2022 P&L Study Review & Awards - Part C

by Tim Quebedeaux

Part C – “Best Practices Standards” – Inventory Turns, GMROII, and Balance Sheet

The last parts of the Study: Turns, GMROII & Balance Sheet, are only available to the participants who report through parts 4 and 5 of the P&L Study. They can compare how they performed as compared to their different sectors – Region, Mode of Operation, Sales Levels, and then Total Group and Best of the Best. They get to compare these metrics down to the category level! The level of detail here is where they have the information to win the game!

Turns are calculated as Cost of Goods Sold divided by Average Inventory. These are both yearly metrics, which makes them perfect to analyze in the P&L Study. Similarly, GMROII – Gross Margin Return on Inventory Investment, is Margin Dollars divided by Average Inventory. Both of these metrics are dependent on the average level of inventory on hand throughout the year as a measurement. Strictly from the math side of this, decrease your Average Inventory, maintain the levels of COGS and Margin Dollars, and you will increase your Turns and GMROII. This is also referred to as doing more with less. Your profitability is more, your inventory is less. In 2022 we had the reverse double effect of less Revenues, leading to less COGS & Margin Dollars overall, AND higher Average Inventory due to the transition knowingly from “Just in Time” to “Just in Case” Inventory practice. Add on to that the delayed shipment of product. Many centers didn’t have the right inventory when they needed it, AND the wrong inventory when they didn’t need it!

Here's the Total Group Inventory Turns for the previous 5 years as well as our overall goal.

During the Pandemic Years Turns and GMROII increased to record levels for the Garden Center Group reporters, with highs at 5.2 Turns and $6.57 GMROII both in 2020. So, in 2022, after the pandemic, both of these metrics showed us we have gone backwards (from Just in Time Inventory to Just in CASE inventory) with Turns 4.3 and GMROII of $4.87. At this time, going forward, reflect on what worked in 2020 and 2021 to give us the profitability we experienced. Evaluate those and decide which ones are repeatable under our control, not as a byproduct of the situation. Here's the Total Group GMROII for the previous 5 years as well as our overall goal.

Make these work for us. Supply chain issues caused us to run tighter inventories, while our revenues were skyrocketing… How can we repeat this “supply chain issue” in-house, while keeping our revenues at least stable if not increasing? Increased attained margin was a product of decreased discounting. So how many have looked at that and stopped discounting their product in season? Discounting can be useful when correcting inventory bulges, but as a day-in and day-out promotion schedule, it can dilute the value you are offering your customers and decrease your bottom line. What other “incidents” of the Pandemic helped us be profitable, that we stopped after the Pandemic?

At the end of every period, your Profits (or Losses) all go toward your Balance Sheet. The Balance Sheet is your business, not a periodic report, but the bottom-line statement of your business since day one. A listing of all Assets and Liabilities, giving you your equity and your wealth. As business owners, we should not be afraid of the word wealth. Although it comes with some bad connotations (greed being one), it is a mind frame of your end goal of your business. So, whatever you call it, wealth, equity, retirement, reassurance… it should be your goal to increase it every year, building it up.

We measure three Key Ratios when looking at a Balance Sheet, Current, Quick and Equity to Debt. Current and Quick ratios measure how much Assets you currently have to cover your Short-Term Liabilities. The Quick ratio will take this measurement without factoring in your inventory. Looking at these numbers for the Group in whole, we have not improved much since 2019. In fact, we have slipped from 4.4 to 4.2 and 2.7 to 2.1… Goal is 2.0 and 1.0 respectively. Although we are hitting the goals, we are not seeing an improvement. I also measure the difference between the two ratios, are you less dependent on inventory as part of your assets? As a group, we are more dependent compared to 2019. Our Equity to Debt Ratio has increased from 1.7 to 1.9. This is expected after all the Profits of 2020 and 2021!

We have a consistent 78% reporting centers who report thru at least the Inventory Turns and GMROII parts of the study. I would love to see that number in the 90% range, as these parts of the Study really help you narrow down where to tweak your business to really get a return on your efforts. Lots of data can be gleaned from this report from my spot, but imagine, if you are not reporting… imagine what you can get from it, comparing your center's performance to your region, your sales level, the Total Group, and the BEST of THE BEST on Revenues by category, Operating Expenses by line item, Wage and Wage Benefits, Inventory Turns by category, GMROII by category, and Balance Sheet Ratios. This is priceless information!

If you are in a position where you think you can report but are not sure for 2023’s study, please reach out to me and I can get you there!

Thanks again to all those that spend the time to report – you are truly invested in improving your business and winning the game!

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!