How To Calculate Same-Store Sales:

Now that we understand same-store-sales as a metric we'll look at an example to see why it's valuable.

As an example, we'll look at a retail clothing store chain that had $12 million in sales from 10 locations in 2023, and $20 million from 15 locations in 2024.

Here we can see that sales grew from the previous year (2023 versus 2024).

An important question that management, investors, or prospective buyers would have about this company is whether the increase in sales was from existing stores, or from new stores. We can determine this by applying the same-store sales framework to our analysis of the company's financial statements. This will give us a strong indication of how the existing locations are performing (which we can then compare to last period).

Same-store sales is an important metric for analysts and investors of retail operations. It is often considered with as much weight as revenue or net profit metrics.

Now that we understand what same-store sales is, we'll look at how to calculate it.

In this formula, "Total Sales" refers to the total number of sales from all the company's stores.

"t-1" refers to the total sales that were generated in the next period (ex: year) from the company’s stores in the previous period.

From our example above, we'll remember that in 2023, the company operated 10 stores that generated total sales of $12 million (with management noting that each store contributed $1.2 million in sales). In 2024, the company added 5 new stores with total sales of $20 million.

What is the same-store sales number for this business?

In 2023, the 10 stores generated sales of $12 million, or $1,200,000 per store. In 2024, the 15 stores generated $20 million, or $1,333,333.33 per store.

For our calculation, we're going to use the same store number of 10 (which was the number of stores in 2023). Here, we will take the $1,333,333.33 that was generated from 15 stores in 2024 (we divided $20 million by 15) and we will multiply it by the number of stores we had in the previous period (2023) which was 10.

So we can see:  same-store sales = (($13,333,333.3  / $12,000,000) -1) x 100 = 11.11%

Commonly, when someone learns about this metric for the first time, they misunderstand it slightly. They think, but what about those extra 50 stores? Didn't they contribute at all?  

For clarity here, remember that same-store sales (or any financial metric at all) will never give us the entire picture of a business. Same-store sales is valuable to look at because the perspective it gives us over time. If we were to add another year to our calculation and see that the company added 5 new stores in 2025, we would now be comparing that 2025 total sales number to the previous year's 15 stores (as opposed to the 10 in our 2023/2024 comparison, or the 20 in our 2025 comparison).

Same-store sales is an extremely useful metric when you use it to measure performance over a long enough period of time. This would allow you to compare your organic growth to your expansion efforts over time.

So, while the number of existing stores changes, the SSS metric helps us keep an eye on how much of our growth rate is from existing stores versus from expansion efforts (ex: opening new stores, M&A deals).

Also, same-store sales isn't concerned with which stores were most profitable, but management or prospective investors would certainly be interested in knowing that as well. Again this metric is not a be-all-end-all statistic for analyzing a business.

Interpreting Same-Store Sales:

Now that we've seen how to calculate same-store sales, we'll look at how to interpret the results.

To begin with, a positive number is perceived as growth rate (usually a good thing), and a negative number would be perceived as a rate of decline (usually a bad thing). A positive number indicates that the stores generated more sales per store as compared to the last period.

However, just because a number is positive, doesn't mean it's necessarily "good thing", it just means that the business grew. However if management determined that competitors (or the industry) were growing at 15% and the company had a same-store sales number of only 11.11%, it would indicate they are growing slower than their competitors (or the industry).

Declines in same-store sales numbers are often the result of a decrease in Average Order Value (AOV), pricing changes, or a change in foot traffic (number of people who come into the store).

Benefits and Limitations of Same-Store Sales

Benefits:

• Provides insight into true business performance: By focusing only on stores that have been operational for a consistent period, same-store sales eliminate the influence of new openings or closures. This makes it easier to evaluate the actual growth or decline in sales, offering a clearer picture of how the core business is performing.  
• Helps identify strengths and weaknesses across locations: Analyzing same-store sales can highlight which regions or locations are excelling and which are underperforming. This data empowers businesses to implement strategies to improve performance and allocate resources effectively. They could use this data to help them make decisions about opening more stores, or closing poor performing ones.

Limitations:

• Does not account for macroeconomic conditions or seasonal adjustments: Same-store sales figures might be impacted by broader economic trends, such as recessions or booms, as well as changes in consumer behavior due to seasonality. These factors are not reflected in the metric, which can limit its accuracy. However, they can be compared to economic trends as a justifier.
• May overlook variability in product mix or localized challenges: Factors such as shifts in the types of products offered, changes in promotional strategies, or location-specific issues (e.g., competition, foot traffic) can affect same-store sales. These nuances are often ignored, making it harder to understand the full context behind the numbers.

Recommended Resources:

• Gross Merchandise Value (GMV)
• Average Order Value (AOV)
• Sell-Through Rate
• Sales Cycle