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 1HY23 reporting season 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.
Additionally, like-for-like sales are 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
It also means you won’t find it in the company’s audited reports.
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 companies in 1HY23 reporting season. 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.
Granted, this may be excusable if stores were impacted by lockdowns or the Omicron wave.
But from FY23 reporting season onward (which will occur this August), this won’t 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.
Stocks Down Under Concierge is here to help you pick winning stocks!
The team at Stocks Down Under have been in the markets since the mid-90s and we have gone through many ups and downs. We have written about every sector!
Our Concierge BUY and SELL service picks the best stocks on ASX. We won’t just tell you what to buy – we give you a buy range, price target and stop loss level in order to maximise total returns. And we will only recommend very high conviction stocks where substantial due diligence has been conducted.
Our performance is well ahead of the ASX200 and All Ords.
You can try out Concierge for 3 months … for FREE.
There’s no credit card needed – the trial expires automatically.
Reece shares (ASX:REH) represent ownership in one of two plumbing companies in the ASX 200 – the other being Reliance…
Weebit Nano (ASX:WBT): Here’s why it has done so well and why the next 2 years will be extremely exciting!
Our long-time followers would know we are big fans of Weebit Nano (ASX: WBT). This company has delivered stellar returns…
Investing in stocks for retirement is an excellent option to consider. Investing in stocks can help you build a substantial nest…