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spk02: Good morning and welcome to the Camping World Holdings conference call to discuss financial results for the first quarter fiscal year of 2022. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will follow at that time. Please be advised that this call is being recorded and the reproduction of the call in whole or in part is not permitted without written authorization from the company. Participating in the call today are Marcus Lemonis, Chairman and Chief Executive Officer, Brink Moody, President, Karen Bell, Chief Financial Officer, Tamara Ward, Chief Operating Officer, Matthew Wagner, Executive Vice President, Lindsay Christen, Executive Vice President and General Counsel, and Tom Kern, Chief Accounting Officer. I will turn the call over to Lindsay Christen to get us started. Please go ahead, ma'am.
spk10: A press release covering the company's first quarter 2022 financial results was issued yesterday afternoon, and a copy of that press release can be found in the investor relations section on the company's website. Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding the impact of COVID-19 on our business, financial results, and financial condition, our business goals, plans, abilities, and opportunities, industry and customer trends, our recently disclosed cybersecurity incidents, our strategic initiatives, acquisitions, and planned capital expenditures, potential stock repurchases, future dividend payments, increases in our borrowings, our liquidity and future compliance with our financial covenants, and anticipated financial performance. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the risk factors section in our Form 10-K, our Form 10-Qs, and other reports on file with the SEC. Any forward-looking statements represent our views only as of today, and we undertake no obligation to update them. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA, and adjusted earnings per share diluted, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial statements are included in our earnings release and on our website. All comparisons of our 2022 first quarter results are made against the 2021 first quarter results unless otherwise noted. I'll now turn the call over to Marcus.
spk03: Thanks, Lynn. Good morning and thanks for joining us. I'm here with members of our senior management team as we report results for the first quarter 2022. On today's call, we're going to lay out our financial results and the supporting comments around them. We'll also discuss macroeconomic industry trends with our short and long-term view. As all of you know, 2021 was a historic year for Camping World, and 2020 was right behind that. Our industry grew at explosive rates during the pandemic, but it's important to remember the historical path leading to 2020. For over 50 years, RVers have loved this lifestyle, and the industry has grown every single decade since inception. From our perspective, the world's passion for the outdoors has never been hotter. With new and younger buyers coming into the market and new, lighter, more innovative units being produced, our prospective customer file continues to grow. Look, I've been in this industry for almost 20 years now, and I'm going to continue to work diligently to ease people's concern when they see a flattening or a reduction compared to prior years of new RVs sold. While some see temporary shifts as a risk, Our company sees it as a new launch pad, an opportunity to strengthen our infrastructure, improve areas of weakness, and most importantly, make opportunistic and strategic acquisitions that further strengthen our foundation. We're proud to report for the first quarter of 22, we generated record revenue and saw that trend continue into April. Our total sales for the quarter were nearly $1.7 billion, up over last year by $105 million. While some of that revenue increase is attributed to a rise in prices year over year, it is also true that some of that came from an increase in our service and repair business, specifically when you eliminate the sale of outdoor categories that we exited in Q3 of 2021. It was also bolstered by our core good sand business, as well as our used RV business. Our adjusted EBITDA for the quarter totals $182 million compared to $189 million a year ago, our second highest first quarter since the inception of our company. The primary change to adjusted EBITDA was due to rebalancing our distribution centers. costs associated with opening new locations added to the system our cyber incident and our increased floor plan expense our gross profit for the quarter was up 40 million dollars from the previous year stemming from a combination of same store contribution and additional locations added on to the platform over the last 12 months Our SG&A was also up, but it was attributable to those same additional stores we added and the before-mentioned expenses. One metric that we focus on heavily is our variable cost structure. It is important for us that as the different segments come under pressure, either in revenue or in margin, that we maintain our variable approach to expenses, namely compensation. For the quarter, we were pleased that our expenses as a percentage of gross were 69%, which is well below the historical Q1 average. Including in that number were the expenses from the internal adjustments to our supply chain process, separation costs for right-sizing our staff, and the cyber incident. Those items are what drove the increase up from roughly 65% the same quarter last year. But we're proud of the overall result, and we recognize that there's a constant need for improvement. When we field investor questions about our business and the industry, these questions commonly emerge. Number one, what is the current status of inventory in the industry? How will the stabilization of the supply chain affect margins? And will the manufacturers resist the temptation to overproduce? And what are the financial factors that have the greatest impact on this industry? Let's start with the inventory levels. From our perspective, the products that make up the bulk of the industry, which are towables, are now adequately restocked. As a reminder, right now, the start of the key selling season is when inventory is at its highest on a same-store basis. Over the next few quarters, Through the natural selling season, it will appropriately reduce. We are hopeful, and we rely on manufacturers to shift back to production that matches retail demand. In an abundance of caution, we have positioned ourselves strategically in case that doesn't happen, with rigorous and disciplined forecasting and ordering for our own just-in-time process. As for our used RV business, we have continued to see progress. We stacked on an additional $100 million of used revenue growth for the quarter on top of the $1.7 billion of used revenue that we reported at the end of last year. We reached a peak used inventory of over $423 million in the quarter. but have since made the decision to increase our