United Kingdom-based Tesco plc reported today in what it calls its Christmas and New Year Trading Statement that 2009 Christmas and New Year holiday period total sales for its Fresh & Easy Neighborhood Market stores in California, Nevada and Arizona were 35% higher than for the same period in 2008.The holiday trading or sales period reported today by Tesco for Fresh & Easy is the six weeks up to January 6, 2010 - basically the last week of November 2009, all of December 2009, and the first week of January 2010.
From today's trading statement: "In the United States, Fresh & Easy had a stronger Christmas and New Year period than last year, with total sales growth of 35% at constant exchange rates (24% at actual rates) and strongly positive like-for-like sales growth."
That sounds great. Or does it?
Total sales vs. same-store-sales
The 35% sales increase for the 2009 holiday sales period compared to 2008 for Fresh & Easy reported today by Tesco is merely a total sales increase number rather than what's referred to in the U.S. retail industry as same-store-sales (called like-for-like sales in the United Kingdom). As you can see in the above quote (in italics) from the trading statement, all that is said about like-for-like (same-store stores) sales is they were "strongly positive."
Same-stores-sales is a key indicator because it measure sales of stores open at least a year. Same-store-sales (like-for-like) excludes new stores a retailer may have opened during the period of say January 7, 2009 and third week of November 2009. Here's a full definition of same-store-sales.
Same-stores-sales is what financial analysts and others who look closely at retailers of all types and formats use a the critical gauge of how those retailers really are doing sales-wise. It's also what retailers themselves look at closely, along with competitors.
Tesco, for example, reported the holiday period like-for-like sales for its operations in the United Kingdom but didn't break them out for its international operations, including Fresh & Easy USA. The retailer has a policy of doing it that way, as do some other retailers.
Tesco's holiday trading period sales performance in the United Kingdom, including same-store-sales, was very good. From today's trading statement: "In the UK, total sales outperformed the industry as a whole, increasing by 8.3% compared with the same period last year (8.0% excluding petrol). Like-for-like sales excluding petrol and including VAT increased by 5.1% in the period (4.9% VAT-adjusted), all of which was volume growth. This was the strongest Christmas performance for three years." Read the full trading statement release here.
Behind the numbers
Tesco had about 102 Fresh & Easy stores opened in California, Nevada and Arizona at the beginning of the six week (the six weeks prior to January 6, 2009) 2008 holiday sales period. The 100th Fresh & Easy store opened on November 12, 2008, as documented in this Fresh & Easy press release.
At the start of the six week 2009 holiday trading period there were about 129 Fresh & Easy markets open in California, Nevada and Arizona.
That means Tesco opened about 27 new Fresh & Easy neighborhood market stores from the end of the six week holiday trading period to the beginning of the six week 2009 holiday sales period.
The about 27 new or additional stores (the number of stores opened between the 2008 and 2009 holiday sales period) works out to about 25% -30% more stores on a percentage basis than the existing 102 store base during the holiday period of 2008. Simply put: there were about 102 stores in the 2008 holiday trading period and about 129 stores for 2009 holiday trading period.
What this means is the 35% increase in gross sales for the holiday sales period 2009, compared to the same period in 2008, includes the fact that there were about 27 additional Fresh & Easy stores opened in the 2009 sales period compared to 2008.
You open about 27 new stores, total sales go up commensurately.
Looking at this fact - the existence of the additional about 27 Fresh & Easy stores opened for the 2009 period - the reported 35% sales increase suddenly appears to be what it really is: Just about what one would expect the 2009 holiday period sales to be, compared to the same period in 2008.
Open about 27 new stores between 2008 and 2009 and total sales increases about 35% - or slightly more or slightly less.
The key indicator, which unfortunately Tesco didn't release, is what is the increase or decrease in same-store-sales (like-for-like) for the holiday 2009 sales period, compared to the same period in 2008. Such a measure would give us a real indicator of true sales growth on stores open more than a year.
But, as we mentioned at top, all Tesco said about same-store sales growth in today's report is they are strongly positive.
That statement offers no empirical evidence. In other words it has to be taken as being the case on pure faith and trust.
It's of course Tesco's choice not to break out same-store-sales for Fresh & Easy. They aren't required to do so.
But it's also true the retailer is touting the 35% increase, which many mainstream and respected business publications reported today with headlines like this: "Holiday sales surge at Fresh & Easy."
In summary
In summary then, what Fresh & Easy Neighborhood Market's 35% sales increase for the holiday sales period 2009, compared to the same period in 2008, means is that overall sales grew by 35% - and that 35% sales growth included having about 27 more stores open and operating for the 2009 period, compared to 2008.
We aren't putting down the overall sales increase of 35% Tesco reported today for Fresh & Easy. Rather, our task is to attempt to explain it. And for serious consumers of such information, going behind the numbers always makes good sense.
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AS you point out extra stores should generate extra sales: 25/102 being about 26%. This would suggest a nominal 9% growth.
ReplyDeleteThis is overstated however as not all the extra stores would have been open a full year; indeed most opened 'later' in 2009. So the 'growth' is probably higher than 9% by some way.
Whilst same store sales are a key indicator at this stage in Fresh Easy's life cycle total sales is probably more critical. Tesco need well over 250 stores to utilise their distribution capacity for example; until recently they didn't feel they had the critical mass to advertise etc.
I have no involvement at all with Tesco but the announcement that they are significantly increasing the size of their distribution site suggests that they are in this for the long haul.