“You cannot escape the responsibility of tomorrow by evading it today.”
~Abraham Lincoln
"Comp" is an important term to know and understand in the retail business. Comparable sales, or comp, refers to the sales of a retailer's comparable stores or same-store. To calculate comps, retailers first identify their comparable stores, which have been open for at least one year and have a similar footprint and merchandise mix as the store being analyzed. 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.
Note: comp is also known as same-store calculations.
What does comp mean in Retail?
COMP refers to same or comparable store sales or comp sales. 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.
What financial data is comparable?
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. For instance, news outlets generally have higher sales due to grand openings and other supporting factors.
Incomparable Data
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.
Comparing Revenue growth and Improved Operations
In retail chains experiencing rapid growth phases and opening new outlets, same-store sales figures allow analysts to differentiate between revenue growth that comes from new stores and growth from improved operations at existing outlets.
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Comparing Seasonal Financial Sales Targets
Comparable store sales metrics are often used to compare the most recent holiday shopping season to the previous year's. 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.
Why is knowing comp sales valuable to Retailers?
By comparing sales across different periods, company management and investors can determine how well a retail store is doing. 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.
Negative financial figures demonstrate reduced same-store sales, while positive figures indicate revenue growth. Positive or negative changes in sales may be due to price fluctuations, changes in customer traffic, and economic factors that impact consumers.
How to calculate comp sales
Find the net sales
First, calculate the net sales for the two sales periods being compared. Net sales are the result of gross revenue less applicable sales returns, allowances, and discounts during the target period. In most cases, analysts use the current and the previous year's net sales. For this example, you can use the net values from 2020 and 2021.
In this example, 2020 store performance is compared to 2021 retail sales. Once the net sales for the sales periods being compared have been established, the following steps are required:
- Subtract revenue related to stores closed during the past two years from the net sales earned in 2020.
- Revenue related to store closings during the past two years should also be subtracted from 2021 revenue.
- Subtract revenue related to store openings during the past two years from the total revenue generated in 2020 to arrive at the total comparable store sales for 2020.
- Repeat step #3 for 2021
- Above, revenue related to store openings during the past two years is subtracted from 2021 revenue to arrive at the total comparable store sales for 2021.
- Subtract total comparable-store sales in 2020 from the total in 2021. This calculation expresses absolute dollar change in same-store revenues. The comp sales value can be +/-.
- Lastly, divide the absolute dollar change in comp sales by the total comparable-store revenues in 2020. This value expresses comp sales as a percentage change.
The above can also be expressed as (Indeed):
- Comp sales = [ (X−Y) ÷ Y ] × 100.
- X = 2021 sales.
- Y = 2020 sales.
- Comp sales = [ (6,000,000−3,000,000) ÷ 3,000,000 ] × 100.
- Comp sales = (3,000,000 ÷ 3,000,000) × 100.
- Comp sales = 1 × 100.
- Comp sales = 100%
Note: Comparable store sales are expressed as a percentage of increases or decreases in sales revenue. This example explains how to calculate the change in comparable store sales from current year to the previous year.
How can comp sales calculated values be used?
Using comp figures, financial analysis can determine the factors causing the change in comp sales. For instance, if the company's sales growth rate is positive, this could mean that a process change, change in marketing tactics or In contrast, a decrease may indicate a need to:
- audit business processes,
- make changes to the business model,
- reduce the number of staff
- take measures to boost sales
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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.
Comp sales are an essential metric to understand for any retail business. By tracking and analyzing your COMP sales, you can determine what factors are causing your store(s) to succeed or fail. This information is vital to making informed decisions about the future of your business. So keep a close eye on your COMP sales values and act quickly when they start to decline!
Conclusion
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