turns, essentially reducing that inventory. We continue to see robust demand for used and believe it to be a great alternative, specifically in a rate-increasing environment, so that we can provide multiple payment options for our consumers. In addition, it's important to note that we closely monitor values on a daily basis. and we run a very tight day supply of use of less than 100 days. Turning to the supply side, the scarcity of RV inventory that existed during 2021 has for the most part repaired itself. From our perspective, it happened a little quicker than anybody anticipated. And that's a credit to the work done by manufacturers to keep our industry moving. With the shelves now restocked, we are now operating with stocking levels on the new side similarly to historical levels. We hope to maintain these levels, but see manufacturing production discipline as a key to that. As we move through the balance of the year, we anticipate margins continuing to normalize on the new side. However, we expect used margins to be more consistent with historical five-year averages, which are pretty good. Lastly, when we look at the macro factors that impact new RV sales, it's easy to recognize the pressure. Consumer confidence, inflation, rising interest rates, et cetera. But for us, it's more complex than that. When you study our business, it's true that new RV sales are a big part of our company's revenue. However, it's also important to remember the other key areas that serve the installed base of RVers. Based on retail data over the last several years, we believe the installed base of RVers grew by over 1 million in the last several years. The installed base feeds our high-margin service collision and parts business, our recurring steady and predictable good sand business, which happened to grow 9% quarter over quarter, and our used RV business, which was up over 35% in revenue. As a management team, it's our job to anticipate changes and adjust our business for them. A common discussion we have is, what would our business look like if the new RV sales retracted at different levels? We sensitize the model. If you make the assumption that revenue is the only factor in determining the variability of our business results, then this is often the guide that I use. As a reminder, we generated 3.3 billion of new RV revenue in 2021. For every $1 of new RV revenue reduction that our company could experience, we would eliminate, we would expect to eliminate approximately 30 cents in gross profit related to that $1 of revenue. After factoring in the elimination of SG&A attributable to that 30 cents of gross profit, which is primarily compensation and commission, The expected impact to EBITDA could be around 20 to 25 cents, so we don't lose every dollar. This small example does not include any additional modifications that we would make to SG&A as a result of the reduction in revenue. The reason that I provide this map is to give all of our investors a clear path to their own expected questions. What happens if? And I hear that a lot. After doing this for 20 years, we've learned a great deal. We understand the importance of a variable cost structure, and our results show that. The importance of acknowledging what the market is both giving you and telling you, and most importantly, being nimble in all cases to maximize our results. While we can't forecast exactly where the economy is going, we do know that our core business fundamentals are solid We're proud to have delivered meaningful dividends since going public, quarter after quarter, with several increases along the way. To be clear, we are confident in that strategy. We're also committed to growing the dividend through consistent improvement in our business results and a disciplined stock repurchase program. During the quarter, we repurchased 2.6 million shares totaling $80 million. In the last year, we have reduced our net outstanding total common units by 5.4 million units. Our outstanding fully exchanged share count today sits at 83.7 million in both Class A shares and common units held by the non-controlling interest. That's down from 89.2 million just a year ago. As we head into the core selling months for our company, we are pleased with revenue trends in April and through today. And we're going to continue to monitor closely those factors that affect our industry, our consumers, and your investment. As part of that investment, our commitment is to grow profitably. We added four stores in the first quarter. and will continue to be disciplined in meeting the range of new locations we forecasted. Between acquisitions that are signed and new stores that are under construction, we believe we'll finish the year with no less than 14 new operating locations. On an annualized basis, with maturity, We expect those locations to add approximately a half a billion dollars of revenue with profitability consistent with our other mature locations. Let me clarify, that's on an annualized basis with maturity. Lastly, we are making great progress on two specific fronts that we've spoken to you about in the past. First, our Good Sam RV peer-to-peer rental platform. We're experiencing significant month-over-month growth as we enter season. And it's a new business. With rental dollars processed through the platform in March of 22, over seven times higher compared to the end of 2021. Our rental units on the platform have grown over 67% from the end of the year to now. to the end of the quarter, with free relationships setting up the platform for continued growth at scale throughout the remainder of the 22-year. Secondly, by the end of Q2 2022, RVs.com expects to launch our beta end-to-end RV purchasing experience in specific states. This digital consumer experience, including unit selection, finance, and home delivery, would allow our company to serve customers well beyond the market that we currently operate in. Our company, unlike some other fully digital automotive companies, will be able to sell both new and used in 42 states where we currently have a physical presence and license today. Over the next 24 months, we anticipate operating a physical location in 47 of the 48 continuous states consistent with the goal we laid out last year. I'll now turn it back over to the operator for questions.
spk02: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and then 1 on your telephone keypad. A confirmation terminal indicator line is in the question queue. You may press star and then 2 if you would like to remove yourself from the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Craig Kinison of FIG. Please go ahead with your question.
spk05: Hey, good morning. Thanks for taking my question and for the summary of your results. I wanted to ask about GPU or gross profit per unit on your new business. You had mentioned that inventory is now back to optimal levels. I'm wondering if that means We should look at GPUs coming down further to be more consistent with what you had on a pre-pandemic basis, or if you think they can hang in at a higher level.
