Camping World Holdings, Inc. (NYSE:CWH) Q1 2024 Earnings Call Transcript

Camping World Holdings, Inc. (NYSE:CWH) Q1 2024 Earnings Call Transcript May 2, 2024

Camping World Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Ladies and gentlemen, good morning, and welcome to Camping World Holdings Conference Call to discuss Financial Results for the First Quarter of Fiscal Year 2024. 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 a written authorization from the company. Joining on the call today are Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; Karin Bell, Chief Financial Officer; Matthew Wagner, Chief Operating Officer; Lindsey Christen, Chief Administrative and Legal Officer; Tom Curran, Chief Accounting Officer and Brett Andress, Senior Vice President, Investor Relations. I will turn the call over to Ms. Christen to get us started. Please go ahead.

Lindsey Christen: Thank you, and good morning, everyone. A press release covering the company’s first quarter 2024 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 our business plans and goals, industry and customer trends, inventory expectations, the expected impact of inflation, interest rates and market conditions, acquisition pipeline and plan, future dividend payments, and capital allocation, and anticipated financial performance.

Actual results may differ materially from those indicated by these remarks as a result of various important factors, including those discussed in the Risk Factor section in our Form 10-K, our Form 10-Q, 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 2024 first quarter results are made against the 2023 first quarter unless otherwise noted. I’ll now turn the call over to Marcus.

Marcus Lemonis: Thanks Lindsey and good morning, and welcome to our 2024 first quarter call. On today’s call, the team will cover both the operational and financial highlights of the quarter, while providing comments on the exciting future ahead. As we entered the quarter, we had very specific targets to execute on, gaining market share on new, while improving year-over-year margins, the recalibration of our used inventory levels, driven by the unparalleled reduction of new pricing, open up 14 new locations and eliminate non-performing assets. The double digit same-store sales momentum and market share growth during both the first quarter and the second quarter to date, proves our thesis around demand and its interdependency on lower priced units, essentially affordability.

We continue to feel strongly about driving our efforts towards the intersection of strong demand and affordability. We expect the average selling price of new units in our company to be at or below $38,000 and could see flexibility up slightly once interest rates retreat in 2025. Consumers ultimately build their monthly financial models around monthly payments. So in addition to change in mix and average selling price, we continue to be successful in working with retail lending partners in a higher rate environment to provide intelligent and thoughtful solutions around financing. This strategy has led to delivering another successful quarter, both in finance income and product penetration, which ultimately enhances the total gross profit per unit.

In working to achieve our 2024 earnings growth, we identified the need to continue to eliminate underperforming or non-core assets. Through the quarter, we have sold one RV dealership location and signed a definitive agreement to sell our furniture manufacturing business. These moves are not only unleashing locked up capital, but have evolved in one case into a holistic strategic partnership that we believe will provide material sales and margin improvement in our parts and aftermarket business. The sale and entrance into a new parts and aftermarket supplier agreement will positively impact our financial results going forward. In addition to the above, our earnings growth goals have required us to make tough cuts around SG&A in the last six months.

Our target on SG&A as a percentage of gross has and always will be rooted in the low 70% range. We believe that we have made the cuts that allow us to return to that level, once gross profit sequentially returns to normal levels. As we unpack the quarter on SG&A, only our January and February results were outside of our standards, but it was exclusively driven by the temporary compression on RV margins caused by our rigorous inventory management plan. March started to return to a more acceptable range, and we expect that to improve in Q2 and then seasonally sequentially improve as margins normalize. As a reminder, our business is largely built around the installed base of RV-ers and that is evidenced by our continued solid performance in Good Sam and our parts and service business.

Those categories provide unparalleled stability and predictability, unmatched by anyone else, as one would expect, our management team has the responsibility of always looking at ways to improve and unlock value in the company. We’ve been working with Goldman Sachs to explore alternatives, as it relates to our Good Sam business, which was coming off a record year in 2023. Through that process, we have been pleased by the number of interested parties who see the strength of the brand and the opportunity and the value associated with it. Our team has continued to discuss this internally and we believe that our ability to grow this business by allowing our Good Sam team the flexibility to expand into the larger recreational space, not just RVs, with not only yield-enhanced earnings, but would allow us to widen our spot prospect audience from the boating and power-sports categories, while we continue to explore alternatives.

