Definition
Like-for-like sales, also known as same-store sales or comparable store sales, refer to the revenue comparison of retail stores that have been open for the same period of time. Usually measured over a specific period (like quarterly or annually), they provide an insight into a company’s growth without considering expansion. This term is mostly used in the retail industry to measure growth without taking new store openings into account.
Phonetic
laɪk-fɔr-laɪk seɪlz
Key Takeaways
- Definition: Like-for-like (LFL) sales are a measure of growth in sales, typically on a year-over-year basis. It only includes sales from assets which have been operational for at least a year, factoring out effects from new stores or outlets and only looking at the existing business.
- Importance: LFL sales metric is crucial to helping investors or stakeholders evaluate the performance of company’s existing outlets, independent of growth coming from new ones. It provides an understanding of the true growth and performance of the core businesses.
- Limitation: While LFL sales provide useful insights, they do not represent the whole picture of a company’s health. They exclude the performance of newly-operated outlets and may not account for changes such as remodels or refurbishments of existing ones.
Importance
Like-for-Like Sales, also often referred to as Same-Store Sales, is a crucial business/finance term, primarily used in the retail sector to reflect a company’s true performance. It is significant because it compares the sales of a company’s existing outlets over a certain time period (usually a year) with the sales from the same outlets in the previous equivalent period. This allows an analysis of the business’s performance that isn’t skewed by new store openings, closures, or acquisitions. Essentially, it provides a much more accurate picture of a company’s operational growth by isolating the growth that the company experienced from its existing operations. Hence, these figures are often closely monitored by investors, analysts, and the company’s management to help in decision-making processes.
Explanation
Like-for-like sales, also known as comparable or same-store sales, is a financial metric used widely in the retail industry and serves as a critical financial indicator for businesses. The primary purpose of this metric is to evaluate the growth and performance of individual stores by excluding the impacts of recently opened or closed outlets. By doing so, businesses are able to get a transparent view of their operational success without the distortion caused by constantly changing store numbers.The use of like-for-like sales provides insights into the success of a store’s current operating strategy and the effectiveness of management’s execution of such strategies. Retailers can leverage this information to gauge consumer responses to product offerings, promotional tactics, store layouts, and staff performance, among other factors. On a broader scale, like-for-like sales can also be analyzed by investors and analysts to assess a company’s financial health in comparison with its competitors or the overall market. Essentially, it is a powerful tool for companies to understand their organic growth, removing the effects of store expansions or reductions.
Examples
1. Walmart: Say Walmart reports its annual financial statement and indicates that its like-for-like sales increased by 5%. This means that Walmart has generated 5% more revenue from its stores open for at least a year, excluding any revenue from new stores opened within that year.2. Starbucks: When Starbucks introduces a new store, it will undoubtedly result in an overall revenue increase for the company. However, when reporting like-for-like sales, Starbucks would only compare the sales generated by locations open for at least one year. So if Starbucks reports a 2% increase in like-for-like sales, this indicates that its older stores have seen a 2% rise in revenue, disregarding the contribution of any newly opened cafe.3. IKEA: If IKEA reports like-for-like sales, it is excluding any of its newly opened retail outlets over the past 12 months. For example, if the Swedish furniture retailer reports a 4% increase in like-for-like sales, it means IKEA achieved a 4% boost in sales generated from its existing retail outlets, excluding any new stores that opened in the past year.
Frequently Asked Questions(FAQ)
What are like-for-like sales?
Like-for-like sales, also referred to as comparable or same-store sales, refer to the revenue generated by a retail outlet or business from its operations in a specified time period, compared with the same period in the previous year.
Why are like-for-like sales important?
Like-for-like sales is a widespread measurement method that helps determine a company’s growth rate. It provides a more accurate picture of a company’s organic growth by comparing year-on-year sales figures from identical outlets.
What does a rise in like-for-like sales imply?
A rise in like-for-like sales suggests that the company is growing organically – not just because they’ve opened new stores, but because their existing stores are performing better.
How are like-for-like sales different from total sales?
Like-for-like sales only consider revenue from existing outlets over a specific period and exclude new outlet openings. In contrast, total sales account for all income, including both existing and newly opened stores.
Is there any limitation to using the like-for-like sales metric?
Yes, like-for-like sales do have limitations. They specifically consider only the revenue generated from identical outlets and overlook the success or failure of newly opened stores. This can potentially skew the financial health of a company if newly opened stores are performing either exceptionally well or poorly.
How is like-for-like sales growth calculated?
Like-for-like sales growth is typically calculated as (Current Period Sales – Prior Period Sales) / Prior Period Sales, for stores that were open during both periods.
What factors can influence like-for-like sales?
Various internal and external factors can influence like-for-like sales, such as price adjustments, promotional activities, store renovations, product availability, marketplace competition, customer preferences, and economic conditions.
Does like-for-like sales growth only apply to retail businesses?
Though primarily used in the retail sector, the concept is also applicable in other sectors such as restaurants, hotels, and any other business where output can be measured and compared over specific periods.
Related Finance Terms
- Comparable Store Sales
- Same-Store Sales
- Organic Sales Growth
- Retail Foot Traffic
- Year-Over-Year (YOY) Performance
