AUDITORS today warned against the retail sector’s “over-reliance” on like-for-like trading figures, saying they are not always consistent nor directly linked to profitability.
Like-for-like sales are a key measure used by retailers that strips out of the effects of expansion, shop closures and other distorting events to help investors better understand how the underlying business is performing.
But critics of like-for-likes argue that they do not always give a reliable way of tracking how a business is performing in the wider retailer sector.
A report published by the Institute of Chartered Accountants in England and Wales (ICAEW) today warned that the lack of an industry standard makes it difficult to compare like-for-like sales between different retailers.
“Like-for-like sales figures are one key way of judging retailers’ performance. This key performance indicator gets a lot of attention, yet how it is prepared can vary,” said Julie Carlyle, head of retail at Ernst & Young.
“It is not always a reliable indicator of how a business is performing.”
Retailers, including Debenhams, have stepped up their offers and promotions in the face of an increasingly competitive market, but often at the expense of their profit margins.
“The trend of heavy discounting has changed the relationship between sales data and profitability. More sales don’t necessarily mean higher profits. Sales volumes can be driven at the expense of profitability,” Carlyle said.
The increasing importance of online sales could also confuse the picture further, ICAEW’s report said, meaning the use of like-for-likes could become obsolete.
Ted Baker is one of the few retailers that does not publish like-for-like trading figures.
The firm argues that as retail accounts for just 40 per cent of the business, like-for-likes would give an inaccurate picture of the company, which is also made up of a wholesale and licensing business.