As we continue through the balance of the year, our focus is simple. Continue to see material sales and profit improvement in our existing 211 RV dealership locations, find ways to continue our new market share expansion, expanding our market making ability on use, which Matt will discuss further and return to our internal expectations on SG&A, while maintaining the same opportunistic approach to acquisitions as we drive towards our goal of 320 locations by 2028. I’d like to turn the call over to Matt Wagner to discuss the operations.

Matthew Wagner: Thank you, Marcus. As mentioned, we are experiencing meaningful new unit sales growth to start the year, with same-store new units increasing 16% and momentum continuing through April. Our new unit trends are significantly outpacing the broader industry, resulting in material market share gains in both January and February, based on the most recently reported that survey information. We attribute this performance to our intentional and disciplined inventory management, supporting our previously stated thesis that lower priced RVs are a highly elastic good. Today we are sitting with less than 3,800 model year 2023, continuing to significantly outpace the industry with almost 90% of our new inventory and current model year 2024s.

We sold nearly 16,900 new units in the first quarter, an increase of over 20%. As we move throughout the year, we anticipate that new average selling prices will hover around the $38,000 range. Against this backdrop, we maintained a regimented approach to procuring used inventory, having purchased 60% less used through the first four months of this year. As we sit here today, we have 35% fewer used in inventory compared to last year. We largely did this because the used RV market lacks the infrastructure and institutional participation needed to create an efficient market. We responded to this need and we launched CW auctions in December. We witnessed immediate interest from consumers, wholesalers, banks and manufacturers alike. Over the course of the last five auctions, we amassed over 2.2 million unique views and hundreds of unit sales during the soft launch period.

As this business matures over the coming quarters, we see this serving as a profitable, cost effective remarketing channel that has never existed in this industry at scale, allowing for greater used procurement flexibility, while improving the velocity of our sales. We continue to expect our used volumes to improve over time as appropriately valued inventory is intelligently brought back into the system. We expect our used margins to improve sequentially starting the second quarter and to normalize to historical levels by the fourth quarter. As part of our growth plan for 2024, we’ll continue to focus on expanding upon the tremendous progress that we have made with Good Sam, service our used RV business, all while focusing on market share growth of new RVs and continuing to add accretive acquisitions to our dealer network.

We opened 13 net dealership locations in the first quarter, five of which were manufacturer exclusive locations, and we plan to continue to remain acquisitive with the goal of growing our store count to 320 stores by the end of 2028. I’ll now turn the call over to Tom Curran to discuss our financial results.

Tom Curran: Thanks Matt. For the first quarter, we recorded revenue of $1.4 billion, a decline of roughly 8% from last year, driven primarily by used unit volume, while new vehicle revenue of $656 million marked the first year-over-year increase in six quarters. Our Good Sam services and plan segment continued to post record quarterly gross profit of $30.5 million. Within our product, services and other revenues, our core service revenues showed continued growth, while product sales declined primarily due to lapping our active sports restructuring from last year and lower retail attachment due to fewer used vehicles being sold. Our adjusted EBITDA for the first quarter was $8.2 million, with the primary drivers of the year-over-year decline stemming from used vehicle gross profit pressure, about $10 million to $20 million of which was related to rebalancing HG’s [ph] inventory as Matt mentioned.

We also incurred a couple of additional expenses worth highlighting, including new store and auction start-up costs as well as professional fees that represented approximately $7 million of impact to the quarter. As we remain focused on extracting additional value from certain non-core and underperforming assets and returning cash to our business, on the balance sheet, we ended the quarter with about $177 million of cash, including $148 million of cash in the floor plan offset account. We also have about $220 million of used inventory net of flooring and roughly $219 million of parts inventory. Finally, we own about $116 million of real estate without an associated mortgage. Marcus?

