Langton Capital – 2017-02-06 – 60 seconds on Sales: Are we blinkered to all else?
What gets measured, gets done. Sales & margin need managing together:
Getting the balance right:
• There’s no single killer measure, don’t behave as though there is
• LfL sales growth implies increase at the unit level
• Whilst total sales growth is what turns up in terms of cash
• And margin matters as giving away a tenner for nine quid has always been easy
• Ultimately, ultimately, it’s free cash flow per share that drives value
LfL sales growth; the Holy Grail?
• This is the area of most focus. And it’s nice to be in growth at the unit level
• But it’s not sufficient to live happily ever after. Nor is it even necessarily necessary…
• Because total sales (x margin – expenses) matter re cash flow
• Co A could have positive LfLs but be shutting shops & have declining margins
• Co B meanwhile could have minus 1% LfLs but be adding stores & widening margins
• But slavishly jacking margins can also end in disaster. Ask Restaurant Group
Keeping It Simple: Sales
Sales Increases Good:
Sales Increases Bad:
LfL sales, the major weaknesses:
• LfL sales ignore margins (discounting, delivery, marketing etc.) as well as capex & store closures
• They drive certain actions. Sales managers may beggar their neighbours (in the firm) to hit target
• What gets measured, gets done. Paying footballers to get corners will lead to more corners.
• But corners don’t win matches. Goals are what matter. Ask Liverpool vs Hull City, 80% possession & lose 0-2
• Langton has banned the word ‘holistic’. So let’s just say you need a rounded approach
• We’ve banned the phrase ‘balanced scorecard’ too
• But if it was your business, yes, yours, what would you look for?
• You’d look for cash. Free cash. Geld after costs. Everything else is incidental.
• We go into more depth on this and other topics in our review, which is found here