10-Q: Camping World Holdings Reports Mixed Q1 Results Amidst Strategic Review

Camping World Holdings experienced a net loss in the first quarter of 2024, impacted by lower used vehicle sales and margins, while new vehicle sales saw a modest increase.

Summary

• Camping World Holdings reported a net loss of $22.3 million for the first quarter of 2024, compared to a net income of $3.2 million in the same period last year.
• The company's total revenue decreased by 8.3% year-over-year to $1.36 billion, primarily due to a significant drop in used vehicle sales.
• New vehicle sales saw a slight increase, but this was offset by a decrease in average selling prices.
• Used vehicle sales experienced a substantial decline, both in volume and average selling price, impacting overall revenue and gross profit.
• The company is currently undergoing a strategic review of its Good Sam business, which could lead to a potential sale or spin-off.
• The company's active customer base decreased by 8.8% year-over-year to 4.8 million.
• The company's Good Sam Club membership decreased by 3.2% year-over-year to 1.96 million, excluding free basic plan members.
• The company's same store revenue decreased by 11.8% year-over-year to $1.19 billion.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to a net loss, declining revenue, and reduced margins, particularly in used vehicles. While there are some positive aspects, such as increased new vehicle sales, the overall tone is cautious and indicates challenges ahead.

Positives

• New vehicle unit sales increased by 21.3% year-over-year.
• Finance and insurance revenue increased by 4.4% year-over-year.
• The company's service bays increased by 6.5% year-over-year to 2,857.
• The company completed acquisitions of multiple RV dealerships, adding nine locations.
• The company's new vehicle inventory per dealer location increased by 7.3% year-over-year.

Negatives

• Used vehicle unit sales decreased by 14% year-over-year.
• Used vehicle gross profit decreased by 42.5% year-over-year.
• Products, service and other revenue decreased by 14.3% year-over-year.
• Good Sam Club revenue decreased by 3.2% year-over-year.
• The company's active customer base decreased by 8.8% year-over-year.
• The company's same store revenue decreased by 11.8% year-over-year.
• The company's used vehicle inventory per dealer location decreased by 32% year-over-year.
• The company's new vehicle inventory turnover decreased by 13.1% year-over-year.
• The company's used vehicle inventory turnover decreased by 10.6% year-over-year.

Risks

• The company is undergoing a strategic review of its Good Sam business, which could lead to a potential sale or spin-off, creating uncertainty.
• The company's financial performance is subject to seasonality, with higher sales and profits typically occurring in the spring and summer months.
• The company's business is subject to general economic conditions, including inflation and interest rates.
• The company's business is subject to the availability of financing to the company and its customers.
• The company's business is subject to fuel shortages or high prices for fuel.
• The company's business is subject to trends in the RV industry and changes in consumer preferences.
• The company's business is subject to competition in the market for services, protection plans, products and resources targeting the RV lifestyle or RV enthusiast.
• The company's business is subject to risks related to expansion into new markets, businesses, or product lines.
• The company's business is subject to risks related to the company's ability to maintain the strength and value of its brands.
• The company's business is subject to risks related to the company's ability to successfully order and manage its inventory to reflect consumer demand in a volatile market.
• The company's business is subject to risks related to disruptions to or breaches of the company's or its third party providers information technology systems.
• The company's business is subject to risks related to the company's ability to operate and expand its business and to respond to changing business and economic conditions, which depends on the availability of adequate capital.
• The company's business is subject to risks related to restrictive covenants imposed by the company's Senior Secured Credit Facilities and Floor Plan Facility.
• The company's business is subject to risks related to COVID-19 and related impacts on the company's business.
• The company's business is subject to risks related to the company's ability to execute and achieve the expected benefits of its restructuring activities or cost cutting initiatives.
• The company's business is subject to risks related to the company's reliance on its fulfillment and distribution centers for its retail and e-commerce businesses.
• The company's business is subject to risks related to ongoing class action lawsuits against the company and certain of its officers and directors.
• The company's business is subject to risks related to natural disasters, unusual weather conditions, epidemic outbreaks, terrorist acts and political events.
• The company's business is subject to risks related to the company's dependence on its relationships with third party providers of services, protection plans, products and resources.
• The company's business is subject to risks related to delays, new or increased tariffs, increased cost or quality control deficiencies in the importation of the company's products manufactured abroad.
• The company's business is subject to risks related to whether third party lending institutions and insurance companies will continue to provide financing for RV purchases.
• The company's business is subject to risks related to the company's ability to retain senior executives and attract and retain other qualified employees.
• The company's business is subject to risks associated with leasing substantial amounts of space.
• The company's business is subject to risks associated with the company's private brand offerings.
• The company's business is subject to numerous federal, state and local regulations.
• The company's business is subject to risks related to changes in government policies and legislation.
• The company's business is subject to risks related to the company's failure to comply with certain environmental regulations.
• The company's business is subject to risks related to climate change and other environmental, social, and governance matters.
• The company's business is subject to risks related to a failure in the company's e-commerce operations, security breaches and cybersecurity risks.
• The company's business is subject to risks related to the company's inability to enforce its intellectual property rights and accusations of the company's infringement on the intellectual property rights of third parties.
• The company's business is subject to risks related to the company's inability to maintain or upgrade its information technology systems or its inability to convert to alternate systems in an efficient and timely manner.
• The company's business is subject to risks related to product liability claims if people or property are harmed by the products the company sells and other litigation risks.
• The company's business is subject to risks related to the company's pending litigation.
• The company's business is subject to risks associated with the company's private brand offerings.
• The company's business is subject to the possibility of future asset impairment charges for goodwill, intangible assets or other long-lived assets.
• The company's business is subject to potential litigation relating to products the company sells or sold.
• Marcus Lemonis, through his beneficial ownership of the company's shares directly or indirectly held by ML Acquisition Company, LLC and ML RV Group, LLC, has substantial control over the company including matters requiring approval by the company's stockholders.
• The company is exempt from certain corporate governance requirements that the company qualifies for, and relies on, due to the fact that the company is a controlled company within the meaning of the New York Stock Exchange, or NYSE, listing requirements.
• The company's business is subject to risks related to whether the company is able to realize any tax benefits that may arise from the company's organizational structure and any redemptions of CWGS Enterprises, LLC common units for cash or stock.
• The company's business is subject to other risks relating to the company's organizational structure and to ownership of shares of the company's Class A common stock.