Marcus Lemonis: Thanks Tom. Our strategy and execution is keeping us well ahead of our competitors and the trend lines are clear. We expect 2024 to be a much better year. I’d like to turn the call over now to the operator for Q&A.

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Q&A Session

Operator: [Operator instructions] Our first question is from the line of Joe Altobello with Raymond James. Please go ahead.

Joseph Altobello: Thanks. Hey guys, good morning. Just want to start with demand. Have you guys seen any improvement as the spring has progressed overall? And how did your new unit sales on a same-store basis look in April?

Marcus Lemonis: We continue to see demand, Joe, and what hasn’t been the problem for our company is demand. What has been the problem, I think for our company in the back half of ’23 and probably for the industry is really this affordability factor, which is why at the beginning of the year, we were very vocal about driving down these ASPs to find the intersection with new interest rates at a payment level that was affordable. So we have no demand problem. What we were struggling with was a conversion problem, which is why we made this really heavy pivot into lower priced units, so that we can gain market share. April has continued to perform double digits on a same-store basis on new and quite frankly, we don’t expect that to slow down.

Now as we go through the balance of the year, we think that there’s an opportunity to continue to accelerate that, but we need the macro to help us a little bit to get to where we really want to get to. As you know, the macro has been pretty tough for the first four months. So we’re really proud of our team and the positive results, particularly, I think in the month of March or April, excuse me, in February, we recorded the highest market share in the history of our company.

Joseph Altobello: Very helpful and just on the affordability issue, in terms of pricing, it sounds like you don’t think we need a further decline in invoice prices on new RVs next year? Maybe, talk about the thinking on that.

Marcus Lemonis: Look, I always would love to have lower prices because lower prices means that the funnel is wider, but I don’t anticipate any time soon that we’re going to see any material movement off the ’24 pricing. I want to make a finer point about that though, because as we finished the back half of 2023, we still internally had a lot of uncertainty around where invoice pricing would settle. We did a great job of negotiating like-for-like pricing down on ’24 models, but we were still feeling a little flat footed on if that continue to decline. That is why you saw us pull back, so feverishly, and so disciplined on our procurement of use and when you look at the used results for the first quarter, I want to make sure that people hear me loud and clear that there is no issue with RV demand on used units.

We made the conscious decision to not put the shareholders money at risk by investing in assets, while we believe there was potentially still a falling sword. Now that we feel more confident that the pricing on new units have relatively stabilized, and that doesn’t mean they couldn’t go up by a percentage or down by a percentage, but no violent moves up or down that would cause our used inventory to be out of whack, we will start to step on the gas again, probably around the middle of May and slowly and cautiously start to ramp back up again as we get back to levels that we believe we need to have in stock to meet our sales goals. So when you look at the overall financials, we want you to not be alarmed by the drop in used sales, because it is not a function of a drop in demand.

It is a function of us caring materially less than we did a year ago and we think it was prudent and us deciding to take a lot of pain in Q1 and a little bit in Q2 as it related to our used margins, so we can right size our inventory. We never want our shareholders to feel that we’re holding on to assets that we don’t really feel strongly about the value. So we made that aggressive move.

Joseph Altobello: Got it? Okay. Thank you. Thank you.

Operator: Thank you. Our next question is from the line of James Hardiman with Citi. Please go ahead.

James Hardiman: Hey, good morning. Thanks for taking my call. So, Marcus, you already talked about sort of timing surrounding the model year ’20 or not timing pricing surrounding the model year ’25, but maybe delve into just the broader landscape surrounding that model year changeover. It feels a little bit like Groundhog Day yet again, as we sort of brace for that changeover, the timing of the release, is there any chance that that might shift or not and just any wrinkles that you think that’s going to bring along, particularly how much dealers, maybe some of your peers, are sort of holding out for the ’25 and whether or not there’s going to be enough inventory between here and there to satisfy retail demand. Thanks.

