Auditors say retailers' like-for-like Christmas sales reporting 'problematic'
(Guardian Web Via Acquire Media NewsEdge) Auditors from the the six largest accountancy firms have warned against too much focus on like-for-like sales in store chains' Christmas trading statements.
They suggest the performance measure, which is closely watched by City analysts, investors and the media, is "problematic" and should be treated carefully because it is not calculated on a consistent basis and lacks any guidance on how profitable these sales are.
"The lack of consistency may cause difficulties for successful retailers if they attempt to answer questions such as 'who won Christmas," said the second annual Audit Insights report on the retail sector put together by the ICAEW, the professional body for accountants.
A handful of retailers, led by fashion and homewares chain Next, refuse to report like-for-like sales figures because of the controversy over the way such figures are calculated. Some retailers, for example, exclude stores which have had refurbishment work or include extra space from store expansions, decisions which can have a significant impact on the figures they report.
One area that is particularly topical, is the the handling of internet sales, because of the issue of returned goods. Up to half of the goods sold online by clothing retailers, for example, are returned. Many retailers adjust their like-for-like sales figures to account for their average rate of returns – but not all of them. It is not always clear how different companies handle the issue, while the inclusion of fast-growing online sales in "like-for-like" figures at all is controversial because it masks the underlying performance of a retailer's store estate.
Julie Carlyle, a member of the working group behind the report and head of retail at accountancy firm Ernst & Young, said: "There is massive pressure on retailers to produce positive numbers after the Christmas period, as these figures are widely reported. However, care must be taken when looking at the top line like-for-like sales figures released. The much publicised differences in promotional strategies over the festive period emphasise the ability of like-for-like sales to mask real performance and raise the question whether we should be looking at like-for-like margin."
Carlyle said: "It is critical for retail businesses to have the right data to respond in such a rapidly changing world and this is becoming more difficult. The ambiguity around which part of the business is generating revenue can also impact on staff incentives, negotiations with landlords over rent payments and reporting to shareholders."
(c) 2014 Guardian Newspapers Limited.
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