same_store_sales_growth

• The Bottom Line: Same-Store Sales Growth (SSSG) is the single most important metric for judging the core health of a retail or restaurant business, revealing if its existing locations are genuinely thriving or if growth is just a mirage created by opening new stores.
• Key Takeaways:
• What it is: A measurement of revenue growth from locations that have been open for at least one year, filtering out the impact of new store openings and closures.
• Why it matters: It is a powerful indicator of a company's brand strength, customer loyalty, management effectiveness, and its underlying economic_moat.
• How to use it: Compare a company's SSSG trend over time and against its direct competitors to understand its true performance and competitive position.

Imagine you own two farms. Farm A is your original, established plot of land. This year, through better soil management, smarter irrigation, and a bit of luck with the weather, you manage to grow 5% more corn per acre than last year. This is pure, organic improvement. You've become a better farmer. Farm B is a brand new plot of land you just bought. It produces a whole bunch of corn, so your total corn harvest for the year shoots up by 50%. A casual observer might say, “Wow, your harvest is up 50%! You're an amazing farmer!” But you know the truth. The massive jump in total harvest came from simply buying more land, not from improving your core farming skill. The real sign of your competence is the 5% yield increase on your original farm. Same-Store Sales Growth (SSSG) is the business equivalent of that 5% yield increase on your original farm. It answers a simple but vital question for any business with physical locations (like Starbucks, Costco, or The Home Depot): “Forget all the new stores we opened this year. How are our existing stores doing? Are more customers walking in? Are they spending more money when they do? Is our brand getting stronger or weaker?” A company can easily boost its total revenue by opening hundreds of new locations. But this can mask a serious problem: if the sales at its existing stores are declining, the business might be a leaking bucket. It's frantically adding more water (new stores) at the top, while the water it already has (existing stores) is leaking out the bottom. SSSG, often called “comps” or “comparable store sales,” strips away the distortion of expansion and gives you a clean, honest look at the company's underlying health. It's the ultimate report card on whether a company is truly winning the long-term loyalty of its customers.

“The single most important factor in the retail industry is same-store sales. If a company can't increase sales at its existing stores, it's in trouble.” - Peter Lynch, legendary investor and manager of the Magellan Fund

For a value investor, who seeks to understand a business's long-term durable competitive advantages, SSSG is not just another metric; it's a window into the soul of the company. It helps us cut through market noise and focus on what truly creates intrinsic_value.

• A Barometer for the Economic Moat: A company with a wide economic moat, like a strong brand or a loyal customer base, can consistently generate positive SSSG. Think of a company like Costco. People keep renewing their memberships and spending more each year because they trust the value proposition. That consistent, positive SSSG is tangible proof of their powerful moat. A company with a shrinking or negative SSSG may be seeing its moat eroded by competitors.
• A Litmus Test for Management Quality: Anyone can sign leases for new stores. That's capital allocation. But it takes true operational skill to make existing stores more efficient, more appealing, and more profitable year after year. Positive SSSG is a direct reflection of a management team's ability to manage inventory, train employees, run effective marketing campaigns, and adapt to changing customer tastes. It separates the empire-builders from the true value-creators.
• A Check on Aggressive Accounting and “Growth Traps”: Headline revenue growth can be easily manipulated or misleading. A company might be celebrated as a “growth stock” because it's opening stores at a breakneck pace. A value investor uses SSSG to look under the hood. If total revenue is up 20% but SSSG is down 5%, it's a massive red flag. The company is spending huge amounts of capital to open new stores that are simply cannibalizing sales from older ones or underperforming. This is a classic value trap—a company that looks good on the surface but is fundamentally sick.
• Foundation for Prudent Projections: When trying to estimate a company's future free_cash_flow, a history of stable, positive SSSG provides a much more reliable foundation for your assumptions than volatile, expansion-driven revenue growth. It suggests that growth is sustainable and profitable, not just a function of throwing more money at the problem. This discipline is central to establishing a conservative margin_of_safety.