Marcus Lemonis: Yeah, that’s something that we’re thinking about every day. One of the things that we are concerned about, and it definitely went into our used thesis, is, unfortunately, the number of 22s aged inventory that is sitting on our competitors lots and there seems to be gridlock and that was the gridlock that we told all of you both in the Q4 call and in our investor conferences that we were unwilling to participate in. We were going to take whatever financial pain on a short term basis that we needed to. We don’t believe that every dealer has necessarily taken the steps to do that. So that’s probably why you see us a little tepid on leaning into use, because we don’t know if there’s going to be some surplus of 22s that could be out there in a foreclosure or liquidation scenario.

We believe that the manufacturers have been very intelligent and very smart in listening to the dealer body around the rollout of ’25 and we’re anticipating probably a late summer; July, August start on ’25s, for the most part. There may be a few motorhome manufacturers in very small scale that start to leak out some ’25s. This idea that our competitors are sort of waiting to buy ’25s, I sure hope that nobody is running their business that way because they’re going to miss an entire selling season and that entire selling season is going to lead to a lack of cash flow, a lack of margin, and continued aging on their part and when you look at shipments, we still do believe that shipments and retails are going to be in the 335,000 to 345,000 range.

So we could be off by a couple thousand, but that’s kind of where we see the general ball of wax. When we see that, we know that there has to be some replacement, because if you have retails and replacements, we don’t believe that there’s going to be destocking here in 2024 and we’re hopeful, like in our business, that we’re going to accelerate into better same-store sales and then a restocking in the back half. But we don’t think that the manufacturers are going to play any boogeyman surprise on us because it’s not in their best interest. If they roll out ’25s earlier than they should or earlier than they’ve committed to. They’re kind of doing themselves a disservice at the same time, because there are still ’22s out there. There are still ’23s out there.

We’re down to, I think, Matt, you had said like 3500 or 3800 in that range. We’re much better than we were a year ago. Can’t say that for everybody, but we’re prepared for it. We also do believe that certain dealers have made some miscalculations on bringing in fresh inventory. We don’t know if it’s miscalculations on their part or the floor plan lenders preventing them from bringing new inventory in while they still have age. That’s why we feverishly wanted to get rid of that.

Matthew Wagner: Just even further add to that, James, to speak more directly about the model year changeover. I believe that motorized model year 2025 will start to hit the market slowly here over the coming month, actually beginning this month, and will start to accelerate here over the ensuing months. Motorized, however, have never necessarily been the issue in terms of aged model year units; rather towables could potentially for the future, but we believe that we’ve managed our inventory very effectively. We believe that the model year 2025 towable units, both travel trailers and fifth wheels, will at least turn over and start to be produced in July, but there won’t be meaningful amounts of them really hitting the marketplace until maybe October, November, December timeframe and when we think about where we were this time last year, we’re at least 1,000 units better in terms of the aged multi-year removal.

So as I take a step back and look at how we’ve played this game and even be very direct about the wholesale shipment numbers that came out recently, if I’m not mistaken, the travel trailer segment was up about 10,000 units, and that’s really where you saw the most material gain. Just to be clear, we were up over that same time period in terms of wholesale shipments, about 10,000 units. We’ve been largely having the foresight to play this game more intelligently than our peer group and we’ve been identifying these certain segments, price points that have been turning, which is why we’ve been picking up material market share. We believe that this thesis will continue to play out exactly as we’ve suggested through the balance of the year and as such, we think we’ll be sitting in a really advantageous position by September-October to re-up once again and start to play a whole new cycle, a whole new game on the news side, while at the same time, picking up the momentum from new and starting to translate that to the used side.

We feel good as we sit here today, but check back obviously in the next three months to ensure that we’re hitting all of our goals.

James Hardiman: Got it. That’s really helpful and then, obviously over the last month or two, the financial markets appear to be pricing in or at least bracing for rates to be higher for longer, maybe walk us through sort of the RV ecosystem and whether or not you think the various players have adjusted any of their activity as a result of that. I guess first, starting with lenders like, how have rates trended as of late and then customers to the April question, did things get a little bit better, a little bit worse in the month of April to sort of that 1Q run rate and then I guess, lastly, dealers, you guys have made it no secret that a lot of your peers have been unwilling to take their medicine, maybe hoping that they’ll get bailed out by lower rates. Any change in that stance? Thanks.