spk03: Well, you know, obviously, Craig, with a traditional supply and demand curve, there is going to be pressures on margins as the competitive landscape ramps up. But it is important to note that we do not believe that we are going to return in the short term to margins like we experienced in 18 and 19. And so when we talk about pre-pandemic margins, we want to extract 18 and 19 because there was a glut of inventory in the marketplace. But I want to caveat that. A return to 18 and 19 margins could happen if, but we don't expect it to, the manufacturers continue to produce at a rate that far exceeds retail demand. And from the conversations that we've had with all the manufacturers, I think everybody learned their lesson. We think everybody learned their lesson. But we have to be clear, we're pretty good on inventory right now. And so we have seen some pressure in the first quarter, as you saw by our results, on the new side, but are very pleased and very confident that we can continue with pretty decent margins on the used side. So we're comfortable. We have forecasted it internally. And one of the things that we are looking to do consistent with what we did in Q1 is continue to make sure that we're getting our fair share. We do not want to get our fair share by creating a race to the bottom. And we are a bellwether both for pricing and for promotion, and we believe that a healthy industry by all dealers and all manufacturers benefits us just the same. And so we want to make sure that we're not creating unnecessary pressure on margins along with the manufacturers doing the same.
spk05: That's very helpful. And then I think I heard you say that you plan to reduce your investment in in used RVs. I'm curious if that's true. What drove that decision? And then if you could follow up, I believe last quarter you had targeted a goal of getting that used RV business to $3 billion over some horizon, like 18 months or so. Is that still attainable or just your approach to that market change as you try to balance inventory?
spk03: No, I think ultimately what happens, anytime you're going to try to test new highs, you have to put more on the table to see what the appetite of the market is. And we want to be very disciplined in recognizing when we can achieve increases in sales. much like we did in the first quarter, we want to be prudent about the amount of capital we have deployed to achieve those goals. And when we ran our models, we believe that reducing that inventory at or slightly below $400 million would yield us about the same results, but most importantly, keep the margins where we want them. And while we want to chase revenue, we want to make sure that we're not breaking our margin model. And because we manage our day supply so tightly, looking at a goal of less than 100 days, and we want to have turns at four times, We want to find that balance. And as you know, Craig, when we try something, if it works, we go for it. And if we want to make slight adjustments to be sure that we're efficient with our capital, we're not scared to make that move as well. So it's a slight reduction from 423 back down to call it 390s to 400s. If we continue to see positive results in the second quarter, which we did in April, and we can do it on 380 or 375, we're going to continue to finesse that number so we get the optimum result based on the capital that's deployed.
spk05: Got it. Hey, thank you.
spk02: Our next question is from Britt Andrews of KeyBank. Please go ahead with your question.
spk07: Hey, good morning. Following up on Craig's question, I hear you on not returning to 2018, 2019 levels, but on the new vehicle GPU, could you maybe help us understand where you entered the quarter and maybe where you ended it or exited it into April? I think we're just trying to get a little bit more color on how, you know, the second quarter and kind of the back half could play out based on maybe where we are today.
spk03: Yeah, I'm going to let Matt cover that.
spk01: morning as we entered into this year we obviously were very optimistic with uh 2021 results and We took what the market was giving us at that time, and we saw a little bit of a change from our GPUs at the end of last year heading into this year, but frankly, not a very material change heading into the year. By February, we saw a little bit of an adjustment, and we made some changes in our online pricing environment. And then by March, we continued to see that sustain. Heading into April, we've really not seen much of a change in terms of those GPUs, and we're confident that throughout this quarter we'll just continue to modify as necessary based upon whatever demand trends we're seeing out there and what sort of pricing logic we want to make certain that we're using to actually garner as much opportunity out there as possible as marcus said we're not going to have a race to the bottom at all and we don't see major fluctuations in short terms However, as we continue to see quarters elapse, and depending upon what the inventory situation is, then there's always the possibility that those GPUs could come down a little bit more over the coming quarters. What that is, I'd hate to speculate, as we like to manage based upon current demand, current supplies, and, of course, we recognize what our competitors are going to do to actually garner a little bit of attention, and we want to make certain that we're getting our fair share of that marketplace.
spk03: I think one thing that I'd like to add to that is I look at the trends and I look at our goals. and i combine those together and i wouldn't be surprised if the gpus in the second quarter were anywhere from a half a point to one point lower than the first quarter that we just reported as they stabilize into that number part of that is when we look at the core of our business and we look at attracting continuing to attract first-time buyers to the market We're taking a different approach both on how we present payments to the market in terms of affordability and making sure that we're leading the charge on those entry-level units. So we're still trying to sell a $13,000 unit arriving at call it $129, $139 monthly payment as we look to bring in new people into our ecosystem. We're not going to ever resist trying to capture that. And one metric that I thought was interesting is what happened to our trade percentages in the first quarter.
spk01: Well, we started to realize we're going back to those normalized levels of trade percentages. We're going back to 2020. We had that reduction in trade percentages where we were down in the teens at that point. However, we've reached that more sustainable level of a higher for 20 percent of trade in rates. And we've really maintained that same track over the past decade.
spk03: few quarters now at this point while continuing to see that returning buyer coming back into the marketplace as well as the first time buyers still showing up and so that's a good indicator for us is that when we continue to see that entry-level travel trailer still being a big part of our business and i can't recall what month it was it could have been march We had sold 800 of what we consider our entry-level unit, our Coleman 17B. That was the single biggest month we had had in that particular space. And it's important to note that we don't think that that 800 units of entry level came at the expense of a more expensive unit. We don't think that somebody said, I want to buy an RV and I'm now not going to buy the bigger one. We actually think we found new audiences in that quarter. And that's a big focus for us through the balance of the years, continuing to attract new buyers, not only to the industry, but more importantly to our business.
