Comparable store sales refers to the revenue generated by a retail location in the most recent accounting period relative to the revenue it generated comp sales formula in a similar period in the past. Same-store sales is calculated by comparing the sales from a current period (e.g., a quarter or a year) to the sales from the same period in the previous year for locations that were open during both periods. Net sales are a company’s total sales over a given time period minus allowances, returns, and discounts. Typically, you would combine the net sales from the current and previous years. The current year should remain the same, but if you’d prefer, you could select a different year than the one before.
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?
However, comp calculations also measure progress in achieving sales benchmarks. For example, 2021 sales for February, the third quarter, or annual sales relative to the previous year’s targets during the same periods. 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’s amount. 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%.
Who Uses Comparable Store Sales?
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.
Evaluating the company
However, this information will be useless if it is used as a stand-alone number. To make any sense of this figure, an analyst will compare it to sales generated over the previous quarter of the same accounting year or a previous accounting year. A determination on performance can be made under the assumption that companies that are similar should trade at similar multiples.
We will also consider the potential disadvantages of competition sales and examine ways to minimize any risks. Ultimately, the goal is to help businesses leverage competition sales to gain a competitive edge. Since it is normal that new locations will increase the total revenue of the business, looking at same store sales will show us if the business is actually growing, i.e other stores are also experiencing growth.
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.
- In effect, comparable store sales is a measure of sales growth and revenue from a company’s store operations.
- Since it is normal that new locations will increase the total revenue of the business, looking at same store sales will show us if the business is actually growing, i.e other stores are also experiencing growth.
- 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.
- Comparable (comp) sales are calculations that reveal important details about how a store location is doing right now in comparison to how it was doing during a prior year or accounting period.
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.
Example of Comparable Store Sales
This takes into account inaccurate sales data from grand openings, allowing you to determine a more typical number. In order to correct for skewed data due to stores closing, you can also deduct revenue from closed stores from both 2020 and 2021. You can use comp sales calculations to support your decision to open more stores in different locations.
When a business starts opening new stores, each store should bring new revenue to the company, so that it can justify its costs and the investment that has gone into it. If this is not the case, then the company could actually be losing money on the bottom line, because those stores are adding costs and not bringing new sales, but rather eating at the sales from existing locations. The importance of same store sales (comps) is that it gives us the real growth picture of the retail business. Comparable store sales are typically expressed as a percentage of an increase or decrease in revenue. This example shows how you would calculate the change in comparable store sales from one year to the previous year. A retail company’s 10-Q report for a quarter may show that it brought in $18 million in revenue.
- In addition, comparable store sales provide a picture of how specific locations perform; they can also tell a story about how a retailer is performing.
- The internet has revolutionized the way businesses reach their customers, and competition between businesses is greater than ever before.
- 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.
- Some larger businesses may perform comp sales calculations frequently to assess how various locations are performing.
- For instance, news outlets generally have higher sales due to grand openings and other supporting factors.
Companies usually apply comp sales metrics to retail outlets older than one year. Holiday and other seasonal factors, such as Christmas, also impact comp sales calculations and can skew monthly revenue figures. In general, financial analysts are aware that new stores provide incomparable data and avoid including them in comparable company analysis. Comparable (comp) sales are calculations that reveal important details about how a store location is doing right now in comparison to how it was doing during a prior year or accounting period.
Comp sales allow a business to contrast its current retail location revenue with that from a prior accounting period. The store is likely doing well if the location generates more revenue in the current accounting period compared to the prior accounting period. Some larger businesses may perform comp sales calculations frequently to assess how various locations are performing. 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.
Negative or positive same-store sales might be due to increasing or falling prices or a change in the number of customers who frequent the stores. Retail analysts use comp sales calculations to compare older stores’ performance to newer ones. Or the current year’s sales performance versus the previous year’s sales to check the present sales status. A best practice in calculating comp is to exclude new stores as they tend to skew results.
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