that the retailer is effective in retaining its customers and might be better off focusing on its existing locations and worrying less about expansion. Sustained negative same-store sales over several quarters or even years may be an indicator that the retailer is in trouble. By comparing sales across different periods, company management and investors can determine how well a retail store is doing.
For example a new business is typical to show a high LFL growth in its second year of trading, that could reach double digits. Since it is normal that new locations will increase the total revenue of the business, looking at same store sales will show us if the business is actually growing, i.e other stores are also experiencing growth. As shown in the example above, although Domino’s Pizza reported positive same-store sales, that alone does not necessarily indicate that the company is doing well. If analysts expect same-store sales for a company to increase 15%, but the company only delivered 5%, it would indicate a weak-performing company.
The grocery chain’s digital sales continue to impress, but they raise questions about store performance and how the company will compete against Walmart going forward. A more accurate comparison can be found by looking at existing same-store sales and identifying trends there. In some cases, a chain that has opened too many new stores too quickly might be in a lot more financial difficulty that the new stores’ revenue boost indicates. This is comparable store sales a more effective measurement of performance than comparing one-quarter of sales to the previous quarter because it shows the degree of revenue growth (or decline) to a similar period.
Alternative Names (Comparable-Store Sales, ‘Comps’)
These tools can help streamline your operations, improve customer experiences, and drive sales growth. Same-store sales are also known as comparable-store sales or “comps,” terms often used interchangeably in financial reporting. These alternative names underscore the metric’s focus on comparing revenue generated by the same set of stores over time.
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Similarly, the entry of new competitors into the market can directly impact these sales, as they may attract customers with more competitive pricing, innovative product offerings, or better shopping experiences. By regularly tracking the comps sales, businesses can proactively respond to these external threats. For example, they may adjust their pricing strategy, improve customer service, or introduce loyalty programs to retain their customer base in the face of new competition.
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For instance, to look at February 2013 same-store sales and December 2013 figures would not be an apples-to-apples comparison. The busiest retail period of the year is, of course, the holiday shopping season, so December’s numbers are likely to be much higher (at least one would hope) than any other month’s sales. So, the next time you come across the term “comparable store sales,” you’ll have a clear understanding of what it means, how to calculate it, and why it matters in the world of finance. Sum the sales from all eligible stores for both the current period and the prior period to get the total sales for each time frame.
- These inputs are used by analysts to model and calculate market sizes, channel sizes, and market shares.
- These tools can help streamline your operations, improve customer experiences, and drive sales growth.
- Additionally, machine learning can segment customers into distinct groups based on their purchasing behaviors, enabling more personalized marketing strategies that resonate with different customer segments.
- After the initial high growth phase it will start to level off and the growth drops to single digits, depending on the economy and other market factors.
It is also used internally by retail managers and retail owners to asses their growth strategy, and its efficiency and to be able to take actions based on that. Access and download collection of free Templates to help power your productivity and performance.
- Kroger executives have pointed to the company’s strong digital sales as a linchpin in its overall performance.
- As shown in the example above, although Domino’s Pizza reported positive same-store sales, that alone does not necessarily indicate that the company is doing well.
- If analysts expect same-store sales for a company to increase 15%, but the company only delivered 5%, it would indicate a weak-performing company.
- In this blog post, we will dive into the definition, calculation formula, and provide an example of how comparable store sales are used.
What Is a Good Same Store Sales Growth?
If this is not the case, then the company could actually be losing money on the bottom line, because those stores are adding costs and not bringing new sales, but rather eating at the sales from existing locations. The importance of same store sales (comps) is that it gives us the real growth picture of the retail business. This formula measures the percentage growth or decline in sales for a set of stores over a comparable time period. Starbucks has seen some of the worst traffic slides of major, publicly traded QSRs, with same-store sales falling due to traffic decreases for several quarters.
Calculation Formula
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If the business is experiencing Like-for-like de-growth and it has started to be a trend, i.e it wasn’t only for a single quarter or year, then this is a red flag. As you can see here, the total growth for the business is 24%, while the comp sales are actually down by 3%. CFI is the global institution behind the financial modeling and valuation analyst FMVA® Designation. CFI is on a mission to enable anyone to be a great financial analyst and have a great career path. In order to help you advance your career, CFI has compiled many resources to assist you along the path.
Indicators of Positive and Negative Results
A thoughtfully designed store layout can enhance the shopping experience, making it easier for customers to find what they need and encouraging them to make additional purchases. For instance, the holiday season typically brings a surge in sales for many retailers, while the post-holiday period may see a decline. Understanding these patterns allows businesses to plan inventory and staffing levels more effectively, ensuring they can meet demand without overextending resources. This will measure the comp sales growth (like-for-like growth) and will include only the stores that were open and trading during the same period last year. When a business starts opening new stores, each store should bring new revenue to the company, so that it can justify its costs and the investment that has gone into it.
This not only enhances the shopping experience but also reduces the likelihood of returns, thereby boosting sales. For instance, the use of data analytics can help retailers understand customer preferences and tailor their offerings accordingly. Mobile payment options and self-checkout stations can streamline the purchasing process, making it more convenient for customers and potentially increasing sales. Among other things, the company reported same-store sales of 2.1% for US stores, 3.1% for US franchise stores, and 2.4% for international stores. As we will see in the example below, a positive same-store sales figure does not necessarily translate to a strong-performing company.
An increase in comparable store sales could be perceived to mean that the retailer is effective in holding its customers and may be better off zeroing in on its existing locations and stressing less over expansion. Supported negative same-store sales more than several quarters or even years might be an indicator that the retailer is in a difficult situation. When it comes to measuring the performance of a retail company, one important metric stands out – comparable store sales. Comparable store sales, also known as same-store sales, is a critical indicator that helps investors and analysts gauge a company’s growth within its existing store base.