By Eric Smith
After Camping World Holdings Inc. on Thursday posted a fourth-quarter loss of $71.5 million, or earnings per share of (83) cents, due to an impairment charge and costs related to Gander Outdoors openings, the company’s stock tumbled in the high single digits.
But a slight market rebound on Friday—shares were up in the mid-single digits in midday trading before closing up 0.6 percent—served as another example of the mixed signals that Camping World conveyed in its fourth-quarter earnings report.
Plenty of positive signs from the company’s financial performance and the overall RV industry combined with a host of market uncertainties to present a cloudy picture for both Camping World and the RV sector in 2019.
For example, the company’s Q4 revenue increased 10.6 percent to $982.4 million and full-year revenue increased 12 percent to $4.8 billion. However, Q4 same-store revenue at Camping World’s dealerships decreased 7.5 percent to $593.8 million while Q4 same-store revenue at its retail stores decreased 3.9 percent to $50.7 million.
Fourth-quarter gross profit increased 3.8 percent to $275.6 million while gross margin declined 186 basis points to 28.1 percent.
Also, on one hand, Camping World counted 5.1 million active RV and outdoor consumers last year, up from 3.6 million in 2017, and 2.1 million members in its Good Sam Club, up from 1.8 million in 2017. Both of those numbers are all-time highs.
But on another, market softness in the fourth quarter led Camping World to further reduce inventory levels, and the company ended the year with RV in-stock inventory down 19 percent on a per dealership basis and more than $120 million on a same-store basis.
All of which speaks to an ever-changing RV marketplace that requires some skillful maneuvering.
“After several years of very strong growth, our sales of new RV vehicles began to moderate in the second quarter of last year,” CEO Marcus Lemonis said on Thursday afternoon’s conference call with analysts. “While this trend accelerated through the end of the year, sales of used RVs were up in every quarter last year. As demand for new RVs softened throughout the second and third quarters, we reacted by lowering new RV inventory levels. As the year progressed, the softening sales trends and excess RV inventory in the industry lead to material margin compression.”
Inventory is an industry-wide concern. RV manufacturer Thor Industries just this week said it is adjusting its inventories to better align with dealer demand. And it’s something that Camping World executives are keeping an eye on as the camping season kicks off.
“We are monitoring the inventory literally every morning based on the sales trends from the previous day, looking at our orders … ,” Lemonis said. “If we see any dip increase or decrease in any sales trends, we are going to adjust our inventory real-time. At this moment in time, we are comfortable with where our inventory levels are on the new side, but are aggressively pursuing inventory on the used side, particularly since quarter after quarter last year, our used business was up and we think that’s a perfect opportunity for us to mitigate any softness on the new side.”
As Camping World continues to monitor inventory levels, it is also accelerating its Gander RV rollout plan. The company in January said it had opened 12 Gander RV locations since the first opened in Kenosha, WI, in the late summer of 2018, and that 11 more are planned to open soon.
The first Gander RV location opened inside a revamped Gander Outdoors store, and since the opening of the Kenosha location, the company has opened additional Gander RV locations in Ocala, FL; Augusta, GA; Fayetteville, NC; Huber Heights, OH; Jackson, TN; Amarillo, TX; Spring, TX; Tyler, TX; Roanoke, VA; DeForest, WI; Eau Claire, WI and Rothschild, WI.
Additional Gander RV locations opening soon include Anniston, AL; Wichita, KS; Baxter, MN; Hermantown, MN; Forest Lake, MN; Cicero, NY; Breaux Bridge (Lafayette), LA; Springfield, IL; Marion, IL; Coldwater, MI; and Statesville, NC.
Additional dealerships are planned for the remainder of the year. These locations will operate similarly to the company’s other RV dealerships, complete with RV sales, service and parts and accessories.
“We view our existing Gander Outdoors stores as the most cost-effective opportunity to increase our RV sales presence and grow our Good Sam Club, particularly in key RV markets where we are underpenetrated,” Lemonis said.
Although Gander costs took a toll on net income in the fourth quarter, the company views this play as critical for tapping into long-term RV growth trends, even as the near-term trends are a little murkier.
“Our continued expansion through the opening of Gander RV Sales locations, opportunistic and strategic acquisitions and new store development, reinforces our focus on expanding our national footprint and providing consumers with the ultimate assortment of RV and outdoor related products and services,” said Camping World President Brent Moody.
Ramping up the Gander RV footprint is another way the company hopes to tap into the continued blurring of RV and outdoor consumers, whether that’s in purchasing habits or channel selection.
“Our comprehensive network of assets and offerings allows us to engage with consumers in a variety of ways and we are continuously developing ways to widen our customer funnel and increase our share of wallet across the RV and outdoor sector,” Lemonis said. “This includes expanding our RV and outdoor footprint through dealership acquisitions, building new RV and outdoor locations and expanding our product and service offerings. It also includes building Gander RV into a prominent brand that will allow us to have the No. 1 and No. 2 dealership networks in the marketplace.”
The Gander execution will determine much of the company’s fortunes in 2019, wrote Brett Andress of KeyBanc Capital Markets in a note to investors. So will the RV market, which might not be as strong as, say, 2017, but still has plenty of upside for a large player like Camping World, which can hone in on emerging industry trends.
“While Gander execution and spring retail data points are likely to dictate NT [near-term] trading patterns, we continue to view CWH’s roll-up story favorably, with LT [long-term] upside expected from the Gander Outdoors strategy, further consolidation of the fragmented independent dealer market and opportunistic greenfield development,” Andress wrote. “Expansion efforts aside, we believe CWH’s core stands to benefit from an extended RV up-cycle, with our outlook for LSD+ LT [low-single-digit, long-term] industry growth supported by the appeal of the RV lifestyle to an aging boomer cohort and incremental first-time millennial purchasers.”
Editor’s note: Look for more coverage on the RV market next week in SGB Executive. Our story on Monday will preview the upcoming RVX trade show in Salt Lake City, UT, and examine some macro industry trends. Photo courtesy Camping World Holdings Inc.
SGB Executive, Senior Business Editor