What is 'Comps'
Comps is short for comparables. It can refer to a retail company's same-store sales compared to the previous year and is used by analysts to make apples to apples comparisons from year to year. Specifically, comps compare a company's revenue growth based on the sales created by the stores that are open for at least one year.
BREAKING DOWN 'Comps'Also known as comparable same-store sales, comps is a metric used by analysts and investors to determine what portion of sales growth is attributed to old stores compared to new stores. Some large retail chains release comps on a monthly basis.
New Stores vs. Old Stores Sales
Stores that have been open for less than a year are referred to as new stores. New stores have high growth rates. As a result, the growth rate of all stores is higher than the growth rate of comp stores as long as the company is adding new stores. Including new stores in the growth rate calculation can give the analyst artificially high growth rate results. Comps are used as a way to ensure that when analysts compare growth rates, the growth rates do not include new stores.
Analysts typically like to hear that a company's comps are rising each period. This is a good indication the company's consumers are willing to pay more for goods compared to the previous period and/or to come to the store more often and spend more or less the same amount. The key is the company is seeing an increase in revenue without resorting to opening new stores.
Company sales growth is calculated by subtracting sales from the previous year from sales from the current year and then dividing the difference by the previous year. For example, if company A sold $2 million last year and $4 million this year, the calculation to determine growth is $4 million minus $2 million divided by $2 million, or 100%. Smart investors dig a little deeper and ask how much of the growth is due to new stores compared to old stores. The investor finds out that $3 million of the company's sales is from new stores and only $1 million of sales is from stores that were open in the previous year. To calculate comp sales, the analyst does not include sales from new stores. The new calculation is $1 million minus $2 million divided by $2 million, or negative 50%.
When comp store sales are up, it means the company is growing sales at its current stores. When total sales growth is up and comp stores are down, it means the company is relying on the opening of new stores to maintain growth. This is not a good sign.