spk07: Got it. Okay. And then Marcus, we've been getting more questions lately on the dividend and the payout ratio. And look, I know no one here has a, perfect crystal ball on macro, but how low would EBITDA have to go before maybe you take a step back and think about the current dividend level?
spk03: We have no plans in the near term to modify our dividend strategy at all, and we have sensitized multiple scenarios to ensure that our strategy is sustainable.
spk02: Thank you. The next question is from Daniel Ingo of Stevens, Inc. Please go ahead.
spk09: Hi, this is Joe Enderlin on for Daniel. Thanks for taking our question. Noting the negative growth in Good Sam Club members, what do you think is driving that, and what do you think is going to drive positive growth moving forward?
spk03: We're actually very pleased with the performance of our Good Sam Club. It's important to note that when we exited the Gander business, and we exited the categories in Q3 of last year, particularly firearms, hunting equipment, fishing equipment, and apparel, that we lost a set of buyers that were part of that file. And we made a decision not to chase that particular buyer because the crossover between their behavior and our core RV behaviors didn't match up. And so for us, it's more of a cleansing to a pure file and we feel good that we've done that in our core RV customer particularly with our acquisitions and our new stores and our ability to add new names to our file we're positively seeing growth in some of those areas and so we're very happy with where that's happening but we understand through the third quarter of 2022 Both on the revenue side and on the membership side, we have to cleanse out all of the consumers and the revenue associated with those categories that we exited.
spk09: Thank you. That's super helpful. Just as a follow-up, it was noted in the release, the new and used inventory, partially driven by the easing of new vehicle supply chain, and in the prepared remarks, you know, new inventory closer to historical levels. Just wondering what's kind of driving the easing of supply chain or what is normalized, and then do you expect that's more of a structural step in the right direction, or could that be more of a temporary alleviation thing?
spk01: When you look at historic levels, we're still actually maintaining as an industry relatively light supply of inventory levels out in the field. However, we know as the largest dealer, we also have a disproportionate ability to be able to source from a variety of manufacturers, given our relationships with manufacturers to create exclusive products, exclusive brands. So over the past year and a half, as we saw that scarce supply of inventory, we worked diligently to make certain that we were not without these core products and floor plans. We feel good with all of the work the manufacturers put in that they've been able to take care of our inventory needs adequately well to make sure that we were well prepared heading into this season. However, we also wanted to make certain that we were more than covered heading into the season because we know that there's always certain things that could happen in the supply chain moving forward. We don't see any of that today, but we also know right now we're in April. I'm sorry, in May, excuse me, just ended April. And as we're heading into prime selling season, we are adequately prepared and we feel like we are well stocked to be able to capture what the market requires of us. And then heading on the back after the season, we see those inventory levels seasonally adjusting to be prepared for the natural sell season of actually reducing inventory levels.
spk03: Yeah, and let's maybe even add a layer of texture on there. We are monitoring on a daily basis the open orders that we have in our own system. And historically, we would always base those orders on what we forecasted with demand. And what threw a wrench into all that is when we had breaks in the supply chain. And so a lot more orders had to go into the system in anticipation that we knew we weren't going to get a great percentage of them. As those shelves have restocked and we brought some inventory forward for the selling season, we have already planned for reductions in inventory in excess of normal seasonal reductions. And so when you look at the amount of inventory that's going to come in in May, June, July, August, September, we expect to have right-sized our new inventory to a level that we're comfortable with. because we've proven that we can sell more with less. But we did not want to go into this selling season, particularly with COVID still having a presence in Asia and other markets where parts and pieces were coming from, that the supply chain could get disrupted in May, June, July, and August. And so we brought some inventory forward, But let's be very clear. As we take inventory in over the next several months, it is our plan to take inventory in at a slower rate than we're selling it. more than we normally would as we seasonally adjust. And so however much people want to read through those lines, I'll make it more clear than that. We are not going to be keeping our inventory levels where they're at today as we go through the balance of the year because we recognize the risk associated with inventory and the importance of the disciplines that have made us a lot of money in the last several years and are not going to give that up at anybody's expense, at our own expense, excuse me.
spk09: Thank you, guys. That's super helpful. That's all for me.
spk02: Our next question is from Mark Swartz of QRIS. Please go ahead. Thank you.
spk05: Hey, good morning, everyone. To start off, maybe, Marcus, with regards to the 22 outlook, I know you didn't provide much detail, but I think on the last call you had said that you had expected comparable sales to be slightly positive for the full year. Is that, I guess, is that still the outlook? And maybe give us some thoughts around, you know, how maybe that plays out throughout the year.
