History of the P&L Study - Part 4

History of the P&L Study - Part 4

by Tim Quebedeaux

Last time we finished talking about Average Inventory and how it is key to inventory management which is graded by two KPI’s: Turns and GMROIIs.  Historically The Group has not done well with these two metrics.

From this graph, you can see three distinct patterns.  The first is from 2009 to 2014.  During this time, we saw turns increase.  As seen in graph below, this was driven by Average Inventory decreasing from over $315K down to $225K.  Then came a dip in 2015, where Average Inventory increased when Revenues remained flat.  We recovered over the next five years, but not by improving inventory management.  Average Inventory increased steadily till a dip in 2019, while Revenues also increased.  The COGS increased at a higher rate than Average Inventory, leading to an increase in Turns from 3.8 to 4.2.

The last pattern was the jump to 5.2 turns during the pandemic years of 2020 and 2021.  In 2020, a drop in Average Inventory and COGS due to increased revenues led to the largest jump year to year of 1.0 turns.  It stayed that high in 2021, due to even higher revenues and COGS, despite Average Inventory increasing due to ‘Just in Case’ Inventory practices.  At the end of the day, the Goal for Inventory turns is 7.0.  Seven times the COGS dollars during 12 months than the amount of Inventory on hand at cost on average for that same 12 months.  The group has never reached this goal, and only came close due to special circumstances. Below you will see the average inventory

The last pattern was the jump to 5.2 turns during the pandemic years of 2020 and 2021.  In 2020, a drop in Average Inventory and COGS due to increased Revenues led to the largest jump year to year of 1.0 turns.  It stayed that high in 2021, due to even higher Revenues and COGS, despite Average Inventory increasing due to ‘Just in Case’ Inventory practices.  At the end of the day, the Goal for Inventory turns is 7.0.  Seven times the COGS dollars during 12 months than the amount of Inventory on hand at cost on average for that same 12 months.  The Group has never reached this goal and only came close due to special circumstances.

Jumping over to the other Grader of Inventory: Gross Margin Return on Inventory Investment (GMROII).  We also see poor performance till the pandemic years. 

The same patterns are evident from 2009 to 2014 and then 2015 to 2019.  Showing us that Average Inventory is a key metric in both of these KPI’s.  Then we get to the pandemic years of 2020 and 2021, we see GRMOII jump to over $6!  In 2020 and 2021, we saw Margin Percent increase due to lack of discounting and low shrink.  Converting more Revenues to Margin Dollars pushed GMROII higher than turns jumped.  STILL, the goal of $7.00 was not reached.

Looking back at the History of the P&L Study, there were two years that show us how to increase/maintain Profitability.  In 2012 and 2020 Profitability increased 2.1 and 9.6 percentage points respectively.  The differences were that Revenues decreased in 2012 (down 11.2%) and increased in 2020 (up 21.6%).  But the enlightening metric that both years had in common…. Average Inventory decreased by 23K in 2012 and 22K in 2020.

By managing our inventory through our inventory investment (Average Inventory) we can drastically impact our profitability.  And if we get anything out of the history of the P&L Study, it is what the famous bubble chart shows us: “It isn’t HOW MUCH you SELL, it’s HOW MUCH you get to KEEP!” 

Below is an animated graph showing the progression of profit bubbles from 2009 to 2021. As you watch this focus on the migration of bubbles from below the center line to above as well as the size of the bubbles. Remember, the size of the bubbles represents the actual DOLLARS of Profit and the larger bubbles to the left side of the graph mean smaller annual volume Centers producing much higher net profit percentages.

Let's see... smaller Center, fewer headaches, more profit. Hum... sometimes, bigger is not always better!

Make sure you will be ready to participate in the 2022 P&L Study coming in January. If this will be your first year to report, let's talk about what you will need. Early preparations will make it so much easier for you. Let's talk soon!


Got questions or need more information about The Group's the Annual P&L Study or the Weekly Department Review (WDR)? Give Tim a call or email.

Tim Quebedeaux
Cell: 770.355.6249
Email: CLICK HERE

Tim Quebedeaux, RetailKPI Consulting, is a service provider for The Garden Center Group and manages all Group financial sharing programs. The Weekly Department Review (WDR) and The Annual P&L Study are industry exclusives developed by The Garden Center Group and are included in your retainer!

REMEMBER: Your interaction (by phone and email) with Group Service Providers such as Tim Quebedeaux, Sid Raisch, Jean Seawright, John Kennedy, and of course Danny Summers are included in your retainer! So what are you waiting for? Take advantage of all that The Group has to offer and give them a call or send an email now!

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