Marcus Lemonis: Yeah, I’ll start with our own business because that obviously is what matters most. The potential delay, which seems to be more affirmed than it was a couple of months ago on any rate reductions, has a negative impact on everybody because it affects affordability. So we have a lot more wrangling to do with our retail lenders trying to figure out how to make things affordable for people. The unfortunate thing and the simplest thing is we look at the rate reductions, and we have been planning on rate reductions in our P&L for the year and the lack of rate reductions, unfortunately for us, something as simple as floor plan interest is going to be $15 million higher than we anticipated at the beginning of the year.

Not anything that we have control of, not anything that we’re doing, but that’s $15 million that we have to really work hard to try to find somewhere else. We do believe that the consumer has started to settle in around where rates are, and that doesn’t mean that they’re accepting it, but they’re not as shell shocked by when all the rates were moving up in 2023 at a really rapid pace and people just couldn’t deal with it. We’ve had to really pivot our mix, and I think our mix has really given us two benefits. Number one, our change in mix, in driving down those ASPs, has allowed us to find a wider audience, and that’s evidenced by our massive, massive market share growth that we’ve never seen in the history of our business. Secondarily, when you drive down your ASPs and you drive down affordability, you could see in the performance of our finance and insurance business is really, really performing nicely.

Had we not driven down ASP’s, we believe our volume would have been lower, and we believe our F&I performance would have been lower, because when a customer’s buying off on a monthly payment, that includes a warranty that they need, roadside assistance that they need, and the other product that we sell, had we not been able to drive down the price, and unfortunately some of that’s through margin, we would not have been able to recapture some of that margin on the back end. So when people look at our overall GPU’s, we strongly, strongly encourage them, as we have since the beginning of our company, to take the front-end gross profit and the back end gross profit and look at the combined GPU. From our perspective, we’re agnostic of how we accumulate gross.

We’d like to accumulate more gross on the front end, but we feel like we’ve been very successful in doing that. I worry very significantly about a small subset of dealers that could be anywhere from 4,000 units to 5,000 units to 6,000 units that could be out there that are still 2022s, people that have been unwilling to take their medicine. Now I say that so cavalierly. The reality of it is that some dealers may not have the financial wherewithal to stomach taking on that pain and whether it’s dribbling it out through curtailments or taking on transactions that have negative gross profit, our balance sheet and the strength of our balance sheet and our willingness to part with non-core assets and our willingness to liquidate things that don’t make sense to us have given us that dry powder to be able to stomach that.

I think that’s a unique thing in our company is that we have managed this balance sheet, in our opinion, so well that in these types of moments where we need to dig a little deeper into our pocket and invest in our company, we’re able to do that. Look, we’re not happy with our first quarter financial results, but if you normalize margins just back to some like normal level unused, our EBITDA would have been just fine, but we made a conscious decision to take that gross profit pain, which ultimately is using some of our working capital to invest in that; seeing the dividends of that in market share, seeing the dividends in that, in the clean inventory, seeing the dividends in our ability to buy stores at almost a zero time multiple, that’s how we built this business and the amount of stores that we’ve added in the last 12 months, my best recollection, I think we’re at about 33 new locations since the beginning of this down market in ’22, down market at the beginning of ’23, those things are going to start to pay dividends.

So as you really, really study our financials, we encourage you to do a little pro forma work, like we do. A lot of people have put pressure on me. Why aren’t you firing more people? Why aren’t you getting rid of more people? We want to invest in our people because our market share is a function of our people’s performance, not Matt and I. Our performance on Good Sam is a function of our people. Our solid service and parts business is a function of our people. We’re not willing to just start gassing people because we also know that this business returns like a hockey stick. We can go from up 10% on a new market to 25% in a matter of six to eight months. We need people to do that and as you open up new stores, as you add new locations, as we add our auction business, as we continue to make acquisitions, as we want to improve training, those things require people.

