Comparable Store Sales: Sales Growth Of Restaurants

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By Rupa Sengupta

Comparable Store Sales Growth For Restaurants

Comparable store sales are also known as same store sales, identical-store sales, or comps. It is the net sales that are generated by a retail chain in the current accounting period in comparison to the net sales brought in by the same retail chain for an identical duration (yearly, quarterly, or monthly basis) in the prior accounting period.

Same-store sales (SSS) is an important barometer used to compare the performance of established stores of a company with newly opened stores. Established stores in this case implies stores that have been in operation for at least a year. It is generally expressed as a percentage which better represents the direction of movement in the sales of a company.

The general method for computation of same-store sales growth is as follows:

Same-store sales growth = [(net sales for current period/net sales for prior period)-1]

While computing the above, revenue earned by non-comparable stores such as stores opened less than a year ago, and stores closed in the past year, whether temporarily or otherwise, must be removed from the net sales of both periods. The final percentage so arrived at, is then adjusted for changes in say, gasoline prices, and currency fluctuations.

Comparable store sales is an important financial metric for potential investors as well as management as it provides more context to revenue data. For example, if restaurant ‘A’ was running 7 locations in 2018 and expanded to a total of 11 locations in 2019, there might be an overall increase in revenue for ‘A’ in 2019 vis-à-vis the prior year. However, this might not be an accurate measure of assessing the health of its existing chains. ‘A’ might have had to borrow funds to run the new locations. Hence, same-store sales is needed to ‘bring the truth out of a growth story.’

Comps also enable companies to identify market trends, their capacity to retain customers and critical strategies to be followed based on the direction of sales growth. For instance, an increase in the percentage of comparable sales growth would indicate that established stores are performing well and that a company would be better off deploying more resources in existing stores rather than expanding its operations.

The restaurant industry ended in 2018 with a 0.7% increase in overall same-store sales. According to the Black Box Intelligence index of TDn2K, December 2018 showcased the best results in more than 3 years with a 2% SSS growth.

 

Restaurant industry trends 2019: The first quarter of 2019 bodes well for the foodservice sector with a 1.5% upward trend in the overall comps. Casual restaurants grew the most by 2.3% while quick-service restaurants (QSR) had a tepid growth of 0.6%. The reason for rather flat sales could be attributed to the fact that while customers are willing to pay higher prices this year, there has been a fall in customer traffic to the restaurants.

The April-June quarter of 2019 saw an uptick in the overall identical-store sales to 1.8%. The standouts were Wingstop and Chipotle with 13.8% and 10% growth rate respectively, compared to 7.1% and 9.9% in the previous quarter.

Papa John’s company-owned North American same-store sales plunged 6.8% in Q2 of 2019 making it the sixth straight quarter of declining sales for the pizza chain. CEO Steve Ritchie ascribed this to the costs of relaunching a loyalty program and ineffective promotions.

Taco Cabana’s comps were dragged down in 2019 by 3% when it had just finished 2018 with a 5.1% hike. Ruth’s, Applebees and Brinker International hovered around a 0.5% downward trend in SSS growth at the end of the first half of 2019. Upgrading stores and streamlining operations helped McDonald’s achieve a 6.5% climb in the same period.

While 2019 commenced with positive tidings, the overall comparable sales growth seems to have hit a snag in July with a 1% downswing. The looming trade war on China potentially impeding agricultural purchases and the tightest labor market in 50 years might be major factors resulting in sluggish growth of the restaurant industry.

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