spk03: Yeah, you know, when we did have our last call, the market had not, the macroeconomic issues and the geopolitical issues had not really flared up to the extent that they have. And as we deal in a rate-increasing environment, it's tough. When you look at our new same-store sales for the first quarter, we were down 16%. I think that slightly outperformed the overall market. When we look at our use, we were relatively flat. And then on a combined basis, just how we look at it, we were down 11%. We expect those types of trends to continue and have adjusted our SG&A internally to address that. We know we have some further modifications to make, but I think based on the new information that presented itself after the last call, including the political unrest, including inflation, including all the other macro factors that affect consumer confidence, we have retracted our own selves, but still feel confident, very confident that our used business will continue to perform. We feel confident. We saw that in April again. We feel confident that our service parts and other business will continue to perform. And as a caveat to that, I received a lot of questions last night. Why is our service parts another down year over year? I want to clarify it one more time. our service parts and other went down because of the elimination of the gander products, firearms, hunting, fishing, and apparel. But when you extract that from the number, our pure labor, labor hours and parts associated with servicing and repair, performed very nicely, and in one of the months, we actually broke a record, all-time record. And then when we look at our good sand business, performing 9% up year over year, we feel confident that those things that deal with the installed base will be fine. What we're dealing with is the pressure on the part of the business that we don't have as much control over. That's the new RV sales. Here it is, for sure. We will make whatever adjustments we need to make to our compensation structures, to our fixed structures, to our advertising structures, to address whatever changes we see on a daily, weekly, monthly basis. But we think that that negative same-store sales number on the new side for the industry and for us will continue for the next couple of quarters.
spk05: Okay, that's helpful. Thank you for that. And then, Marcus, I think you had mentioned just in terms of maybe the act maturity kind of run rate for the 14 new locations that you expect to open this year is about half a billion. I think that backs into right around $40 million per location. Maybe help us think about how that ramp to maturity plays out. You know, is that something that's reached in two years, four years, five years? Just give us a little context around that.
spk03: Yeah, that's a great question. You know, we look at our stores today. I think our average store does about $43 million, and we wanted to cut that a little bit shorter because we make acquisitions that sometimes are north of that, and then we open stores north. that take a minute. On our new stores that we open, as we forecasted in the past, to get to a traditional performance level, it takes 18 to 24 months. We do sometimes see profitability happen a little earlier than that from a positive cash flow standpoint, but it doesn't reach the operating leverage from an EBITDA performance for about 18 to 24 months operating in that EBITDA margin. From an acquisition standpoint, oftentimes a variety of things happen. integrate into the system and they perform very well and they exceed our expectations because our systems go in and sometimes they retract slightly for 12 months but on average between 35 and 40 million dollars is what we expect to see on average within 24 months of them being in our system and if we can do that on a regular basis assuming that market conditions don't deteriorate at a rate that we don't want to deploy our capital that way, that we should be able to stash a half a billion, a half a billion, a half a billion every year, and then get other organic growth from our core businesses.
spk05: Okay, great. That's very helpful. Thanks, Marcus.
spk02: Our next question is from Joe Altadillo of Raymond James. Please go ahead.
spk04: Thanks. Hey, guys. Good morning. I guess first question, Marcus, we just want to go back to the comment you made to Mike's question on same-store unit sales. You mentioned new was down, call it 17% in Q1. Fifteen. Yep. And it sounds like you expect those trends to continue for the balance of the year. We do have some easier compares coming up. So maybe you can give us some color on what we saw in April. You sound pleased with April, but did those trends improve a little bit in the month?
spk03: They actually did not improve on the new side, but they did improve on the used side. And so as we talked about in the latter part of last year, our company's strategy when we started to sense in the latter part of last year that there could be some pressure around GPUs and potentially some pressure around volume, we had to pivot. We think that we'll continue to see that pressure temporarily on the new side as we're copying big numbers. And, you know, keep in mind when you're operating 189 stores, two units here, three units there, when you multiply it, it starts to add up very quickly. We're doing everything we can to replace that missed opportunity with finding either first-time buyers through our funnel that we haven't met before, which is probably why we performed slightly better than the marketplace, and our used business as an alternative based on people's payment preference or value proposition as well. The fact that we're performing nicely in light of these macroeconomic issues on the use side gives us a lot of bright light for the future because historically we relied on our service business, our retail business, our good stand business as the predictable part of our business. But now that we can add our use business in all segments, by the way, As another tent pole of predictability, we have set a goal as a company to take out that erratic behavior. But in terms of the new RV sales, our internal discussions have focused around what adjustments do we need to make to our overall business in anticipation of that new same store sales number staying in that same range. If we're wrong, If we're wrong and they repair themselves because the comp set is easier as we go through the back half of the year, then our business will be the beneficiary of it. But we don't want to anticipate it and then be wrong on the SG&A side.
spk04: Okay, got it. That's actually a nice segue to my second question, which is your comment earlier about OEMs being disciplined on production. You seem fairly optimistic there, and yet we look at the RVIA data, It's up double digits in Q1 on a record Q1 last year. So maybe help us understand or try to square those two data points, if you will.
spk03: I always try to hesitate commenting on any RVIA forecasting or data, and I always hesitate to try to speculate why the manufacturers would continue to produce at a rate when they can see the retail registration information as all of us can. But I also do know that the prudent managers that run those businesses also see the data. And when you think about lead times for ordering raw materials, for ordering frames, for ordering other parts and pieces, those lead times are not just in time. especially when you're coming out of the supply chain breaks that we had in the last 24 months, we compliment the manufacturers on hedging and bringing some of that raw product in speculatively. But Matt and I both had conversations with each individual manufacturer, both that we purchased from and even ones that we have no relationship with, telling them what we were seeing in January and in February. And we strongly encourage them to cut their production back to scale to meet and match what retail demand was. And in some cases, even withdraw it a little bit so that the inventory that's out there in the system can settle in. And then we can get into more of adjusting time inventory. We're confident that these manufacturers see the benefit of that in their own business. because the ignoring of that factor ultimately would lead to a glut in their finished goods yards rigorous and disciplined approach to ordering and purchasing on dealers sides and it would lead to unnecessary discounting by the manufacturer to clear those yards I don't believe they want to go back to that level of business where they're trying to push out product at all costs I don't believe they will do that and I think collectively as an industry we learned that lesson We are hopeful on anybody else's decisions but our own.
