Investing can quickly get complicated, because putting money to work in different sectors requires you to monitor different things. For example, the difference between sales and same-store sales is vital to understand in the retail sector.
On that front, recent performance by growing retailers Floor & Decor (FND 0.07%) and The Container Store (TCS -1.49%) help to show why investors need to care so much about these two similar but different metrics.
First some definitions
A company's sales are pretty simple to understand. It is the "top-line" number, and includes all of the revenue a company generates. In the retail sector, that generally means the total value of all of the products a company sold to consumers across its entire store footprint. That last bit is important, because it is what differentiates sales from same-store sales.
Retailers are always opening and closing stores, so the number of stores that exist today may not be the same as the number of stores that existed a year ago. Same-store sales, which is the sales figure for stores that have been open for at least a year, allows you to see how a company's existing business is performing without having to take into account the impact of newer stores.
This is important, because new stores inherently increase a company's top line just by being opened. That would be true even if they didn't perform as well as older stores. It would also be true if they cannibalized some of the sales from older stores, potentially weakening the company's overall business.
That said, a company can improve its same-store sales by closing struggling stores (since they fall out of the same-store sales metric) -- and that's probably not as problematic as the fact that top-line growth driven by new store openings can cover over weakness at existing stores.
Some high-growth examples
The difference between sales and same-store sales can be huge, particularly when a retailer is fairly young. For example, Floor & Decor, which sells flooring, reported sales growth of 26.7% in the second quarter. That's a huge year-over-year increase, but same-store sales were up a much more modest 9.2%.
The difference between these two numbers is partly related to the fact that Floor & Decor opened 15 new stores and three design studios in the first half of the year, while closing just one store.
With so many new locations, the top line was, as you would expect, materially higher. When you pull the impact of those new storefronts out, however, sales growth (same-store sales) was more modest. To be fair, same-store sales of 9.2% is still pretty impressive, so this isn't to suggest that Floor & Decor is struggling. It is a hot retailer that is trying to capitalize, via expansion, on what appears to be a good market for its wares.
But investors should continue to pay close attention to sales and same-store sales, because eventually the latter will start to cool off. It wouldn't be surprising to see Wall Street's view of a company change for the worse when that happens.
Another interesting example is The Container Store, which sells closet systems and storage products. This retailer's fiscal first-quarter 2022 sales gain was 7.1%, with same-store sales growth of 5.1%. The company operated 94 stores at the end of the quarter, the same number it had one year ago.
The difference between those figures largely relates to sales made to third parties, as well as the removal of locations that were impacted by pandemic-related closures. However, it is notable that The Container Store is managing to grow its sales at a solid clip despite not opening any new stores.
That said, the company still has plans to open two new locations this fiscal year, so it hasn't abandoned store expansion efforts. The key for investors will be to keep an eye on same-store sales as the fiscal year progresses to ensure that the existing business continues to perform well as the top line gets boosted by new stores.
The little things matter
Both Floor & Decor and The Container Store are doing fairly well right now, given the economic backdrop. Their sales and same-store sales both attest to that conclusion. However, it won't last forever. Make sure you watch the top line at these retailers and compare it to their same-store sales so you can see more clearly when the existing stores (basically the core business) at these growing retailers start to see weaker performance.