INVESTING EXPLAINED: What you need to know about LFL (like-for-like)

In this series, we debunk the jargon and explain a popular investment term or theme. Here it is LFL.

What does this stand for?

LFL is an abbreviation of like-for-like, a commonly used term in the retail sector.

It is a measure of sales growth – over a specific period of one month, six months or more than a year – that removes the impact on sales of new retail space.

LFL figures began appearing in retailers' figures in the 1980s. This happened against the backdrop of rapid expansion of the sector in the US and Great Britain.

Shops opened on the High Street and huge shopping centers were built. A simple metric was needed to assess the retailer's underlying performance.

Are LFL grades still important?

Certainly. Almost more. LFLs are among the most closely watched metrics in a retailer's results because they are seen as a guide to the true health of the business, especially at a time like now when the cost of living is under pressure.

This week, for example, news of LFLs falling 5.5 percent over the Black Friday period in fashion retailer Quiz's stores increased speculation that the loss-making business will be up for sale – although it is also online sells.

In contrast, when Marks & Spencer reported last month that food sales at LFL level rose by a better-than-expected 11.7 percent in the first half, it sparked a rally in the shares.

In a month's time, when the Christmas trading updates are released, the city will be paying close attention to supermarkets' LFLs as a gauge of the appeal of their festive food offering.

Is there another reason why I'm reading about this?

Retailers are increasingly aware of the need to clarify what is included in their LFL figures.

This comes against the backdrop of a debate over the reliability of LFLs, given the scale of the revolution in the retail sector in recent decades.

What are the objections?

The lack of a clear definition of what the LFL should show means that comparisons may be less than valid in some cases.

Critics insist this figure does not reflect things like a change in product mix that involves a shift to cheaper or more expensive products, or the increase in sales from a renovation that makes a store brighter and more welcoming.

The impact of the switch to online purchasing during the pandemic is another factor intensifying the debate.

And how do retailers respond to their critics?

Some provide much more information in annual reports and accounts in an attempt to answer criticism.

In its accounts for the year ending January 2023, High Street fashion giant Next provides a breakdown of its LFL figures based on store location.

During the pandemic, shoppers preferred out-of-town retail parks, with their large car parks, to less spacious city center stores, but this trend has reversed.

Next's full-price LFL sales across all types are up 2.6 percent since 2019/20.

Supermarket giants Tesco and Sainsbury's are showing LFL figures excluding fuel and including fuel, so investors can get a clear picture of the performance of their food divisions.