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Foolish Fundamentals: Same-Store Sales

Motley Fool Staff
September 5, 2007

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Every month, retailers announce their sales and "comps" growth. Comps, which refer to comparisons of same-store sales, can help investors determine how well a company's brand is doing and how efficiently its stores are increasing revenues.

Each month, as the calendar page flips over, you'll hear announcements about things like Gap's (NYSE: GPS  ) same-store sales dip or Starbucks' (Nasdaq: SBUX  ) same-store sales rise. So what are these all-important numbers, and why do they matter?

Comps measure sales growth at stores that have been open for more than a year. For a store to be able to count monthly comps for May 2007, it must have been open for the full month of May 2006. If the store opened May 15, 2006, comps couldn't begin to be counted until June 2007, a year after the store's first full month of business.

To understand quarterly and annual comps, simply replace "month" with "quarter" or "year" and apply the same concept. (Almost every retailer announces comps each quarter, but more and more are announcing them each month as well.)

What factors affect comps? The two main factors are prices and the number of paying customers. Revenues equal price multiplied by the number of sales, right? So all things being equal, if prices go up and volume stays the same, sales will increase. That also holds true if volume increases but prices stay the same.

Notice, however, that when a company has a bad month, it doesn't often attribute the problem to price or volume woes. Companies rarely say things like, "No one came to our stores on the 18th of the month, so comps declined." To their credit, some retailers, like Gap, have announced in the past that comps fell because of deeper discounts, but this kind of announcement is the exception, not the rule.