spk00: And so I have planned our forecasting and our ordering and our intake of inventory as if they're not going to.
spk03: And if they do, great. The inventory right sizes and margins stabilize.
spk04: Okay. Thank you.
spk05: He's suggesting maybe around the middle of 2021 that the industry was probably a year or so away from matching demand with supply, but that there could also be a period after that where inventories remain lean because of a needed restock of wholesale inventory. You know, the comment that you made today about towable stocks being adequate, does that indicate that, you know, inventories normalized maybe faster than was previously thought? And would you say that is a function primarily of higher supply or lower demand?
spk03: Than all of us could have anticipated. I think it's a function of two things. The manufacturers ran hotter than normal in November, December, and January than they normally do.
spk00: And you look at the January shipments that broke, I think it was like 60-something thousand.
spk03: It was the hottest number that we had ever seen. And I think, in fairness to them, they're trying to get all dealers, not just us, all dealers back to a stocking level that creates some level of normalcy for their own business. And we are supporters of that because a healthy industry by all dealers is good for everybody. I think one thing that none of us could have anticipated is that the manufacturers would be running hot because they had to forecast months and months in advance, and that the slowdown or normalization of demand, I call it more of a normalization because I want to remind everybody, The demand that we saw in the first quarter of 22, and even we're seeing in April and May, is still one of the hottest years we've ever had in this industry. So while we look at like we're retracting a little bit, we're retracting to a level that's still pretty darn good. And I think that when that happened, their manufacturing hot and retail registrations are dropping by 10%, 15%, 20%. Those two things working in tandem probably got the inventory levels back to normalcy quicker by maybe four, five, six months than we could have anticipated. Easy solution. Slow down your manufacturing, continue to take inventory in at the slower pace, and have a great selling season. Big mistake if you do this. If you continue to manufacture at a high rate, dealers continue to buy at a high rate, you have a good selling season and you don't bring it down going into August and September, all you're going to do is push that concern into the fourth quarter. Because the industry is smarter, I expect us to normalize that here quickly in the next four or five months as the industry sells tens and tens of thousands of units. I think will be fine, but it did happen quicker.
spk05: Okay, great. Thanks. That's very helpful. And then just, you know, I think the pandemic and its aftermath, you know, resulted in the demand for RVs, of course, increasing more than the supply did. That resulted in large upward pressure on new RV prices, likely by association used RV prices, too. And there were other reasons prices were increasing, including the higher raw material and other manufacturing costs. depreciating dollar or whatever. But generally speaking, I think prices and margins rose more than might have been expected. And so as we move forward, just curious how you think about if demand were to fall relatively modestly or supply increase relatively modestly, do you see the potential for more than might be expected decrease in in prices or margins similar to how we had a more than might have been expected increase earlier. I think it's really hard to say, but just curious how you might be thinking about that in the context of the inventory management you've been talking about on this call, your outlook for margin, which you're not being as explicit with as previously, et cetera.
spk03: Well, I want to be more explicit if I haven't been explicit about margins. Margins have come down over 2021 levels. The results in Q1 of 22 give you an indication that they have done that. We expect there to be slightly more contraction of our margins in Q2 as we look to accelerate sales. to deal with and slow down in demand, and we look to make sure that the inventory stabilizes. Here's what I feel pretty confident about. As long as the manufacturers don't overproduce in the next six months, we will not see a return to 18 and 19 margins. And while that may not be explicit enough, it is clear for us what needs to happen, and it's clear for the manufacturers. I do believe that demand is going to continue to feel pressure. And whether that's rising interest rates or general consumer demand, we think it's going to feel pressure. Our hedge against that is clearly twofold. Number one, in each segment that we stock today, we have to stock at the lower end price point of each of those segments. And while we're blessed that financing terms exist from 180 months to 240 months and a rise in interest rate doesn't affect the payment that materially, it is on the consumer's mind. So we have to make sure that we position ourselves at the bottom half. We always want to have the least expensive home in the neighborhood, not the most expensive home in the neighborhood. Secondly, our offensive strategy on pre-owned is another hedge that gives our consumers, when they raise their hand and say, I love this lifestyle, I either want to trade up or trade something out, or I'm new to the industry, our pre-owned strategy gives us a very smart and intelligent alternative to that rising price. And it isn't by accident that we started to grow our used inventory, and it isn't by accident that we started to really focus on that internally, because we knew that if the market started to tighten up, we had to give the customer an alternative, which is probably why in April, for example, our used business was up materially. the response by the consumer says, I'm not going to not go outdoors, and I'm not going to exit the industry. And I want to make sure that that's really, really loud and clear. When the market contracts, as it did in 2001, and it did in 2008, and it did in 2018 and 19, from a new entry perspective, what did not happen is that the installed base of RVers part of the industry that actually supports the bulk of our company never retracted decade after decade after decade regardless of the noise that happened inside of a small cycle every single decade more people got into the lifestyle than the previous decade and we know