Camping World Holdings Inc., the parent of Gander Mountain and Overton’s, reported net earnings rose 24.6 percent in the third quarter ended September 30 on a 25.0 percent revenue gain.
Third Quarter 2017 Summary
- Total revenue increased 25.0 percent to $1.24 billion;
- Gross profit increased 27.3 percent to $356.7 million and gross margin increased 51 basis points to 28.8 percent;
- Income from operations increased 27.8 percent to $112.1 million and operating margin increased 20 basis points to 9.0 percent;
- Net income increased 24.6 percent to $85.3 million, net income margin decreased 2 basis points to 6.9 percent and adjusted pro forma net income increased 53.4 percent to $68.6 million
- Diluted earnings per share(2) was $0.68 and adjusted pro forma earnings per fully exchanged and diluted share increased 44.7 percent to $0.77; and
- Adjusted EBITDA increased 35.2 percent to $122.1 million and adjusted EBITDA margin increased 74 basis points to 9.9 percent.
Marcus Lemonis, chairman and chief executive officer, stated, “We are very pleased with our third quarter results and the continued strength in the underlying trends across our business. For the quarter, total revenue grew 25.0 percent, adjusted pro forma net income increased 53.4 percent and adjusted EBITDA grew 35.2 percent, once again demonstrating the power and leverage of our unique business and operating model. Looking ahead, we believe we are well positioned to continue gaining share in the RV market and broadening our reach across the outdoor lifestyle consumer market.”
Third Quarter 2017 Results Compared to Third Quarter 2016 Results
Units and Average Selling Prices
New vehicle units sold increased 33.3 percent to 19,107 units and the average selling price of a new vehicle decreased 1.6 percent to $37,430. The increase in new vehicle units sold was primarily driven by strong consumer demand for new vehicles. The decrease in the average selling price of a new vehicle was driven by a higher mix of lower-priced towable units.
Used vehicle units sold increased 7.2 percent to 8,557 units and the average selling price of a used vehicle decreased 3.3 percent to $22,009. The increase in used vehicle units sold was primarily driven by sales at new stores.
Total revenue increased 25.0 percent to $1.24 billion from $991.1 million in last year’s third quarter. Consumer Services and Plans revenue increased 1.6 percent to $46.2 million and Retail revenue increased 26.1 percent to $1.19 billion. In the Retail segment, new vehicle revenue increased 31.2 percent to $715.2 million primarily driven by the 33.3 percent increase in new vehicle unit sales, used vehicle revenue increased 3.7 percent to $188.3 million, parts, services and other revenue increased 24.3 percent to $187.8 million and finance and insurance revenue increased 50.0 percent to $101.6 million. Finance and insurance, net revenue as a percentage of total new and used vehicle revenue increased to 11.2 percent from 9.3 percent in last year’s third quarter.
Same store sales for the base of 115 retail locations that were open both at the end of the corresponding period and at the beginning of the preceding fiscal year increased 9.4 percent to $982.2 million for the three months ended September 30, 2017. The increase in same store sales was primarily driven by a 14.5 percent increase in new vehicle same store sales, a 30.5 percent increase in finance and insurance same store sales, and a 1.4 percent increase in parts, services and other same store sales, partially offset by a 7.9 percent decrease in used vehicle same store sales.
The company operated a total of 137 Camping World retail locations, two Overton’s locations, two TheHouse.com locations, and one W82 location as of September 30, 2017 compared to 120 Camping World retail locations and zero Overton’s, TheHouse.com, and W82 locations at September 30, 2016.
Total gross profit increased 27.3 percent to $356.7 million, or 28.8 percent of total revenue, from $280.2 million, or 28.3 percent of total revenue, in last year’s third quarter. On a segment basis, Consumer Services and Plans gross profit increased 2.3 percent to $26.1 million, or 56.5 percent of segment revenue, from $25.5 million, or 56.1 percent of segment revenue, and Retail gross profit increased 29.8 percent to $330.6 million, or 27.7 percent of segment revenue, from $254.8 million, or 26.9 percent of segment revenue, in last year’s third quarter. A 41 basis point improvement in Consumer Services and Plans gross margin was primarily driven by an increase in roadside assistance file size and reduced program costs. A 77 basis point increase in Retail gross margin was primarily driven by an increase in the finance and insurance, net revenue as a percentage of total new and used vehicle revenue to 11.2 percent of vehicle sales from 9.3 percent of vehicle sales in last year’s third quarter, and the 33.3 percent increase in new units sold.
Operating expenses increased 27.0 percent to $244.6 million from $192.5 million in last year’s third quarter. Selling, general and administrative (“SG&A”) expenses increased 26.8 percent to $236.2 million from $186.3 million in last year’s third quarter. The increase in SG&A expenses was primarily driven by the additional expenses associated with the incremental eighteen dealerships and two Overton’s locations operated during the third quarter of 2017 versus the prior year period, $7.3 million of pre-opening and payroll costs associated with the Gander Mountain Acquisition, and $0.5 million of transaction expenses associated with the acquisition into new or complimentary markets. As a percentage of total gross profit, SG&A expenses declined 25 basis points to 66.2 percent compared to last year’s third quarter. Depreciation and amortization expense increased 34.8 percent to $8.4 million primarily due to the addition of acquired and greenfield locations, and acquired businesses.
Floor Plan Interest & Other Interest Expenses
Floor plan interest expense increased to $7.4 million from $4.3 million in last year’s third quarter. The increase was primarily attributable to higher inventory from new dealership locations and locations expecting higher unit sales, as well as a 68 basis point increase in the average floor plan borrowing rate. Other interest expense decreased $1.7 million to $11.0 million from $12.7 million in last year’s third quarter. The decrease was primarily attributable to a decrease in average debt outstanding, and an 86 basis point decrease in the average interest rate.
Net Income, Adjusted Pro Forma Net Income, Diluted Earnings Per Share, and Adjusted Pro Forma Earnings Per Fully Exchanged and Diluted Share
Net income increased 24.6 percent to $85.3 million. Adjusted pro forma net income increased 53.4 percent to $68.6 million from $44.8 million. Diluted earnings per share(2) was $0.68, and adjusted pro forma earnings per diluted fully exchanged and diluted share increased 44.7 percent to $0.77 from $0.53 in last year’s third quarter.
Adjusted EBITDA and Adjusted EBITDA Margin
Adjusted EBITDA increased 35.2 percent to $122.1 million from $90.3 million and adjusted EBITDA margin(2) increased 74 basis points to 9.9 percent from 9.1 percent in the third quarter of fiscal 2016.
Select Balance Sheet and Cash Flow Items
The company’s working capital and cash and cash equivalents balance at September 30, 2017 were $343.7 million and $163.2 million, respectively, compared to $266.8 million and $114.2 million, respectively, at December 31, 2016. At the end of the third quarter 2017, the company had $3.2 million of letters of credit outstanding under its $35 million revolving credit facility, $734.5 million of term loan principal outstanding under its senior secured credit facilities and $799.7 million of floor plan notes payable outstanding under its floor plan financing facility. Inventory at the end of the third quarter of fiscal 2017 increased 32.4 percent to $1,204.1 million compared to $909.3 million at December 31, 2016.