What Is Like-for-Like Sales?
Like-for-like sales are an adjusted growth metric that takes into account sales from establishments or goods with comparable features while excluding any with glaring differences that might distort the data. Like-for-like sales are also referred to as comparable-store sales, comps, same-store sales, or identical-store sales.
KEY TAKEAWAYS
•Like-for-like sales numbers indicate the revenues of stores or products with similar characteristics, omitting outliers that could distort the results.
•Comparison of the numbers over time gives insight into the factors that are contributing to a company's growth or decline.
•Sales analysis may be used to isolate many factors that contribute to success or failure.
•Like-for-like sales give companies insight into existing stores versus newly opened stores.
•Companies can improve like-for-like sales by offering promotions or sales and using customer data to gain important insights.
Understanding Like-for-Like Sales
Like-for-like sales serve as a method of financial analysis that is used to identify which of a company's products, divisions, or stores are contributing to its growth and which are lagging. It also excludes extraneous factors that could artificially inflate or deflate the numbers, such as a major foreign acquisition.
Like-for-like sales analysis helps companies and investors gain insight into which products are contributing to a company's growth or decline. It is commonly used when making granular sales comparisons, such as comparing sales in specific regions or comparing two retailers selling identical products. It is particularly helpful when a company operates more than one type of retail operation, like Walmart Inc.'s Walmart and Sam's Club stores.
When analyzing like-for-like sales, segments are typically grouped to show their percentage growth rates for a particular time period. As in any financial analysis, like-for-like data can be compared to the same quarter in a previous year, the prior quarter, or across several sequential quarters.
A company’s quarterly financial reporting often includes the like-for-like metrics it considers significant to its business.
Benefits of Like-for-Like Sales
Retail companies use the like-for-like metric most often for their insight into existing stores versus newly opened stores. If a retail company has a high like-for-like store sales growth rate and a high total revenue growth rate, it can be seen as a sign that established stores are driving growth. If a company has an average like-for-like store sales growth rate but a high total revenue growth rate, it can be a sign that new stores or new products are drawing shoppers' attention.
Like-for-like sales metrics help companies know if a product or store is contributing to its bottom line and if it is experiencing desired growth. It can also help companies decide whether opening a new location or expanding production is worthwhile. Also, like-for-like sales can reveal if a new store is taking sales away from established locations, which is known as cannibalization.
How to Improve Like-for-Like Sales
Improving like-for-like sales translates to increased revenues and a healthier bottom line. To improve like-for-like sales, companies can employ several strategies.
Promotions and sales are effective ways to increase sales and drive traffic, and it sets the business apart from its competitors. These events must be carefully planned and executed to protect profits and encourage customers to continue purchasing. When done properly, customer loyalty increases and new customers are converted.
Because there is no industry standard for calculating like-for-like sales, they are not usually used as the sole metric for measuring growth and performance.
Companies can also increase like-for-like sales by gathering customer information and using it to expand their customer base and increase sales. Collecting customer data can help companies identify what's important to customers and how to craft future promotions and sales. This can be achieved through incentive or rewards programs, whereby customer data is gathered in exchange for rewards and exclusive or early access to sales. Most importantly, companies can stay in front of the customer, promoting new products and offering deals to encourage purchases.
Special Considerations
A company’s fourth-quarter reporting is often the best time to look at a company’s results, and specifically at its like-for-like sales metrics, as it provides a comparison based on the full fiscal year and prior fiscal year.
In addition to reporting sales revenue by comparable-store sales or geographical store sales, companies may use other segmentation approaches that are worth following. In particular, global companies have to deal with foreign exchange rates, which can affect sales revenue. Many of these companies will include details on currency adjustments and how they influenced sales and net income.
Real-World Example
Like-for-like or same-store sales commonly control openings and closings by including only locations that have been in operation for a year or more. This also is key to isolating growth catalysts.
McDonald's Corp. reported a global comparable sales increase of 7.5% in the first quarter of 2021 with a U.S. comparable store sales increase of 13.6%, while total sales/revenues increased 9% overall. What does that tell us? McDonald's opened a lot of new stores but existing store sales grew relatively modestly.
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