with almost certainty Unless something happens that we've never seen happen before, that 10 years from now we'll be saying the same thing, 20 years from now we'll be saying the same thing. And our business thesis and our long-term thesis of our company, when you study it from the day we started it to the day we went public to today, supports that strategy. Our financial results may fluctuate from time to time. But if anybody anticipates that the fluctuation that they saw in 2018 and 2019 is what the range of performance will be, I would caution you against that. I want to say that again. if you're looking at this industry and you're sensitizing your models based on it dropping 10 or 20 or 30 percent the hedge for our company not the manufacturers not other dealers is different because so much of our gross profit comes from service parts and other from use from our good sam business from our finance business from all those other things And if you take a billion dollars of revenue off the table, like we showed in our prepared remarks, you can do the math. A dollar of revenue, 30 cents of gross profit. And the associated cost of delivering that gross profit get removed as well. And so for a dollar of revenue, do you lose a lot of profitability? Yeah, you lose some. And you can do the math and extrapolate it out. And we've done that internally, which is why we're able to demonstrate that so clearly. The other benefit to our company in a retraction of demand is that it allows us to tighten up our own belt. But the thing that I think people miscalculate in our company is what we do and how we behave in that retraction period. If you go back and look at every other period, we grow the base of our company at a disproportionate rate. Today, as we sit here, we have 40 new locations, not acquisitions, 40 new locations on the board over the next four and a half years. And we started to forecast and plan that out because we understand the cost of investment, the cost it takes to open them, the time it takes for them to mature, and we started to factor that into our cash flow. We've also started to think about the necessity to return predictable dividends to our shareholders, and we've factored that into our cash flow.
spk00: So whatever we understand what's about to potentially happen with this perception. Very helpful. Thank you.
spk02: Jordan of Jefferies, please go ahead.
spk08: Hi, good morning. This is Ethan Huntley on for Brett. Thanks for taking our questions. Could you maybe just talk about some of the trends or maybe the cadence you're seeing in the service segment? I know you mentioned things were trending pretty positively with a greater installed base, but sort of any color on the cadence of that business?
spk03: Yeah, you know, one of the Achilles heels of our industry, and I guess – furthermore, our own company, is when that installed base grows at the rate that it has and people don't leave the space.
spk00: We have a problem in our industry. But we have more.
spk03: For consumers who love the lifestyle and want to use their product because it's so affordable to do compared to everything else out there, that we don't have enough bays or enough technicians to meet that demand. Our demand for repair, service, collision, renovation, new couches, new floors, new roofs, new awnings, reconditioning, warranty work, customer pay work, new tires, and I'm sorry to keep rambling about all the new things, is so significant that we can't even swallow it ourselves.
spk00: And what has started to happen more recently that is positive in one sense,
spk03: and giving us a greater focus on where we deploy our capital in another sense is that other dealers don't seem willing to service the customers that they're selling. A good chunk of the customers that show up on our doorstep didn't even buy from us. And that's probably because of the strength of the Camping World name or the confidence they have in Good Sam, but it's creating a real bottleneck for our own customers. And so as we look at our capital allocation over the next several years, part of what's driving us to put 40 stores on the map is a disproportionate amount of service bays compared to retail square footage that those bays, those new stores will take on. Historically, we built a store with 10,000 square feet and 12 bays. We're now building them with 6,000 square feet of retail and 18 and 24 bays. So if anybody has a concern about where the health of the industry is, come visit one of our service departments and see thousands and thousands and thousands of units waiting for repair. Manufacturers continue to... Learn about the importance of investing in repair parts, excess production of those repair parts. We're going to try a few strategies here in the short term to actually hedge and take a chance on some of those.
spk00: Put their unit into the shop and out of the shop.
spk03: Unacceptable today. We need to reduce that by at least four or five days, if not even more. So the service demand is unbelievable. We had one month, and we don't report this, but we had one month where our service labor and parts was in excess of $50 million in the first quarter. We had never crossed $50 million before, and we get right up against it in April again. And so we know where our capital needs to be allocated, and we know. where that return is, particularly when you look at the margins associated with that business.
spk08: That's very helpful. Thank you. And maybe just as a follow-up here, I think the current RBIA forecast for 22 shipments is about 590,000 or so. Do you think that's still about where things shake out, or do you think that's maybe a little bit on the high side?
spk03: We better hope not. We think that number better be at least 50,000 to 60,000 less than that, at least 50,000 to 60,000 less than that. But, again, we know that we're dealing with sophisticated and very smart management teams at those respective manufacturers, starting from Lippert on the supply side and Patrick all the way up to the finish line. manufacturer with Thor in Winnebago and Forest River. We are confident we're dealing with smarter people than even us in predicting those models. We just hope that they are putting those things into practice.
spk00: Great. Thank you very much for taking our questions.
spk02: Thank you. Our last question is from Garrett Johnston of BMO. Please go ahead.
spk06: Great. Good morning.
spk00: Sorry, I was just going to mix versus price increase, and I have Part B to that. Just to clarify, you were asking about the ASPs?
