What are sales at constant scope?
Like-for-like sales is an adjusted growth measure that includes only revenue generated from organically comparable stores or products with similar characteristics and historical sales periods. In general, like-for-like sales are a method of financial analysis that attempts to exclude the effects of expansion, acquisition or any other event that artificially increases or decreases the sales of a business. Like-for-like sales can also be called comparable store sales, compositions, comparable store sales or identical store sales.
Sales at constant scope
Understanding like-for-like sales
Analyzing like-for-like sales helps businesses and investors better understand the revenues that are contributing to growth or decline. Different from other comparable parameters, the term at constant scope may be more commonly used when comparing complex or granular sales – such as when comparing stores in certain regions or certain types of stores selling identical products. A more granular metric can be particularly useful when a business has store variations, such as Walmart and Walmart Express stores, or wants to show store comparison in square feet.
When analyzing like-for-like sales, segments are usually grouped together to display percentage growth rates as a function of time and segmentation used by the business. Like all types of financial statement analysis, companies can compare data for the same quarter of a previous year, the previous quarter, or across multiple sequential quarters.
In a company’s quarterly financial reports, it generally includes its parameters at constant scope and their calculation methods.
Retail businesses use the like metric most often because it provides a better understanding of existing stores compared to recently opened stores. If a retail business has a comparable store sales growth rate and a high total revenue growth rate, this may be a sign that established stores are the engine of growth. Alternatively, if a business has an average growth rate in comparable store sales, but a high total revenue growth rate, this may be a sign that new stores or introductions are attracting attention.
Comparable or comparable store sales generally control openings and closings by only including locations that have been operating for a limited time. This is also essential to help isolate certain growth catalysts. McDonald’s Corp. announced global comparable store sales growth of 4.4% in the fourth quarter of 2020, with comparable store sales in the United States increasing by 2.3%, while total sales were increased by 5% overall.
The periods and segmentation of financial statements will vary by company depending on their financial reporting processes. Businesses can compare data for the same quarter from a previous year, the previous quarter, or multiple sequential quarters. A company’s fourth quarter reports can often be the best time to review a company’s results, and in particular its comparable sales statistics, as this can provide a comparison based on the full year and the previous year. .
In addition to segmenting sales into comparable store sales or geographic store sales, companies can also use other segmentation approaches that may be important for stakeholders to follow. Specifically, international companies may have to deal with foreign currencies which can affect turnover. As such, many international companies include details on currency adjustments and their influence on sales and bottom line.
Key points to remember
- Like-for-like sales is an adjusted growth measure that includes only revenue generated from organically comparable stores or products with similar characteristics and historical sales periods.
- Analyzing like-for-like sales helps businesses and investors better understand the revenues that are contributing to growth or decline.
- The retail sector is known for its analysis of comparable and comparable store sales, which can provide a lot of information on business performance, consumer spending and consumer preferences.