Same Store Sales
Importance of same-store sales
Same-store sales is a crucial indicator for assessing performance in the present and forecasting likely performance in the future. Due to its goal of identifying what changed in sales, same-store sales are frequently used by investors and retail companies to evaluate performance. This is due to the fact that revenue only reports on changes in sales, not whether variables like new locations had an impact on store revenue. Other elements that could influence sales at a particular store include:
Investors must comprehend how particular stores affect revenue in order to analyze revenue and demand. This metric enables them to determine whether revenue growth was caused by the opening of a new location, potentially influencing decisions about opening new locations or closing existing stores in the future. If sales only increased at new locations while declining or remaining unchanged at older ones, this could indicate a decline in consumer demand for the products. The company may exhaust all opportunities for future growth once they reach the saturation point for locations, which could also mean there is little room for future growth.
Same-store sales may also be a sign of a location’s management team’s success. The business may assess how well specific managers are able to increase revenue from current assets. They could use this to look into ways to make struggling stores better, and they could start by learning what works well in other stores.
What is same-store sales?
Same-store sales is a financial metric that retail companies use. It calculates the difference between total dollar sales for the current period and total dollar sales for a prior, comparable period. The established stores can compare their historical performance, especially within retail chains. Companies may also use the terms comparable-store sales, identical-store sales, or SSS to describe this phenomenon.
Heres the formula to use for calculating same-store sales:
Same-store sales are calculated as [(total sales for the current period minus total sales for the prior period) – 1] x 100.
Once calculated, you can express same-store sales as a percentage. The revenue change between the various periods is indicated by this percentage. For instance, a store’s total dollar revenue would have increased by 15% from the prior year if same-store sales were at 15%.
How to calculate same-store sales
Follow these steps to calculate same-store sales:
1. Determine the time period
Choose the time period for which you want to analyze the revenue before anything else. The revenue of a year or a quarter is typically reflected in same-store sales analysis. You have the option of basing these time frames on the fiscal year or the calendar year.
2. Gather sales information
Review company records to gather the sales information you need. Make sure to choose the sales data that applies to the time frame you have chosen. Choosing the right revenue information for the right location requires caution as well.
3. Divide the sales information
Separate the total sales revenue for the current period and the specific historical period after gathering the sales data. This is typically the most recent year or quarter. Subtract the total sales from the previous period from the total sales in the current period.
4. Calculate the percent change in sales
Multiply the result of the previous calculation by 100 after removing one. The result represents the percentage change in sales. A positive percentage represents an increase in same-store sales. However, a negative percentage represents a decrease in same-store sales.
Example of same-store sales
Review this example to help you better understand same-store sales:
Example with one store
Before deciding if they want to open a second location, the owner of Wilmas Wildflowers wants to know how much money the current location is making. They reported $125,000 in sales in 2020 and $100,000 in sales in 2019. To start, they divide $125,000 by $100,000, yielding a result of 1. 25.
They add one back in to finish the calculation, making it zero overall. 25. Finally, they multiply 0. 25 by 100 for a result of 25%. This calculation shows that Wilmas Wildflowers has a same-store sales ratio of 25%, indicating that they have a promising future for growth.
Example with multiple stores
After expanding its network of locations across the nation, Peters Pizza Company wants to determine its same-store sales. The company operated 100 locations nationwide in 2019, generating $200,000 in revenue, with each location reporting $2,000 in sales. However, the business opened 25 new locations and reported $400,000 in sales, translating to $3,200 in sales per store.
If the owner of Peters Pizza Company multiplies $3,200 by 100, the original stores’ 2020 sales will total $320,000. They divide $320,000 by $200,000 for a result of 1. 6, then they subtract one for a result of 0. 6. After multiplying 0. They calculate that 60% of the original restaurant locations’ same-store sales were made at those locations. This shows that the success was not solely due to the new locations, and the company may continue to grow in the future.
Example comparing two stores
The owner of the two locations of Candices Candles wants to know if the newer location had an impact on the same-store sales at the older location. The original location reported $100,000 in sales in 2020 and $145,000 in sales in 2019. They divide $100,000 by $145,000 for an outcome of 0. 69. They subtract one for a result of -0. 31, and by multiplying this, they calculate that the original location’s same-store sales were down by 31%, indicating that the new store had an impact on those sales.
The owner, however, also wants to assess the effectiveness of the more recent store. It reported $115,000 in sales in 2020 and $95,000 in sales in 2019. They divide $115,000 by $95,000 for an outcome of 1. 21. They subtract one for a result of 0. 21, and this is multiplied by 100 to arrive at a final figure of 21% same-store sales. Even though the original candle may sell less, both businesses are successful, and the 21% might indicate a chance for future expansion.
FAQ
What is meant by same-store sales?
Same-store sales data is expressed as a percentage to show the proportional amount of revenue growth or decline. As an illustration, a same-store sales figure of 7% means that overall dollar revenues at the current locations of a retail chain increased by 7% over the same time period from the prior year.
How do you calculate same-store sales?
Formula for same-store sales Total Sales (in the previous year) = Sales for the same outlet during the same period in the prior year; The percentage change in sales indicates whether total sales for the outlet in the current year have increased or decreased.
What is good same-store sales?
A higher-than-0% same-store sales figure is preferable, while a lower-than-0% same-store sales figure is unfavorable. A positive same-store sales number indicates that the business generated more revenue per store than it did the previous year, which is a sign of rising customer demand.
Why is same-store sales growth important?
Same-store sales are a crucial metric for assessing past performance and forecasting likely future performance. Due to its goal of identifying what changed in sales, same-store sales are frequently used by investors and retail companies to evaluate performance.
