If you own stock in a retail chain, or are thinking of investing in one, you'll want to take a look at the company's same-store sales for one or more quarterly or annual periods. This is a number often reported on a retail chain's annual report or quarterly earnings calls.
You won't have to do these calculations yourself, but if you're wondering how they are determined, a review of the same-store sales growth formula will help you understand how it's done. You should also understand why these figures are important for investors.
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What Are Same-Store Sales?
If a retailer with 10 stores did $2 million in sales in one year, and did $2.4 million the next year, sales went up $400,000 for the overall company, which might seem like a positive sign that the business is growing. These figures only show the overall sales for the corporation, but not for each of the 10 stores.
Management and investors want to know, however, how each store performed this quarter or year compared to last year. This means they will want the same-store sales figures for each unit. For example, if the retailer has a store in Chicago, it will compare the Chicago store's sales from this year to last year's sales. This is an example of same-store sales for a specific store.
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Why Do They Matter?
Even though a retail chain might be seeing overall sales and profit growth, the positive contributions might only be coming from a few stores. Management and investors will want to know why. For example, sales at new stores (which don't have a previous history) might all be positive, while the chain's older stores might be losing sales. So, the company made a profit from new stores, while same-store sales were down.
This means it might be time to close the older stores or to remodel them. If the chain's newer stores (with multi-year sales figures) are not doing well, this might mean they were opened in bad locations, need better managers or need other fixes to bring them back to profitability.
For investors, same-store sales are an indicator of a company's actual performance compared to analysts' expectations. Stock analysts look at industry trends, consumer spending predictions, retail competitors and other factors to make their predictions.
Even if a company's same-store sales increase during a reporting period, if they fall short of analysts' predictions, this could be a sign the company is experiencing problems. The Corporate Finance Institute pointed out just such an example, citing a 2019 Domino's Pizza quarterly report that showed an increase in same-store sales, but which fell below analyst estimates.
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How to Calculate Them
Calculating same-store sales is a fairly simple process. The company compares last year's sales to this year's (or last month's or last quarter's sales to this month's or this quarter's sales). In our example above, the retailer went from $2 million to $2.4 million, experiencing an increase of $400,000.
Once analysts look at the gross number, they look at the percentage increase or decrease. The calculation for our example retail chain would be $2 million divided by $2.4 million, showing an increase in sales of 20 percent. Analysts within a company can further drill down by performing these two calculations for each of its stores.