Dealer LAB: February net income triples from last year

Publish Date: 
Apr 24, 2012
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 dealer Bill Shenk, detailing his efforts to return a dealership, Destination Powersports in Punta Gorda, Fla., to profitability.

Financial information in this report is taken from the dealership’s Composite Report supplied by Shenk and is prepared as part of the dealership’s participation in the PowerHouse Dealer 20-Group. The Composite Report is produced from the store’s monthly financial report. In preparing these Dealer Lab reports, Dealernewsreviews the dealership’s unaudited P&L statement, balance sheet and Composite Report.

AFTER A SLOW START in January, things picked up in February at Destination Powersports in Punta Gorda, Fla. Net income nearly tripled year-over-year, climbing from $6,898 in February 2011 to $18,129 in February 2012, an increase of 163 percent.

Net income for the year increased 33.4 percent over 2011, jumping to $37,237.

Total revenues were also up slightly, moving from $344,159 to $390,876 this February, for a 13.6 percent YoY gain.

At the same time, the cost of goods sold (COS) increased $37,057, or 15 percent, during the same period.

Gross profit climbed more than $10,000, increasing from $97,527, to $107,187, while expenses climbed about $2,300, moving from $87,531 to $89,815. However, GP dropped slightly — 27.4 percent vs. 28.3 percent, as a percent of sales.

Unit sales continued strong, with 44 units sold in February, including 14 used motorcycles. In February 2011, Destination Powersports sold only 32 units, including 15 used motorcycles. This year marked an improvement in the sales of new units: 14 compared to eight last February.

Sales of motorcycles continued strong in 2012, with new-unit sales running ahead of last year, 26 to 15, and used units outpacing last year 29 to 21. Total unit sales are ahead of last year 87 to 66.

GROWTH FACTORS
There were several reasons for the strong improved performance this February, compared to February 2012, including the month’s rider-friendly weather — which had a similar impact on dealerships across the country. Other factors included:

Improved website. The dealer site is becoming more established and the dealership is spending less on getting good search position. More inventory. This provides increased opportunities for unit sales, as well as other sales across the dealership. (Read more about this below.)

More brands. The addition of Polaris and Victory brands to the dealership provided more unit sales opportunities compared to last year. Stronger P&A. The dealership did a better job of selling P&A this year. Just one example: The average lines per invoice sold to floor customers was up from 1.89 to 2.04, which increased the average invoice from $54.80 to $61.76. This created $4,300 more gross profit on only eight more transactions, 550 last year vs. 558 this year.

Better ratios. A stronger parts-to-service ratio reflected the better salesmanship, going from 97 percent of labor to 116 percent of labor sold.

USED INVENTORY
Meanwhile, Bill Shenk says there are still plenty of opportunities for growth in revenue and profit. “Our used inventory is not being replaced or grown fast enough to keep up with our growth opportunity, and this will cause us to miss sales opportunities if we can’t fix it soon,” he says.

At the same time, the dealership is understaffed in its sales department, a situation that prevents the dealership from prospecting its customer database and working with its parts and service customers, two solid sources for acquiring more used product to put on the showroom floor. Shenk would also like to beef up the staffing in P&A.

Finally, Shenk says that the store isn’t being as proactive in any department as it should be. “This situation is stunting our growth opportunities,” he adds. Recently, Shenk has been making more use of Manheim Specialty Auctions in Daytona, Fla.

“We sold and bought at the auction in March,” Shenk says, “and we made money both ways there.” (Look for more about Shenk’s auction activities with Manheim in upcoming issues of Dealernews.)

As mentioned earlier, unit inventory increased this February. This increased product availability is reflected in the store’s inventory numbers as well as its unit sales revenues and its flooring costs.

In February, the dealership had 263 new and used units in inventory, worth $2.1 million. Last year, in February, there were 176 units in inventory with a value of $1.4 million.

This increased inventory led to a tripling of flooring costs over February 2011; flooring jumped from $2,840 last year to $6,631 this year. YoY, flooring more than doubled, climbing from $5,194, last year to $11,505 this year.

“Powersports is a customer-experience-driven business,” says Shenk. “You can maintain [your numbers] for a short period of time without giving customers that little bit of extra care that’s so important, but I believe it will catch up with you in time. Whenever one improves, there tends to be a period of relaxation that slows down the journey from good to great. Right now, we are fighting that tendency.”

Bill Shenk is owner and 20 Group moderator of PowerHouse Dealer services, a dealership 20 Group provider and consulting/training company. He has worked full time in the powersports industry since 1976. Shenk purchased his first dealership in 1987 and started PowerHouse in 2000. He purchased the Dealer Lab dealership to show the industry that even in these extreme times you can turn around a failing dealership by using the proper best practices.

Those interested in joining a PHD 20 Group should contact Shenk at 877-PHD-0911 or Bill@phdservices.com.

This story originally appeared in the Dealernews May 2012 issue.