Like for like sales: What does it mean and why do retailers use that creative term?

ASX retailers often use ‘like for like’ sales in addition to total sales.

It is most common for companies that are expanding rapidly, although virtually all companies used it in post-COVID reporting seasons given the impact of lockdowns.

But what does it mean and why do retailers use that creative term?

Like for like sales

Like-for-like sales (sometimes alluded to as ‘same store sales’ or ‘comparable store sales’ is a common measure of performance in retail, comparing the sales of an entity at a specific period with the same period in the previous year.

Essentially, you only include stores that were open both this year and last year. This metric allows for comparison of similar stores and helps to remove the effect of external factors, such as seasonality or expanding store numbers.

It is considered by retailers that use it to be a more accurate gauge of performance than total sales due to it eliminating the effects of new store openings, closings or even COVID lockdowns.

The latter was a particularly relevant factor in post-COVID reporting seasons, although it can also be used by companies that are expanding store numbers relatively quickly. It is only natural that if a company’s store count increases substantially, sales will be higher to some extent. Like-for-like sales takes out this inflationary impact.

We also note that this metric may also be helpful in assessing whether changes in marketing strategy or product offerings have had a positive impact on revenue.

What you need to bear in mind about like for like sales

First, as with EBITDA and Annual Recurring Revenue, like for like sales is not a legislated accounting metric. This gives the company the flexibility to calculate the metric as it likes.

It also means you won’t find it in the company’s audited reports, even though it may be mentioned in the CEO’s letter to shareholders or in the ASX announcement. Second, like for like sales can hide issues elsewhere in the business, such as underperforming individual stores or if online sales are lagging.

The latter was the case with many ASX companies in post-COVID reporting seasons. Even if sales were up, online sales were declining as consumers returned to the stores.

What’s the big deal about the latter scenario so long as sales hold up?

The company may have inventory issues that will rear their ugly head in future periods or have poorly structured supply chains assuming online sales will be higher than they  actually are. These measures may cost the company down the track.

We think a rule of thumb investors should use to judge if ‘like for like sales’ is being used in a fishy way by management is if this metric is up while overall sales are down.

As we are years from the pandemic, this excuse should not not hold up anymore and there is likely to be something dodgy if like for like sales is up but total revenue or sales is down.

This metric shouldn’t be use in isolation

As we always say in relation to any metric, like for like sales has potential useful but not in every scenario. And even where it is useful, it shouldn’t be used in isolation.

Any investment decision needs to be based on a multitude of factors that overall weigh in one particular way. But, when a company’s sales are only growing because of the impact of store openings, investors shouldn’t just ‘dance until the music stops’, they should realise something has got to give eventually.

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