Same Store Sales, or Comparables (comps), allows investors to determine what portion of new sales has come from sales growth and what portion from the opening of new stores. Same store sales are important because, although new stores are good, a saturation point–where future sales growth is determined by same store sales growth – eventually occurs. They also measure sales growth at stores that have been open for over a year.
So for a store to be able to count monthly comps for December 2006, it must have been open for the full month of December 2005. If the store opened December 15th 2005, comps couldn’t be counted until January 2006, a year after the store’s first full month.
The two main factors that affect same store sales are prices and number of paying customers. Revenue=price x sales, and if prices go up and volume stays the same, sales will increase. And if volume increases but prices stay the same, sales will also rise. However, when a company has a bad month, it does not blame that fact to price or volume problems.
Falling comps often stem from weather extremes or holidays on an unfavorable day of the week for sales. Rising comps are great and mean that more people are coming to buy goods, or paying more for those goods than they did a year ago, or a combination of the two. So basically,sales are rising without the added costs associated with new stores.
Increase revenues at existing stores or increase the number of stores are the ways to increase revenue. Increased revenues at existing stores is less expensive and that makes rising same store sales excellent news for companies.
Decreasing comps=
- Brand is losing strength and people aren’t shopping at the company’s stores.
- The economy is moving downward and people aren’t shopping.
- Too many items at discount prices.
There are a few ways to deliniate between short-term and long-term problems with same store sales. Decreasing comps for an extended period is not good. Comparing that to competitors’ performance is important to examine because if they are doing poorly as well it might not be a company-specific problem. However, it could be an industry-specific problem
Listen to the quarterly earnings report call and see what the company says the problem is and what they are doing to fix it. This can guide you to stay with the company or dump it.
Good comps do not mean to jump in and begin investing and vice versa with bad comps. Look same stores sales as one data point in a myriad of data points that can lead you to your conclusion.