CWH.NYSECamping World Holdings, INC
10-Q: Camping World Holdings Reports Mixed Q2 Results Amidst RV Market Shift
Sentiment:
Quarterly Report
Camping World Holdings experienced a decrease in revenue and profitability in the second quarter of 2024, influenced by a changing RV market and strategic adjustments.
Worse than expectedThe company's net income attributable to Camping World Holdings decreased significantly by 66.0% year-over-year.The company's same-store revenue decreased by 10.8%, indicating a decline in sales performance at established locations.The company's used vehicle revenue decreased by 22.8%, reflecting a significant downturn in that segment.
Summary
- Camping World Holdings reported a decrease in total revenue to $1.806 billion for the second quarter of 2024, compared to $1.901 billion in the same period last year.
- Net income attributable to Camping World Holdings was $9.771 million, a significant decrease from $28.703 million in the second quarter of 2023.
- The company saw a decrease in used vehicle revenue by 22.8%, while new vehicle revenue increased by 5.8%.
- Gross profit decreased to $547.659 million from $571.102 million year-over-year.
- The company's same-store revenue decreased by 10.8%, primarily driven by a decline in used vehicle sales.
- The average selling price of new vehicles decreased by 9.5% and used vehicles by 12.6%.
- The company's active customer base decreased by 8.7% to 4,762,376.
- Good Sam Club memberships also decreased by 7.7% to 1,880,126.
- The company's floor plan interest expense increased by 34.5% due to higher average balances and interest rates.
- The company divested its RV furniture business, resulting in a loss of $7.1 million.
Sentiment
Score: 4
Explanation: The document presents a mixed picture with some positive aspects like increased new vehicle sales and finance revenue, but the overall tone is negative due to decreased profitability, used vehicle sales, and same-store revenue. The strategic review of the Good Sam business also adds uncertainty.
Positives
- New vehicle unit sales increased by 16.9%.
- Finance and insurance revenue increased by 7.2%.
- Products, service and other gross profit increased by 8.8%.
- The company's new vehicle gross margin remained relatively unchanged at 15.3%.
- The company acquired multiple RV dealerships, expanding its network.
- The company's finance and insurance gross profit as a percentage of total vehicle revenue increased by 176 bps to 13.5%.
Negatives
- Used vehicle revenue decreased by 22.8%.
- Used vehicle gross margin decreased due to discounting to maintain lower cost alternatives.
- Same-store revenue decreased by 10.8%.
- Active customer base decreased by 8.7%.
- Good Sam Club memberships decreased by 7.7%.
- Floor plan interest expense increased by 34.5%.
- The company divested its RV furniture business, resulting in a loss of $7.1 million.
Risks
- The company faces risks related to general economic conditions, including inflation and interest rates.
- There are risks associated with the availability of financing to the company and its customers.
- The company is exposed to risks related to fuel shortages or high prices.
- The company's performance is dependent on the well-being and popularity of its manufacturers.
- The company faces competition in the market for services, protection plans, products and resources targeting the RV lifestyle.
- The company is subject to risks related to expansion into new markets and product lines.
- The company is exposed to risks related to inventory management and fluctuations in same-store revenue.
- The company is subject to risks related to disruptions to its information technology systems.
- The company is subject to risks related to ongoing class action lawsuits.
- The company is subject to risks related to natural disasters and other external events.
- The company is subject to risks related to its dependence on third-party providers.
- The company is subject to risks related to tariffs and increased costs of imported products.
- The company is subject to risks related to its ability to retain senior executives and attract qualified employees.
- The company is subject to risks related to leasing substantial amounts of space.
- The company is subject to risks related to its private brand offerings.
- The company is subject to risks related to government policies and legislation.
- The company is subject to risks related to climate change and other environmental, social, and governance matters.
- The company is subject to risks related to its e-commerce operations and cybersecurity.
- The company is subject to risks related to intellectual property rights.
- The company is subject to risks related to product liability claims and other litigation.
