What are Comps?
Depending on the industry, the term comps (short for comparables) carries different meanings. In retail, it is a retail company's same-store sales compared to the previous year. Analysts use comps to make periodic comparisons. Specifically, comps compare a company's revenue growth to sales created by stores that have been open for at least one year.
Also known as comparable same-store sales, the comps metric is 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 monthly.
[Important: Comps not only provide investors and analysts with important information about the financial health of a company, but they also help retailers assess how well their existing stores perform against other locations.]
New Stores vs. Old Stores Sales
Stores that have been open for less than one year are new stores. New stores typically experience high growth rates for several reasons, including promotions, increased interest from launch and grand openings, Et al. Alternatively, new store sales may be less than projected due to poor marketing, inadequate advertising, and lackluster promotions. As a result, including new stores in the growth rate calculation for an entire retail chain can supply inaccurate growth rate results. Because the comps metric only compares results for stores that are older than one year, it gives a better indication of true growth for the overall firm.
Analysts typically like to hear that a company's comps are rising each period. This is a good indication that a company's consumers are willing to pay more for its goods compared to the previous period, and/or they are willing to come to the store more often and spend about the same amount.
- Not including new stores in comps removes extraneous factors, such as grand opening promotions, that may skew results.
- Comps are valuable metrics used by retailers to identify the profitability of a current store.
Example of Comps
To calculate a company's sales growth rate, subtract the previous year's sales from the current year's sales and then divide the difference by the previous year. For example, if company A earned $2 million in revenues last year and $4 million this year, the calculation to determine its growth rate is $4 million minus $2 million divided by $2 million, or 100%. An inquisitive investor digs deeper and asks how much of the growth was due to new stores compared to old stores. He discovers that new stores generated $3 million of the current year's sales and stores open for one or more years generated only $1 million of sales. To calculate comp sales, the investor does not include sales from new stores. The new calculation is $1 million minus $2 million divided by $2 million, or -50%. When comp store sales are up, the company's sales are increasing at its current stores. When total sales growth is up and comp stores are down, the company is generating most of its revenue from the opening of new stores to maintain growth, which could be a sign of turmoil.