By Eric Smith

Camping World Holdings Inc. closed on just one acquisition in the third quarter, but the Lincolnshire, IL-based company announced two more deals and signed a purchase agreement for another in October (Q4) as it takes advantage of a marketplace that is ripe for active buyers.

“In a highly fragmented industry that is primarily comprised of smaller independent operators, we continue to see a number of acquisition opportunities and are actively involved in a number of deals in various stages of process,” Brent Moody, Camping World’s newly appointed president, said on Tuesday’s earnings conference call with analysts.

Camping World has been extremely acquisitive of late, most notably in the second quarter when the company:

  • 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.

In Q3, the company closed on an acquisition in Antioch, IL, “that will boost our sales and service capacity in the Northern Illinois and Southern Wisconsin market,” Moody said. And in October, the first month of Q4, the company closed on its previously announced acquisitions in Pascoe, WA, and Dekalb, IL, while also signing a purchase agreement to acquire an RV dealership in Reno, NV—“a market we have been pursuing for some time,” Moody said.

On the call, CEO Marcus Lemonis added that Camping World is ideally poised to grow through acquisition based on its current footprint, balance sheet and appetite for investment.

“It is our goal that we will continue to leverage our infrastructure and our size and our excess cash flow in 2019 to be very aggressive and very strategic and continuing to add on to the scale of this business,” he said. “As I think about 2019, we’ve made investments in inventory, we’ve made investments in the CapEx, we’ve made investments in the opening things. Right now, we want to execute what we have and use our excess cash flow for accretive or strategic initiatives”

But Moody did add that as the company plans to open a new Camping World retail store and dealership in the next 60 days in the Rockford, IL, to further expand its Illinois presence, Camping World is also mindful of opening and buying too much, too quickly. And it won’t think twice about closing underperforming stores.

“Consistent with our prior messaging we continue to monitor our stores and we will not hesitate to close stores which we feel do not have a clear path to profitability,” he said. “We closed one Gander Outdoors location in the third quarter and we’ll continue to monitor our remaining stores.”

Looking at Camping World’s Q3 performance, released Tuesday afternoon, the company reported revenue for the third quarter ended September 30 increased 6.2 percent to $1.313 billion, but it fell short of Wall Street’s estimates by $110 million.

The company also reported income from operations, net income and diluted earnings per share of Class A common stock were $83.9 million, $47.9 million and 38 cents, respectively, and included $5.8 million of pre-opening store costs associated with the Gander Outdoors store openings. The company missed EPS targets by 21 cents.

Shares of Camping World were down in the low double digits in midday trading Wednesday following its third quarter miss on both revenue and earnings, but potential upside with the company’s Gander business appears to be keeping the company on track.

Lemonis said he was “pretty pleased” with the current trend at Gander, whose store count totaled 60 in Q3, including five co-located with a dealership and one closing in the quarter.

“At this point, we have five operating Gander RV dealerships functioning,” he said. “I would say four of them have met or exceeded my expectations; one of them is still behind my expectations. We will continue to open them in ways over the next several months. There should be a few opening, quite frankly each month, as we go through the balance of the year. And as I’ve said to people from the beginning, we’re not married to any of these boxes and if one doesn’t provide a clear path to profitability or achieve the kind of results that we expected to, we’re not hesitant to pull the plug.”

Much like the response to Camping World’s investor day back in August (click here to read our coverage of that event), analysts remain upbeat on the company based on its management team and the strength of the RV market.

Brett Andress of KeyBanc Capital Markets wrote in a note to investors, “While 3Q18 sales missed expectations on CWH’s unwillingness to participate in heavy RV retail promotions, EBITDA came in better than feared on better gross margins and flex in the SG&A vs. our model. The bar was low into the print, but we believe 3Q18 likely represents the peak of competitive pressures and promises of an FY19 Gander inflection keep us engaged.

“We continue to view CWH’s roll-up and top-line momentum story favorably, with LT upside expected from the Gander Outdoors strategy, further consolidation of the fragmented independent dealer market and opportunistic greenfield development,” Andress added. “Expansion efforts aside, we believe CWH’s core stands to benefit from an extended RV up-cycle, with our outlook for LSD/MSD (low single digits, mid single digits) range industry growth supported by the appeal of the RV lifestyle to an aging boomer cohort and incremental first-time millennial purchasers.”

Photo courtesy Camping World

Eric Smith, Senior Business Editor, SGB Media
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