Dealer Lab: Destination Powersports posts record profit in January

Publish Date: 
Apr 1, 2011
By Joe Delmont

Editor’s note: The Dealer Lab project is a joint effort between Dealernews and PowerHouse Dealer Services, a consulting firm run by former dealer Bill Shenk, detailing his efforts to return Florida Motorsports to profitability. When he took over management in July 2009, the two-store (Naples, Fla., and Punta Gorda, Fla.) network wasn’t in good shape — it lost money in 2007, 2008 and 2009. Shenk and a partner have purchased the Punta Gorda store and have renamed it Destination Powersports to break away from its poor reputation. Shenk no longer has ties to the Naples location.

The financial information in this report is taken from the dealership’s Composite Report supplied by Shenk and prepared for the dealership’s participation in the PowerHouse Dealer 20-Group. The Composite Report is prepared from the store’s monthly financial report. In preparing these reports, Dealernews reviews the dealership’s unaudited P&L statement and balance sheet, as well as its Composite Report.

The Punta Gorda Destination Power­sports dealership jumped out of 2011’s starting gate with a record net profit of $21,109 on total revenues of $455,731. That compares with a net loss of $8,878 on total revenues of $278,043 in January 2010.

Revenues from unit sales in January were nearly double those of the previous January, $358,866 to $171,645. Total unit sales for the month were 34, compared to 30 the previous January.

Interestingly, this January the dealership sold only seven new motorcycles and 13 new PWC, compared to 17 new motorcycles and only one PWC last year. It sold six used motorcycles this January compared to four last January. Gross profit this January was $109,962 compared to $85,851 in January 2010, largely because of the substantial increase in revenues that increased $177,688 or 64 percent.

The biggest jump in revenues came from unit sales, which were more than double those of January 2010, climbing $187,221 or 109 percent. There were only three sales reps employed this year, compared to five in January 2010. Sales per employee obviously were much better this year: $119,622 compared to last year’s $34,329.

At the same time, profit from sales increased from a loss of $30,034 to a profit of $6,091. Not bad. But this prompts lots of questions. How did the dealership double sales revenue when it sold only four more units this January than it did in January 2010? What about the profitability? How did the dealership increase productivity so much?

Shenk outlines several reasons:
New inventory. Last year, the dealership had old, damaged new inventory, but this year it had current inventory. It’s much easier to sell current equipment at a profit.

Improved reputation. The dealership’s previous bad reputation in the local marketplace keeps getting better, making it easier to sell to local riders. “We get better margins from the local guy than the guy driving 100 miles,” Shenk says.

Here’s one example offered by Shenk. “I had a gentleman and his wife (both riders) come in for tires for one bike this past Saturday. They had purchased the bike from Florida Motorsports a few years back, and their experiences were so bad, they swore they would never return, and told everyone they met about their feelings.

“Now, a couple of months ago, they met another rider and got to chatting. They told this rider not to waste his time in Punta Gorda, but the fellow said there’s a new owner and a completely new team and that he had been getting great service with us.

“They told me that they kept thinking about that and decided to call and see about tires for the bike. They said the staff was so knowledgeable and pleasant on the phone that they decided to give us a try one more time.

“Anyway, they came in Saturday. We were ready for them in service, and we had muffins and fresh coffee. While they were waiting, our sales staff chatted with them and put them on a test ride while their tires were being changed. “The result: We got two great trades, and they got two brand-new motorcycles. We made money, and they are happy and hopefully will be talking good about us now instead of saying bad things. These stories add up to increased profits.”

Internet presence. “We had no Internet presence last January,” Shenk notes. “Now, we get leads almost every day.”

Improved staffing. “We were short-handed,” Shenk says, “and I believe we missed business. It was making me crazy because a bad impression or no impression is just not acceptable with me.” That’s one of the main reasons why Shenk let the sales manager go in February.

Service revenues were off more than $16,000, but that was partially offset by an increase in F&I revenues of almost $6,000. Service profitability slumped by nearly $8,000, dropping from $16,747 to $9,077 in January 2011.

There are two reasons why service performance was down. First, the store had $11,000 more in warranty work in January 2010 alone. The reason? “Because the previous owners had not done a good job of submitting warranty [work], and we had to organize all those old warranty jobs and get them approved by our service reps,” Shenk says.

Second, it’s still part of the change to doing better work and refusing bad work. “We still did $930 PVS in labor sales in January. That is above Top Gun by at least 25 percent,” Shenk points out.

One of the most noticeable improvements, January over January, was the reduction in inventories. In January 2010, the dealership reported 420 units in inventory compared to only 167 this year. The biggest change was in motorcycles. In January 2010, the dealership held 242 new bikes and 18 used motorcycles. This January, it held only 57 new units and 29 used ones.

Total inventory value was $1.3 million this January, compared to $2.8 million in January 2010. One of the biggest changes was in new bikes, obviously, dropping from $1,275,744 to $383,492 this January. The dealership sold 13 new and used motorcycles this January, compared to 21 in January 2010.

How could the unit inventory value drop so much when the dealership sold only four more units in January 2011 compared to January 2010? “When you have old inventory, you have to give it away for no margin. However, as I mentioned, I think we lost sales because of short staffing. I have made changes there as well going into March,” Shenk says.

Accessories inventory also was improved greatly, dropping from $299,434 to $136,454. And parts inventory improved by more than $25,000. What did Shenk’s team do to dump all of these parts and accessories? “When we bought [the dealership] in March,” he says, “we only kept the best $100,000 parts and accessories combined, and even that was too much; $30,000 of that was junk. There was less than $75,000 of the $100,000 we kept that had any sales history in the previous 12 months.

This story originally appeared in the Dealernews April 2011 issue.