In short, SSSG helps a value investor answer a fundamental question: Is this business getting stronger from the inside out, or is it just getting bigger? The answer is critical to determining its long-term worth.

The formula itself is straightforward. The key is in understanding what goes into “Comparable Stores.” The calculation is: `¹⁾

A single SSSG number is meaningless without context. The real insight comes from analyzing it from multiple angles.

Key Questions to Ask When Interpreting SSSG: 1. What's the trend? One bad quarter can be an anomaly. A multi-year trend of declining SSSG is a clear sign of a business in trouble. Conversely, a trend of accelerating SSSG can indicate a successful turnaround. 2. How does it compare to competitors? If a company has +1% SSSG while its main rival has +6%, that +1% doesn't look so good. If the whole industry is at -5% and your company is only at -1%, it might be a sign of relative strength in a tough market. 3. What is driving the growth? Companies often break down SSSG into two components:

• Traffic (or transactions): The number of customers.
• Ticket (or average sale): How much each customer spends.

Growth driven by increased traffic is almost always higher quality, as it means the brand is attracting more people. Growth driven purely by higher prices (ticket) might just be inflation and could be a sign that the company is losing customers but squeezing more out of the remaining ones—an unsustainable strategy. 4. Is it profitable growth? A company can temporarily boost SSSG with heavy discounts and promotions. This will increase sales but crush profit margins. Always look at SSSG in conjunction with the company's gross and operating margins to ensure the growth is healthy.

Let's compare two fictional coffee chains: “Steady Brew Coffee Co.” and “Momentum Mugs.”

At first glance, Momentum Mugs looks like the superstar. Its revenue grew by a massive 50%! The financial news might be buzzing about its incredible growth story. But a value investor immediately looks at the SSSG and sees a completely different picture.

• Momentum Mugs: Their explosive revenue growth is entirely due to doubling their store count. Meanwhile, their existing stores are bleeding sales at a rate of 3% per year. The brand is losing its appeal, and each new store is being opened into a weakening franchise. They are a classic leaking bucket. This is not sustainable growth; it's a capital-intensive race to mask a failing core business.
• Steady Brew Coffee Co.: Their growth is slower but much healthier. They are strategically opening a few new stores, but more importantly, their existing 1,000 stores are becoming more popular, with sales growing at a healthy 4% clip. This shows brand loyalty, operational excellence, and a strong economic_moat. The business is getting stronger from the inside out.

The value investor knows that Steady Brew, despite its less exciting headline numbers, is the far superior business and likely a much better long-term investment.

• An Honest Metric: It filters out the “vanity growth” that comes from aggressive expansion, providing a truer picture of a company's health.
• Excellent for Comparisons: It allows for a direct, apples-to-apples comparison of operational performance between different retailers or restaurant chains.
• Indicator of Brand Equity: It's a quantitative measure of a largely qualitative concept—the strength of a company's brand and its connection with customers.
• Early Warning System: A declining SSSG trend can be one of the first and clearest signals that a company's competitive position is eroding.

• Definition Varies: Companies can use different timeframes (e.g., 12, 13, or 15 months) to define a “comparable” store. This can make direct comparisons tricky without reading the footnotes.
• Ignores Online Channel: For modern retailers, store-only sales are only part of the story. A decline in-store SSSG might be offset by a huge increase in online sales. Many companies now report a more holistic “comparable sales” figure that includes e-commerce, which is often more useful.
• Can Be Manipulated: Aggressive discounting can temporarily juice SSSG at the expense of profitability. A smart investor always cross-references SSSG with profit_margin trends.
• Hides New Store Success: By design, SSSG ignores the performance of new stores. If a company is opening exceptionally successful new locations, this positive data point won't be reflected in the SSSG metric for over a year.

• economic_moat
• revenue
• profit_margin
• management_quality
• intrinsic_value
• circle_of_competence
• free_cash_flow