One little fun fact around the importance of investing in those people; our NPS scores, which is a very, very, very important thing that determines the long term health of any business, is at an all time high in service. We went from negative NPS scores three years ago when we were selling like you couldn’t stop us to raising that number to north of 32%. That is unheard of in our industry. We have spent several million dollars reframing up the process, restaffing the business to be able to take care of our customers in a good way. In our mind, we know it’s running through our P&L. Those are investments. Those types of investments is what’s going to allow us to really continue to grab share here in the next 12 months to 24 months and I can promise you, Matt and I are laser focused on managing the balance sheet, using our cash very intelligently, liquidating or selling off non-core assets and reinvesting those in our people, in our used inventory and our ability to be market makers and in strategic acquisitions.

James Hardiman: That’s great, Colin. Thank you.

Operator: Our next question is from the line of Scott Stember with ROTH MKM. Please go ahead.

Scott Stember: Good morning and thanks for taking my questions. Can you maybe talk about I guess the tenor of sales in April. You said that they were still up double digits. Has there been an acceleration on the new side — new units from March into April?

Marcus Lemonis: An acceleration meaning on a percentage of same-store?

Scott Stember: Yeah. Or year over year, just in general?

Marcus Lemonis: Yeah. I think the answer is we’re running at about the same pace, but what is a nuance inside of that is that we had a pretty good April, decent April last year. And so while we’re up double digits again in April, it actually, in my mind, means we’re even doing better than March because we had a really, really rough March last year. So if we were up, call it mid double digits or 15, 16 in the month of March, we were coming off a pretty low comp. April was a really good year for a really good month for us last year on a volume basis, it could have been the way, the weekend fell or the days fell in the calendar. We were up against not a terrible number, and we still performed on a double digit basis. So in our estimation, we either stayed even with March or even outpaced it a little bit on a comparative basis.

Matthew Wagner: Scott, we oftentimes look at it week-to-week, and it’s consistently through the first four months of the year, oscillated between high single digits to 20%-plus week-to-week in terms of our year-over-year gains. That’s actually the cleanest way to look at it and through the balance of a quarter, it all just shakes out.

Scott Stember: Got it. And then on the products and services side, if you were to back out the furniture business and the discontinued active sports business, what is just pure service, parts and service? You said it sounded like in your prepared remarks it was going quite well, but can you just give us a flavour of how that business is doing? Yeah.

Marcus Lemonis: Yes. So we look at our parts and service business in two distinct categories; our external work, which is when we’re taking in customer pay work, which is up nicely over a year ago. That’s always by the way, a great bellwether for the health of the industry is our people coming in, booking appointments, getting repair work. Our customer pay, which is actually not provided by us internally, our customer pay work is up over last year. Our internal work, that’s the work that we do to repair trade ins or purchases that we make, is down. But it’s down because we elected not to go out and procure used inventory. We could have easily manipulated that number by chasing used inventory, buying things we shouldn’t be buying and that number would have looked good.

So we know that when the used business is down, we know the internal work is down. When the used business is up, the internal work subsequently goes up, but we determine the health of our overall industry and our company based on how customers show up to actually give us currency to repair and replace things on their unit. So we feel very good about that indicator.

Scott Stember: Got it. And then just the last question, it seems that you’re looking for lower retail sales for the industry this year. Is that changing your view of camping world’s ability to sell more units at retail this year and also, I think last quarter you gave just some EBITDA growth expectations, is there an update on that?

Marcus Lemonis: Yes, I wouldn’t call them expectations. I would definitely call them goals. Our goals haven’t really moved. We know what we need to do to deliver value to our shareholders. We’re facing a few more headwinds that we didn’t anticipate that have nothing to do with us. Like the fact that the rates aren’t going to drop or the fact that the macro isn’t that good, but Matt and I, along with Tom and Lindsey and the rest of the team have said, okay, we have to figure out what other pivots we have to make. If we can’t control certain factors in the marketplace, there are things we can control. So we have to be very prudent about how we’re opening stores and how we’re thinking about that. As a small example of that, we have two stores that are ready to open.