spk06: That's correct, on units.
spk01: and we've continued to see a little bit of an increase here sequentially from last quarter to this quarter but given that our mix around this time of year in april may time frame we start to sell a heavier density of towable units you start to see that average sale price start to level off a little bit more and furthermore as we continue to put that emphasis on used units which the asp on used is going to be lower than a new unit We think that's relatively sustainable here for the next quarter where we don't see much of a material change from quarter to quarter.
spk03: Yeah, one thing for clarifying point. On the new side, okay, on the new side, Matt has laid down a mandate with his team that he wants to see a mix to lower price units. particularly in light of what's happening in the macro environment, right? We want to continue to make sure that we make camping more affordable for people than anybody else. On the use side, however, we are playing a little bit different game than we've played in the last 24 months because we're not heavy on the new motorized business. In fact, we really don't play much in the new diesel business. We are going after because there are still some supply constraints on the new motorized side. We are playing in that. And that is what has contributed not necessarily to the gross profit margin of our used business, but the gross profit dollars of our used business. And so we want to bifurcate those two and look at the ASPs in new one way and used in another way, and we'll continue to provide about it for my entire life, is that the more you can drive down ASP's funnel to the addressable market.
spk00: And the more you can make financing affordable and available to consumers, you're widening the market. I do not believe that a consumer makes the decision to not buy an RV for $159 a month.
spk03: to take vacations and enjoy the outdoors with their family as something that feels so discretionary. I don't think they look at it as a luxury good. Doing a lot of other things, $159 a month, or essentially $5 a day, is still cheaper than a gallon of gas.
spk00: And the primary product that we sell, towables, don't take any gas.
spk03: The tow vehicle does. But when you look at the distance that people drive to go camping, 25, 50, 75 miles max, households have mostly two working incomes, and they're camping.
spk00: on the weekends, which means they can't go that far.
spk03: So we see consumer credit tightening as a potential impediment, interest rates as a head scratcher, but if we drive down ASP and we have a good use offering, we're providing enough of an alternative. So that's how we think about ASP, new separately from used.
spk06: All right, and thank you for all that detail. But, Matt, you know, I was kind of thinking year over year, not sequential. And just for reference, you know, whenever we as a sales side ask questions, we're usually asking year over year. But year over year, you're up 15% in new ASP and 30% in use. So I'm wondering there, you say you're mix shifting to more tollable, so that should bring your ASP down on mix. So are we seeing that? you know, on a consolidated basis, you put it together, ASPs are up, what, 17% year-over-year. So is pricing up 20% and NICS bringing it down a couple points, or how should we think about NICS first?
spk01: Well, I brought up the sequential element of it because that was far more relevant compared to year-over-year, given that just that 20% suggestion of invoice price increases year-over-year, which we've seen that quarter-to-quarter
spk00: That ASP, as well as if you start to back into the same store new units,
spk01: versus some of the other factors in the supplemental data, you'll see the average rough COGS associated with these assets has also continued to go up that same amount. So, yes, we were able to yield a greater gross margin as well, our GPU, but that ASP has come up year over year. We don't see that, though, changing much here from quarter to quarter now. We feel like the biggest price increases transpired over the past couple of quarters especially.
spk06: Okay, great. And then, you know, cadence of retail during the quarter, you know, Matt, you mentioned adjustments in February, I guess that coincides with the invasion. So how did you see things starting off year over year? And then how do you how they how they transition through the quarter? And if they did downshift in February, did they pick back up again in March?
spk01: February started out actually relatively well, where it was around that time, about the second, third week in February, we started to see a bit of a slowdown year over year. And then heading into March, we saw a little bit a bigger difference in terms of a decline year over year. Heading into April, it's been roughly about the same compared to March. And then as we're heading into May, we actually feel very good about current sales volume year over year. So we'll continue to monitor this and make modifications to our strategies to ensure that we are capturing demand that exists out there. And by the end of the sales season, we're confident that our inventory levels will be in a very good position based upon whatever retail sales volume will transpire here over the next three or four months.
spk06: Okay, great. And since I'm last, I think I'll throw one more in there for the benefit of the group here. Now that you have the inventory, that's about double from last year's five and a half.
spk00: If you adjust it for ESP, maybe 55% higher. So big increase in understanding it's not all spread like peanut butter.
spk06: Where might you still have holes in your inventory? Where might you be a little bit heavy?
spk03: I don't think we have any holes in our inventory today. And where we believe that we are heavier than we would like to be, but it was strategic in terms of bringing that forward, was on the entry-level travel trailer side. That's from my perspective. I don't know if Matt, if you want to add some color to that.
spk01: Yeah, I think you are right in summation. However, within the motorized segment in particular, there's still a little bit of opportunity for us to be able to supplement some of our inventory there to capture a little bit more of the market. But we also know that motorized is only going to account for about, so we feel like we've covered the mass production of the marketplace and the mass retail volume.
spk03: And used to help us fill that void.
spk01: Correct.
spk06: Okay, thank you for that. And to keep it in Marcus' terms, I probably want to know what motorized would be as a percent of gross profit dollars, but we can talk about that later. Thank you very much.
spk03: Okay, guys, thank you very much for joining us on this call. We look forward to getting back.
spk00: Ladies and gentlemen, that concludes today's talk. You may now disconnect your lines.
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