- The company is subject to risks related to potential asset impairment charges.
- The company is subject to risks related to Marcus Lemonis's substantial control over the company.
- The company is subject to risks related to its organizational structure and ownership of Class A common stock.
Future Outlook
The company expects RV wholesale shipments to climb into the mid-300,000 unit range by year-end 2024, before climbing higher in 2025. The company also 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 $40.0 million and $90.0 million on dealership expansion over the next twelve months.
Management Comments
- Management is reviewing potential strategic alternatives for the Good Sam business, which could include a potential sale, spin off or other disposition of the business.
- 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 expects that the ongoing lease-related costs relating to the 2019 Strategic Shift and Active Sports Restructuring, net of associated sublease income, will be less than $4.0 million and $1.1 million per year, respectively.
Industry Context
The RV industry is experiencing a shift, with wholesale shipments down in 2023 but expected to increase in 2024. The per-unit cost of new vehicles has been significantly higher than pre-COVID-19 pandemic levels, but is now decreasing. These new vehicle price pressures have resulted in a decline in residual values of used vehicles.
Comparison to Industry Standards
- The company's new vehicle gross margins in the second quarter of 2024 were relatively similar to the second quarter of 2023 and slightly above the range of gross margins for the pre-COVID-19 pandemic periods.
- Used vehicle gross margins were negatively impacted in the second quarter of 2024 from the discounting necessary to maintain used vehicles as a lower cost alternative for customers.
- The company's unit sales mix of new vehicles was 58.4% and used vehicles was 41.6% in the second quarter of 2024, compared to pre-COVID-19 pandemic periods where new vehicle sales were between 61.6% and 72.7% and used vehicle sales were between 27.3% and 38.4%.
Management Changes
| Role | Previous Person | New Person | Effective Date | Reason |
|---|---|---|---|---|
| President | Brent L. Moody | Matthew D. Wagner | July 1, 2024 | Brent L. Moody resigned from his position as President. |
| Chief Financial Officer | Karin L. Bell | Thomas E. Kirn | July 1, 2024 | Karin L. Bell resigned from her position as Chief Financial Officer. |
Legal Proceedings
- The company is involved in ongoing litigation related to the Weissmann Complaint, the Tumbleweed Complaint, and the Precise Complaint.
- The arbitrator issued an interim award in favor of FR Holdco in the Weissmann case and in favor of all respondents in the Tumbleweed case.
- The Bankruptcy Court approved the Settlement Agreement in the Precise case.
Related Party Transactions
- FreedomRoads leases various RV dealership locations from managers and officers. During the six months ended June 30, 2023, the related party lease expense for these locations was $3.0 million. For the six months ended June 30, 2024 there was no related party lease expense.
- From January 2012 until its expiration in March 2024, FreedomRoads was the lessee of what is now its previous corporate headquarters in Lincolnshire, Illinois. There were $0.2 million of rental payments for this lease for the three months ended June 30, 2023. For the six months ended June 30, 2024 and 2023, rental payments for the Lincolnshire Lease, including common area maintenance charges, were $0.2 million and $0.5 million, respectively.
Stakeholder Impact
- Shareholders may be concerned about the decrease in net income and same-store revenue.
- Employees may be affected by the restructuring activities and changes in management.
- Customers may experience changes in pricing and product availability.
- Suppliers may be impacted by the company's strategic review of the Good Sam business and changes in inventory management.
- Creditors may be concerned about the company's increased debt levels and decreased profitability.
Next Steps
- The company will continue to evaluate strategic alternatives for its Good Sam business.
- The company will continue to expand its dealership network through acquisitions and new store openings.
- The company will continue to monitor and manage its inventory levels.
- The company will continue to monitor and manage its debt levels.