The stores are built, they’re ready to go. We have elected to push those off to the end of the year or the first of next year because every single choice that we make has an impact on the bottom line and we have a goal of achieving that, our own goals and we don’t want to do anything that’s going to put those goals in jeopardy, at least in the areas that we have control of. We expect our sales Matt.

Matthew Wagner: And even just to hopefully rely largely upon that stat survey information. I think we’ve proven that we could buck the trend of the larger industry. So regardless of what’s happening, we feel like we’ve hit the goals that we set forth and broadly proclaim that we’re going to hit double digit new same-store sales and we’re going to continue to experience growth in that new same-store number heading into the back half of the year. I believe pretty material growth based upon how we’ve played our hand with our inventory procurement.

Scott Stember: Got it. That was great. Thank you so much.

Matthew Wagner: But we wouldn’t mind if they dropped the rates a little bit. We could use a little interest expense relief for sure.

Operator: Thank you. Our next question is from Noah Zatzkin with KeyBanc Capital Markets. Please go ahead.

Noah Zatzkin: Hi. Thanks for taking my questions. Not to put too fine a point on this, but in terms of kind of the 30% adjusted EBITDA growth goal for the year, working towards that, has anything changed in terms of the calculus to get there? You noted expecting $38,000 around the $38,000 level on the new ASP, and I think used margins came in a bit stronger than I was expecting. So just wondering how you’re kind of thinking through kind of the new and used businesses, maybe relative to a few months ago, as you kind of work towards that goal. Thanks.

Marcus Lemonis: Yeah, I think that’s a great question. Our goals remain the same, but variables have been thrown in our face that we’re having to sort of reach into our rabbit hat and try to find new opportunities. The interest rate expense on the floor plan piece is a real number. It’s $15 million. It’s not like maybe it’ll happen. It’s just factually correct. I think secondarily, had interest rates started to drop, we may have experienced, we all anticipated that maybe by summer, something would have pushed. We now have taken any interest rate cuts out of our calculus entirely and that’s putting a little bit of pressure on ASP and as ASP’s get pushed down because we want to drive market share, that puts pressure on the overall GPU on the front end side.

While we can make it up on the back end, if it’s a $40,000 ASP and the margin is X or it’s a $37,000 ASP and it’s the same margin percentage, there’s just less gross dollars available. So that’s put a little bit of pressure that we’re having to sort of work around. I think the other piece is we’re not going to take our foot off the gas, as we’ve seen the positive results in continuing to rebalance our inventory. And we will have continued pressure on the used side, both on margin and in demand here in April, and it will extend over into May and that’s something that Matt and I have looked at and said we’re going to take whatever pain people are going to give us, but we know if we own this business, just the two of us, we would be doing this because it’s the right business decision.

And we’ve seen the fruits of that and I think Kim and I have gotten really excited by when you make these really conclusive decisions to drive ASP down and you see the results, it becomes like a drug. You want to chase it some more. When you make the tough decisions to get rid of the youth and to rebalance, and you see the positive results, you want to chase that some more. We want to do the things that we think we would do if it was just us and that’s how we’re running the business and we know that optically, the results don’t necessarily reflect where we want them to be or where other people want them to be, when you see market share growth. When you see us hitting our other goals around Good Sam, when you see us hitting our internal customer pay work, when you see the F&I results, we hope that you feel as good as we do about those results.

Matthew Wagner: I couldn’t be more proud, too, of how we managed through this used portfolio and that was perhaps the biggest variable that threw a wrench into some of our plans in the short term. We’re being down on 60% — to the tune of 60% of used procurement through the first four months of the year with something that wasn’t necessarily in our calculus. We believe that it was the right play for our company, for investors knowing how risk averse we were in a relatively volatile segment in that short term, while there was, for the first time ever in our history as an industry deflation of new invoice prices. Now that that market has stabilized on the new side, that’s directly impacting the use, which gives us a clear focus and a clear path whereby we can start to ramp up procurement, but as Marcus said earlier, it’s going to take us until about mid-May for us to really get this machine revved up again and to start to target those segments, price points that we know are going to yield the highest return on investments.