Reading Neil Gillis’s column ‘The like-for-like masquerade’ got me thinking about the relevance of like-for-like measurements for retailers.
Reading Neil Gillis’s column ‘The like-for-like masquerade’ got me thinking about the relevance of like-for-like measurements for retailers. At Sports Direct we have a unique approach based on disclosing what we believe to be the most accurate data.
When we listed the business in early 2007, the overwhelming feeling was that the investment community, especially the analysts, could not easily model our business without the standard, quarterly, like-for-like sales percentage. We pointed out that, as a sports retailer with a strong football business, the two-year cycle of major tournaments (FIFA World Cup and European Championships) made the comparisons potentially misleading.
Considering also the relevant margin movements that surely need to be taken into account, we concluded that we should disclose a fully defined contribution like-for-like on a yearly basis, because we feel that profitability over a reasonable period of time is the more important measure. Moreover, we believe that the like-for-like measure should be clear, transparent and consistent. Sports Direct’s definition is as follows:
- A qualifying store has to have traded for the full 12 months in both financial years (currently 325 out of about 400 UK stores)
- An excluded store will have had a significant change, such as an extension or major refit
- Contribution is the difference between net sales and the cost of goods sold
- Online stores are also excluded from this key performance indicator
The overriding objective is to produce a measure that we feel reflects the true underlying performance in the market place.
I agree with Neil that like-for-like sales take no account of the individual business development cycle. Analysts clearly understand this. My concern is that the pressure on retailers to produce strong like-for-likes must lead to short-term and potentially damaging decisions, which distract them from their longer-term strategy. This can be exacerbated in a company that has a changing management team looking to make its mark in pursuit of turnover.
The media also has an appetite for retail sales like-for-likes, especially around Christmas, and these short trading period updates can be even more misleading.
Blacks is a great example. It appeared as an outstanding performer over Christmas 2010, primarily due to the cold weather. The weather (and performance) reversed in January and will no doubt be seized upon as negative next time and the positive statement will have been forgotten. At least our bid for Blacks cannot be blamed as a distraction this time.
The analysts that follow Sports Direct are able to model the business accurately without our providing quarterly like-for-like figures, so I fail to understand the market’s continued focus on this unreliable performance metric.
It would be interesting to see other recent contributors to this column evaluate their like-for-like performance using a similar and more meaningful definition and disclose restated numbers accordingly.
David Forsey, chief executive, Sports Direct