Key Dates
| Date | Description |
|---|---|
| May 3, 2021 | Date of the Prior Employment Agreement with Brent L. Moody. |
| June 22, 2021 | Date FreedomRoads Holding Company, LLC filed the Weissmann Complaint. |
| November 10, 2021 | Date Tumbleweed Tiny House Company, Inc. filed the Tumbleweed Complaint. |
| February 18, 2022 | Date NBCUniversal, CNBC, and Machete filed a motion to compel arbitration in the Weissmann case. |
| May 3, 2022 | Date Lynn E. Feldman, Esquire, filed the Precise Complaint. |
| May 5, 2022 | Date an agreed order was filed staying the litigation in favor of arbitration in the Weissmann case. |
| May 17, 2022 | Date Tumbleweed served its arbitration demand on FR Holdco, CW, and Marcus Lemonis. |
| July 7, 2022 | Date Weissmann filed his response and counterclaims in the arbitration. |
| July 20, 2022 | Date the Tumbleweed Complaint was consolidated with the Weissmann Complaint. |
| January 1, 2023 | Date giftees of common units redeemed 2.0 million common units in CWGS, LLC for 2.0 million shares of the Companys Class A common stock. |
| March 1, 2023 | Date management of the Company determined to implement plans to exit and restructure operations of Active Sports, LLC. |
| April 4, 2023 | Date the Precise Estates arbitration demand was tried before a single arbitrator. |
| May 31, 2023 | Date the Arbitration was concluded and an award was entered by the Arbitrator against the Precise Estate. |
| June 13, 2023 | Date the Trustee filed a notice of appeal of the Final Award with JAMS. |
| June 29, 2023 | Date CW advanced the Trustees portion of the fee required by JAMS to advance the appeal. |
| July 5, 2023 | Date CW filed an application in the USBC seeking an order allowing the JAMS fee as an administrative expense of the Precise Estate. |
| July 14, 2023 | Date the Trustee and respondents, including CW, filed a stipulation and agreed order. |
| July 17, 2023 | Date the USBC entered the Stipulation as an order. |
| August 1, 2023 | Date the Board of Directors approved a decrease of the quarterly cash dividend to $0.125 per share of Class A common stock. |
| August 14, 2023 | Date JAMS closed the arbitration in the Precise case. |
| September 25, 2023 | Date the Superior Court of the State of California confirmed the arbitration award in the Precise case. |
| October 6, 2023 | Date defendants filed an application in the Bankruptcy Court seeking to have the fee award deemed an administrative expense in the Precise Estate. |
| January 17, 2024 | Date the company announced that it is reviewing potential strategic alternatives for its Good Sam business. |
| March 11, 2024 | Date FR Holdcos arbitration demand and the Weissmann arbitration demand were tried before a single arbitrator. |
| April 4, 2024 | Date the Trustee, CW, and the Precise Estate entered into a settlement agreement. |
| May 3, 2024 | Date the Company closed on the sale of certain assets of the RV and Outdoor Retail segments RV furniture business (CWDS). |
| May 7, 2024 | Date the Bankruptcy Court approved the Settlement Agreement in the Precise case. |
| May 23, 2024 | Date the arbitrator issued an interim award in favor of FR Holdco in the Weissmann case and in favor of all respondents in the Tumbleweed case. |
| June 1, 2024 | Date Brent L. Moody and Karin L. Bell announced their resignations from their President and Chief Financial Officer positions, respectively. |
| June 30, 2024 | End of the reporting period. |
| July 1, 2024 | Effective date of the amended employment agreements for Brent L. Moody, Karin L. Bell, Matthew D. Wagner, Thomas E. Kirn, and Lindsey J. Christen. |
| July 31, 2024 | Date the arbitrator heard the parties arguments on the amount of attorneys fees and costs owed to FR Holdco, CW, Lemonis, and the other defendants in the Weissmann and Tumbleweed cases. |
| December 31, 2024 | Retirement date for Brent L. Moody. |
Keywords
recreational vehicles, RV, camping, outdoor retail, Good Sam, dealerships, finance, insurance, inventory, restructuring, same-store sales, EBITDA
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