Future Outlook

The company expects to continue to experience variability in revenue, net income, and cash flows due to seasonality. The company expects to continue to see declines in Good Sam Club members as a result of a price increase and the availability of a free basic plan. The company expects to spend between $70 million and $90 million on dealership expansion over the next twelve months. The company believes that its sources of liquidity and capital will be sufficient to finance its continued operations, growth strategy, and other obligations for at least the next twelve months.

Management Comments

• Management believes that the company's sources of liquidity and capital will be sufficient to finance its continued operations, growth strategy, and other obligations for at least the next twelve months.
• Management believes that the decrease in the quarterly cash dividend will help the company continue to execute its expansion plans through accretive RV dealership acquisitions.

Industry Context

The RV industry is experiencing a slowdown in wholesale shipments, with a 36.5% decrease in 2023 compared to 2022. The company is also experiencing deflation in new and used vehicle prices. The company is focused on clearing out pre-2024 model year vehicles to improve inventory mix. The company is also adjusting its procurement cost of used vehicles to reflect lower average market prices.

Comparison to Industry Standards

• The company's new vehicle gross margin of 13.9% is within the range of pre-COVID-19 pandemic periods, indicating a return to more normal levels.
• The company's used vehicle gross margin of 17.5% is significantly lower than pre-COVID-19 pandemic periods, reflecting the impact of lower prices and higher inventory costs.
• The company's same store revenue decrease of 11.8% indicates a weaker performance compared to the overall industry, which is expected to see a slow rise in RV shipments for the first half of 2024.
• The company's active customer base decrease of 8.8% indicates a loss of market share compared to the overall industry.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in ongoing litigation related to the Weissmann Complaint, Tumbleweed Complaint, and Precise Complaint.
• The company is awaiting a decision from the arbitrator in the Weissmann and Tumbleweed arbitrations.
• The company has reached a settlement agreement in the Precise Complaint.

Related Party Transactions

• FreedomRoads leases various RV dealership locations from managers and officers.
• The company's Chairman and Chief Executive Officer had personally guaranteed the Lincolnshire Lease.

Stakeholder Impact

• Shareholders are impacted by the net loss and decreased revenue.
• Employees may be impacted by potential restructuring activities.
• Customers may be impacted by changes in pricing and product availability.
• Suppliers may be impacted by changes in the company's purchasing patterns.
• Creditors may be impacted by the company's debt obligations and financial performance.

Next Steps

• The company will continue to evaluate strategic alternatives for its Good Sam business.
• The company will focus on clearing out pre-2024 model year vehicles to improve inventory mix.
• The company will continue to adjust its procurement cost of used vehicles to reflect lower average market prices.
• The company will continue to execute its expansion plans through accretive RV dealership acquisitions.
• The company will continue to monitor and manage its debt obligations and interest rate exposure.

Key Dates

Keywords

RV, Recreational Vehicles, Camping World, Used Vehicles, New Vehicles, Good Sam, Retail, Dealership, Finance, Insurance, Restructuring, Acquisition