What Are Like-for-Like Sales?
Like-for-like sales serve as an adjusted growth metric that includes revenues generated from stores or products with similar characteristics while omitting any with distinct differences that could skew the numbers. This approach ensures a more accurate assessment of performance by focusing only on comparable entities.
Key Takeaways
- Like-for-like sales numbers showcase the revenues of stores or products with similar characteristics, excluding outliers that could distort the results.
- Comparing these numbers over time provides insights into the factors contributing to a company’s growth or decline.
- Sales analysis can isolate numerous factors that contribute to success or failure.
- Like-for-like sales offer companies valuable insights into the performance of existing stores versus newly opened stores.
- Companies can enhance like-for-like sales by utilizing promotions, sales, and customer data to gain critical insights._
Understanding Like-for-Like Sales
Like-for-like sales are a powerful method of financial analysis used to identify which products, divisions, or stores are contributing to a company’s growth and which ones are not. It helps exclude extraneous factors like major foreign acquisitions that could artificially inflate or deflate the numbers.
By focusing on granular comparisons across various segments, such as specific regions or retailers selling identical products, like-for-like sales analysis provides valuable insights. Companies often report these metrics quarterly, comparing them to the same period in previous years or across consecutive periods.
Benefits of Like-for-Like Sales
Retail companies especially benefit from like-for-like sales metrics because they offer insights into existing versus newly opened stores. When a retail company boasts high like-for-like sales growth rates alongside high total revenue growth rates, it signals that established stores are driving the growth. Conversely, a high total revenue growth rate with average like-for-like sales suggests that new stores or products are attracting customers.
These metrics help companies determine if products or stores are contributing to their bottom line, revealing opportunities for expansion, or highlighting issues like cannibalization.
How to Improve Like-for-Like Sales
Enhancing like-for-like sales translates to increased revenues and a healthier bottom line. Here are several strategies to achieve this:
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Promotions and Sales: Effective promotions and sales distinguish a business from its competitors and can substantially drive traffic. Carefully planned promotions protect profits while encouraging customer loyalty and attracting new customers.
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Customer Data Analysis: Gathering and analyzing customer data facilitates business expansion and sales growth by identifying what’s essential to customers. Incentive or rewards programs can be used to collect valuable customer data in exchange for exclusive benefits, leading to better-targeted promotions and increased engagement.
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Constant Engagement: Regular engagement with customers through product promotions and special offers can help maintain consistent sales growth.
Special Considerations
A company’s fourth-quarter results are usually the best period to assess like-for-like sales as they provide a comprehensive view of the fiscal year. Global companies need to consider foreign exchange rates in their analysis, and it’s vital to adjust sales and net income for these variations.
Real-World Example
Consider McDonald’s Corp. They reported a global comparable sales increase of 7.5% in the first quarter of 2021, with U.S. comparable store sales rising by 13.6%. Meanwhile, total sales/revenues increased by 9%. This data tells us that while McDonald’s opened many new stores, the sales from existing stores grew modestly, offering valuable insights into their growth strategy.
Related Terms: comps, same-store sales, financial analysis, retail metrics, growth strategies.
References
- McDonald’s. “McDonald’s Reports First Quarter 2021 Results”, Page 1.
