By Eric Smith
In another time or with different leadership, Camping World Holdings Inc.’s acquisition of Gander Mountain (now Gander Outdoors) and subsequent investments to boost its RV footprint, which have racked up $1.8 billion in debt, might have been too much to bear.
But the vision of CEO Marcus Lemonis and the strength of the U.S. recreational vehicle market should provide the tailwinds Camping World needs to overcome exorbitant costs and position itself for accelerated growth in 2019.
Wall Street appeared to agree after equity analysts and institutional investors got a first-hand look at one of the company’s stores, and also ask questions of senior management during Tuesday’s investor day at the Gander Outdoors store in Kenosha, WI.
CWH shares were up 91 cents, or 4.4 percent at market close Wednesday, just a week after shares fell following Camping World’s failure to meet income and revenue targets in the second quarter. And while the company didn’t broadcast the investor day events, analyst takeaways were as upbeat as Camping World’s trading fortunes.
“We came away feeling better about the evolving Gander strategy, offering [long-term] opportunities to efficiently expand into adjacent RV markets and grow the Good Sam base,” Brett Andress and his team at KeyBanc Capital Markets wrote in a note to investors. “While the ramp will weigh on [near-term] results, CWH expressed a willingness to pare back on any underperforming stores (five to six being watched). We continue to view the CWH story favorably, with shares undervalued ahead of realizing numerous growth initiatives. Reiterate [overweight] rating.”
Seth Sigman of Credit-Suisse AG said, “Despite the investments and execution risk, our view of the growth strategy continues to improve, and we believe that earnings growth for CWH should reaccelerate in 2019.”
Motley Fool analysts David Kretzmann and Aaron Bush joined host Chris Hill on a segment of Market Foolery to discuss Camping World’s profile and prospects. And while they recorded the episode before Tuesday’s investor day (but after the Q2 earnings release), their comments echo the current analyst outlook.
“When you actually look at the progress that [Camping World] is making, they’re on a pretty good track,” Kretzman said on the show. “They sold a record number of RVs this quarter; they’re on pace for a record year of RVs sold in 2018. They continue to see strong growth with their towable units, which were up 14 percent. They’re seeing a lot of younger buyers who aren’t waiting until retirement to hit the road, but rather starting with some of these less expensive units that you can just hook up with a trailer on your existing vehicle.”
Camping World has indeed been doubling down on RV sales. In the second quarter alone, Camping World:
- Completed six dealership acquisitions and added new RV dealerships in Sioux City, SD; Sherwood, AR; Nashville, TN; Redding, CA; Oklahoma City, OK and Newport News, VA in the second quarter 2018;
- Opened 52 Gander Outdoors stores in key markets with very strong RV registrations in the first half of 2018;
- Added RV sales to the Gander Outdoors stores in Kenosha, WI, and Fayetteville, NC, in the second quarter 2018;
- Signed agreement to purchase Russ Dean RV in the Pasco, WA, market;
- Is on track to add RV parts, accessories and services to all Gander Outdoors locations and operate co-branded Camping World and Gander Outdoors stores by the end of 2018;
- Announced plans to expand the number of RV sales locations by more than 30 percent through next year with the launch of Gander RV Sales in up to 40 locations, new store openings and continued acquisitions.
Looking ahead, Camping World raised revenue guidance to $4.9 billion to $5.50 billion based on the continued strength of the RV business and the RV market. But due to increased investment in the newly acquired outdoor businesses, including the expansion and integration of the Gander RV business, Camping World downwardly revised the company’s consolidated adjusted EBITDA outlook to the $370 millions to $380 millions range.
On last week’s call, Lemonis said, “This lowered range is not reflective of any significant change in the profitability of our RV business, but rather the result of our increased investments in attractive return on invested capital expansion opportunities that positioned the company for accelerated growth.”
Lemonis, who has been CEO since his previous company FreedomRoads merged with Camping World in 2006, might be better known for his stint on the CNBC reality show The Profit. His recent approaches to the business have earned plenty of supporters, but also a few detractors.
“If you’re someone who believes in the vision of Marcus Lemonis and his track record, then I would think this might be a compelling opportunity for investors today,” Kretzman said. “It might be another six to 12 months of some subpar quarters when it comes to profitability, but revenue was up 13 percent this quarter; they actually raised revenue guidance for the rest of the year.
“If you’re a shareholder or prospective shareholder, you’re really betting that the strategy that Marcus Lemonis has outlined makes sense. If you don’t really believe in Lemonis or his strategy of acquiring mom-and-pop RV retailers or other retailers out there and lumping them into the Camping World brand, then you want to stay away from the stock.”
The strong RV market in the U.S. might be the most compelling reason for Camping World to flourish. RV shipments soared 17.2 percent to 504,599 units shipped in 2017, a total that is nearly double the number of units shipped just four years earlier in 2013, according to the RV Industry Association.
Another compelling reason is the company’s emphasis on balance as it accelerates the Gander RV model yet also opens more Camping World stores around the country.
“Beyond Gander, CWH continues to plan an aggressive Camping World store rollout, targeting high-single-to-low-double-digit store openings,” Sigman wrote. “It sees an opportunity for acquisitions to potentially accelerate at some point. It will continue to pursue a blend of Camping World and Gander growth as it targets doubling the company over five years.”
Risks do remain for the company, analysts noted, including the supply/demand imbalance not correcting as expected, and stores not executing to their expectation. Still, there is plenty of upside for Camping World as the company balances acquisition and organic growth while tapping into the robust RV market.
“We continue to view CWH’s roll-up and top-line momentum story favorably, with [long-term] upside expected from the Gander Outdoors strategy (recently-announced Gander RV sales tracking above expectations), further consolidation of the fragmented independent dealer market and opportunistic greenfield development,” Andress concluded. “Expansion efforts aside, we believe CWH’s core stands to benefit from an extended RV upcycle, with our outlook for [low-single-digit growth] in new vehicle comps supported by the appeal of towables to an aging boomer cohort and incremental first-time millennial purchasers.”
Photo courtesy Camping World