LFL sales: why revenue growth and like-for-like growth are different news

Like-for-like (LFL) sales are the revenue of only those outlets that were trading both in the reporting period and in the comparable period of the previous year. Everything that opened, closed or changed format is stripped out of the calculation. The metric has exactly one purpose: to separate the growth a company has bought with new square metres from the growth generated by its existing stores. That is why total revenue and LFL can move in opposite directions — and this is not an inconsistency in the reporting, but precisely the distinction LFL is calculated to draw.

What exactly is excluded from the base

For an outlet to enter the like-for-like base, it must have traded for a full cycle in both periods. The calculation typically excludes:

• outlets opened after the start of the comparable period, since they have no prior-year base;
• outlets that were closed or transferred to another operator;
• outlets that were under refurbishment or had their selling space changed significantly;
• outlets that switched format or banner within the group.

What remains is the "like-for-like perimeter". It is almost always smaller than the chain as a whole, and its share is the first thing worth checking: if the perimeter is narrow, LFL no longer describes the whole company, only its mature core.

What LFL is made of

The decomposition is standard: like-for-like sales equal traffic multiplied by the average ticket. Traffic is the number of purchases (or receipts); the average ticket is revenue per purchase. The ticket can be broken down further, into price and basket size.

This decomposition is where the analytical value of the metric lies. LFL growth driven by traffic means more people are coming to the company — a strong signal. Growth driven by the ticket while traffic is falling means the company is extracting more from each remaining customer: that is what successful assortment management looks like, but also routine repricing on the back of inflation, and the loss of price-sensitive customers. The direction in which the components move matters more than the sign of the total.

Where the metric gets soft

LFL is not an accounting measure. Neither IFRS nor RAS defines what a like-for-like store is. It is an operating metric that the company defines for itself and discloses in its trading update, not in audited statements. This has several consequences that a corporate finance professional has to work with:

• each issuer chooses its own "maturity" period for an outlet, and the longer it is, the tidier the figure looks;
• the threshold of change in selling space beyond which a store drops out of the base is equally arbitrary;
• online orders may be included in the LFL of a physical store if they are collected there — or they may be treated as a separate channel;
• the calendar distorts the comparison: a different number of weekends or a shift in public holidays between periods changes the result without any operational cause.

Nominal and real LFL

In periods of high inflation, nominal growth in like-for-like sales is all but guaranteed: price tags are rewritten faster than customer behaviour changes. A correct reading therefore requires comparing LFL with price dynamics in the relevant product category. If ticket growth roughly tracks food inflation while traffic is flat, there is no operational improvement — only indexation. The same consideration explains why LFL is benchmarked not against zero but against the industry backdrop: see retail sales and the sector's overall statistics.

How the metric feeds into valuation

In a model, LFL usually serves as the revenue driver for the mature perimeter, with the store-opening programme layered on top. The split is useful because these two sources of growth have different economics: new outlets require capital expenditure and pay back with a lag, whereas like-for-like growth comes almost without investment and delivers operating leverage immediately. A company growing mainly through openings is worth something different from a company with strong LFL, even at the same revenue — and it is exactly this difference that gets smoothed over when an analyst compares multiples head-on. When selecting comparable companies, it makes sense to align them not only by sector but also by source of growth.

The metric is not confined to retail. The same like-for-like perimeter principle is used by chains of clinics, restaurants and filling stations, by warehouse operators and by retail property developers, where the equivalent is like-for-like lettable area.

Where to find the primary source

Issuers publish trading updates with an LFL breakdown before their financial statements — often weeks ahead of them. They are easy to track via the events calendar and the news feed, while the publications and filings themselves are in the issuer reports section. Company profiles and their securities are in the stocks section; definitions of related terms are collected in the glossary, including comparable companies and retail sales.

A caveat in the interest of honesty: this article does not give specific LFL values for individual issuers — they should be taken from the company's latest trading update together with the description of its methodology, because without a definition of the perimeter the number itself cannot be interpreted.