What Is Same-Store Sales?
Same-store sales is a financial metric that companies in the retail industry use to evaluate the total dollar amount of sales in the company's stores that have been operating for a year or more. Same-store sales statistics provide a performance comparison for the established stores of a retail chain over a given time period, such as a fiscal year or quarter or a calendar year or quarter, comparing revenues for the current period to the same period in the past, for example, comparing first-quarter 2016 revenues to first-quarter 2015 revenues.
Understanding Same-Store Sales
Examining same-store sales figures is helpful to investors in determining what portion of a company's current sales revenues are a result of sales growth in existing locations and what portion is accounted for by the opening of new stores.
Same-store sales are also referred to as comparable-store sales, SSS or identical-store sales.
Same-store sales figures are expressed as a percentage that indicates the relative amount of revenue increase or decrease. For example, a same-store sales figure of 7% indicates that total dollar revenues at a retail chain's existing locations increased by 7% over the same given time period from the previous year.
Why Same-Store Sales Matter
Same-store sales figures are important points of analysis for the management of a retail chain and for investors evaluating the chain's current and likely future performance. Market analysts frequently use same-store sales to determine the effectiveness of the management of a retail chain in producing revenue growth from existing assets.
Investors and market analysts prefer to see significant increases in same-store sales figures. If the bulk of a company's revenue increase comes from opening new stores, this can indicate that demand for the company's products is flattening out and that little future revenue growth can be expected once the company reaches a saturation point in terms of total locations.
Additionally, same-store sales figures can be helpful to retail chain management in making future decisions regarding existing stores and new locations. Increases or decreases in same-store sales commonly result from either price changes, changes in a store's number of customers or changes in the number of items the average customer purchases. Company management often drills down into same-store sales figures to determine the exact cause of the change in revenues, which can be helpful to the company in making decisions. For example, a decline in sales revenues might result from a new or existing competitor offering lower prices on key items that the company's stores sell. Also, it is important to know if an increase in revenues is primarily the result of attracting new customers or the result of approximately the same number of customers making larger purchases.
A retailer may impress investors by reporting a certain revenue increase. What underlies the numbers, however, tells the real story. Same-store sales growth may have been tepid or even declined, while most of the revenue increase came from opening new stores, which may also eventually lose money. Moreover, same-store sales figures may say something about the quality of management and the underlying finances of the company. For instance, the company may have taken on debt to finance the new store openings, deteriorating the quality of its financial position. A reliable management team would acknowledge poor same-store sales growth, identify the reason for the weakness and decide whether to close stores or make changes to the business to increase popularity.