They can be used comp sales formula to formulate an asking or offer price in an acquisition or sale, or in the case of a dispute between partners or during a buyout. Comp Sales is a vital metric for understanding the performance of established restaurant locations. Thus, this allows restaurants to assess growth or decline in revenue at established locations, excluding the impact of new openings or closures. This is because it will start acquiring more customers after it has been established in the area and the marketing campaigns are starting to pay off. After the initial high growth phase it will start to level off and the growth drops to single digits, depending on the economy and other market factors.
New Stores Versus Old Stores Sales
Property owners or buyers should be aware that some comps may not accurately represent the value of a home. Some comps may be too dated in a fast-changing marketplace, or may cite properties that are too far away or still on the market. If you want to manage a retail or ecommerce business end-to-end, or advance into senior management roles later in your career, the key skill to acquire is the ability to connect the dots. Join the academy and take our in-depth courses to learn how to calculate all the important metrics, how to interpret them and how to use this information to devise the right strategies for the business.
What Are Comps?
Comparable businesses, or “comps,” are used to determine a valuation multiple for stock analysis. You identify the rivals who are the most similar, figure out their average valuation multiple, and then use it to evaluate the stock. Simply divide the salesperson’s total compensation by the amount they sold in a specific period of time to determine the comp percentage. Comp calculations can also determine the location’s performance relative to the past by using the current fiscal year calculations and comparing them with past findings. In this case the data needs to be looked at in more details, where more questions need to be asked. Take our Retail Business Performance Analysis Courses and learn how to deeply analyze a retail business and what reports to generate and metrics to calculate and interpret to uncover performance issues.
These calculations are used by financial analysts to contrast older and newer stores. Excluding new locations because they might produce false information is a common practice. Due to their grand opening and other factors like specials or promotions, new locations typically have higher sales. As a result, businesses frequently use comps metrics on retailers that are more than a year old. Holidays and other seasonal factors can skew monthly sales figures, so they have an impact on comp sales calculations as well. These factors are typically known to analysts, who take them into account when performing calculations.
- 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.
- An inquisitive investor digs deeper and asks how much of the growth was due to new stores compared to old stores.
- In this case opening new stores is the go-to strategy to sustain this growth, reach more customers and drive out competition.
- Retail analysts use comp sales calculations to compare older stores’ performance to newer ones.
What financial data is comparable?
For instance, news outlets generally have higher sales due to grand openings and other supporting factors. Comp sales are revenues generated by a retail location in the most recent accounting period relative to the revenue it generated in a similar period in the past. Same store sales or comparable store sales (comps) is an important measure to asses a company’s growth, as well as the retailer’s financial health.
- However, comp calculations also measure progress in achieving sales benchmarks.
- Companies usually apply comp sales metrics to retail outlets older than one year.
- For example a new business is typical to show a high LFL growth in its second year of trading, that could reach double digits.
- This one will measure the total revenue growth and will include all stores from this period (month, quarter, year..etc) vs. all stores from last period.
The Trend Toward Digital Payment Systems in Retail
Then, by tracking the performance of a retailer’s comparable stores, executives can measure how well the company is performing overall and make better strategic decisions about where to allocate resources. 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. This positive comp sales performance signals to investors that the chain is successfully driving revenue growth without relying on opening new locations. After you put the sales data for each store in excel, you will then create a column for “Growth“. This one will measure the total revenue growth and will include all stores from this period (month, quarter, year..etc) vs. all stores from last period.
As you can see here, the total growth for the business is 24%, while the comp sales are actually down by 3%. Comparable store sales, or “comps,” are also referred to as “same-store sales” or “identical-store sales.” If the business is experiencing Like-for-like de-growth and it has started to be a trend, i.e it wasn’t only for a single quarter or year, then this is a red flag. The business is basically decaying and probably losing market share to competition. Take the Retail Math Course and learn how to calculate all the key sales, inventory, pricing and financial metrics with examples and connections between the different metrics. Such comps are especially valuable when determining the fair market value (FMV) of a business.
In retail, it refers to a company’s same-store sales compared to the previous year or a similar store. Similarly, in financial analysis, comps is short for “comparable company analysis,” which is a technique used to assign a value to a business based on the valuation metrics of a peer. In real estate, comps are used to assess a property’s value by comparing it to similar properties. By comparing sales across different periods, company management and investors can determine how well a retail store is doing. Comparable store sales not only provide a picture of how specific locations are performing, they can also tell a story about how a retailer is performing as a whole. A negative number shows declining same-store sales, while a positive number shows increasing same-store sales.
Why is knowing comp sales valuable to Retailers?
Find the comparable sales for two or more locations and compare them to achieve this. When compared to prior years, you might discover that some stores are performing better than others. You can try to identify what’s causing the rise or fall in sales based on your findings. 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%. Comp sales must also be calculated in order to use other metrics for your business.
Calculating and Using Retail Sales Comps
The way we know if the new stores are bringing new sales is by assessing the same store sales of the older locations. They discover 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. One common way of using comps to determine the fair market value of a business is to take the price-to-gross revenue multiple and multiplying that figure by the business revenue figure. Positive same-store sale trends indicate a healthy business, while declines may prompt a reevaluation of strategies to improve customer satisfaction and sales performance. Comp Sales, short for Comparable Sales, is a key financial metric used in the restaurant industry to measure the performance of locations that have been open for a significant period, typically at least one year.
This is crucial because the calculations may provide evidence to support your case for opening new stores. For instance, if the majority of your comp sales are profitable, that demonstrates how your company is generating revenue, which may mean a variety of things. Second, it could imply that since those stores are prosperous, a new store may also be prosperous. For instance, suppose you opened a store in a different state three years ago. If the store is doing well in that location compared to other locations in the original state, you might be interested.
It can also be used to compare this week’s, month’s, quarter’s, or year’s sales to last week’s, month’s, quarter’s, or year’s sales. New stores typically experience high growth rates for several reasons, including promotions, increased interest from launches, and grand openings. As a result, including new stores in the growth rate calculation for an entire retail chain can create misleading results. Calculating comp sales is also crucial if you want to evaluate the performance of various locations.