Camping World Holdings, Inc. (NYSE:CWH) Q2 2024 Earnings Call Transcript

Camping World Holdings, Inc. (NYSE:CWH) Q2 2024 Earnings Call Transcript August 1, 2024

Operator: Good day and welcome to the Camping World Holdings Inc. Second Quarter 2024 Results Conference Call. All participants are in a listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the call over to Brent Moody. Please go ahead.

Marcus Lemonis: Actually, it will be Lindsey Christen, who will be reading that section. Thank you.

Lindsey Christen: Good morning, everyone. A press release covering the company’s second 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, capital allocation, 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 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 second quarter results are made against the 2023 second quarter unless otherwise noted. I’ll now turn the call over to Marcus.

Marcus Lemonis: Good morning, Lindsey. Joining me on today’s call is Matthew Wagner, who’s our President; Lindsey Christen, Chief Administrative Officer; Brett Andress, Senior Vice President of Investor Relations. Unfortunately, Tom Kirn, our CFO, has fallen ill and was part of preparing today’s remarks, but is unable to join the call. On today’s call, we’re going to cover both the operational and financial highlights of the quarter while providing comments on the future ahead. Before we get into those details, I want to take a moment to show my immense gratitude to Brent Moody and Karin Bell for their over 40 years of combined service to Camping World. It’s been a real privilege for me and an honor to grow this business from the beginning with both of them.

As we look towards 2025 and beyond, I could not be prouder of Matthew Wagner on his promotion to President and Tom Kirn to his promotion as Chief Financial Officer. These two individuals know this company very well. They’ve been instrumental in working side by side with me for many years to help set the strategic direction of our business. Without exception, they, along with Lindsey Christen, our Chief Administrative and Legal Officer, are the right talent at the right time to fuel Camping World’s future growth. Look, as we’re all aware, the last 24 months have been challenging for all of us, the industry, our company, everybody, but despite those factors, our company has taken the decades of experience to continue to outperform others in the industry.

We continue to work hard to improve the overall financial results for 2024, and we’re pleased with several operational highlights and milestones, like record market share for our company, double-digit new same-store sales improvement while the industry reports double-digit decreases, record gross profit for the quarter for our Good Sam business, opening up 16 new locations, the launch and performance of our OEM exclusive stores, the establishment of a broader used infrastructure for the future and profitability during the highest inflation and interest rate environment in 20 years. There’s a variety of other notable achievements, but it’s important for us to also acknowledge some of the challenges. We’ve had to liquidate model years like ’22 and ’23 as model year 2024 came out with a lower price.

We’ve had the balance of tight expense management, while building and utilizing an infrastructure around our company’s thesis of growth. We’ve had a difficult employment environment with rapidly rising wages and benefits costs, while growing the base of operations through acquisitions and new store openings. And we have the highest rate of inflation and the highest rate environment in 20 years. It not only affects the consumer, but it affects our floorplan interest, our senior debt interest expense, and we know that it’s been meaningful to our P&L. And we look forward to rate reductions in the future as every quarter point of rate reduction, just in our floorplan alone will return $4 million of earnings and cash flow to our business. Look, two key things that we are front and center focused on as we work through the balance of the year and prepare for what we hope will be a much more prosperous 2025 or how we’re handling our used and how we’re managing our SG&A.

First, our volume is unused, is not where we hoped it would be, but like other areas outside of our control, this one is squarely in our hands. Starting late last year, after model 2024 pricing was revealed, we recognized the need to adjust quickly. We elected to temporarily pull back our level of aggressiveness on used acquisition so that we can see how model year 2024 pricing would affect values in the entire market. A get out of quick mindset, much like we had on the new side, is what we had to do. And when you look at our very, very aggressive style of eliminating new models in 2022 and 2023, and you see the fruits of that labor with our market share growth in 2024 on new, we had a pretty good idea there. We’ve now decided to take that same level of conservative approach as it relates to our used.

As we entered the year, we had high expectations that rates would start to get cut and that sentiment would improve. After the first quarter, we felt like maybe it was going to be delayed a little bit and we just needed to keep cleaning inventory and prepare for the upcoming selling season. May would come and we would hope to see things dramatically improve. Well, while it did for us in certain areas, the industry continued to struggle. While we started to see nice gains on the new side, simply because we played the lower price point gain. We continue to see the dealers at large struggle, some down to as much as 20% to 30% on a year-over-year basis. That concerned us. Although we were gaining in market share, improving new sales, the data for the overall industry seemed to be getting worse.

In that moment, we made the conscious decision to hunker down, selling off or closing underperforming assets, tightening up our inventory thesis. The slowdown of buying more used inventory wasn’t around our lack of confidence in our ability, but our concern about the aged inventory that was still looming across the inventory in businesses that we didn’t control and what impact that could potentially have on us. As of this morning, we estimate that there’s still in excess of 14,000 units on dealer lots that are 22s and 23s. That’s a real uncomfortable level of distressed dealers and inventory for us. As more dealers started coming to us to sell, manufacturers and bank chatter around distressed dealers, stat surveys showing dealers down mid to upper double-digits, we thought it would be best to protect our kingdom.

A true balance of mitigating risk and being prepared to be opportunistic is how we wanted to approach the balance of the year. We’ve shifted some of that risk by getting better at doing consignments as a percentage of our total used inventory. With a lower risk appetite, we acknowledge that the consignment level of profitability isn’t as good as the units that we purchase. It’s still better than new, but it slightly underperforms on a margin basis by two to three points at a minimum. We expect as we continue to sell down our own used inventory and transition into more consignments on a temporary basis, that we’re going to continue to see pressure against our margins from our traditional and historical 20% margin, something we think is temporary.

As we gain confidence in the macro, hoping for that first rate cut potentially in September and we get past the election, we’ll become more confident to start aggressively ramping up our purchases because the risk won’t seem as pronounced. Second, in our opinion, we all have to continue to have a marker that lands SG&A in the 72% to 73% range. I’ve been consistent about that since the inception of our business. For the quarter, we missed our target for four very specific reasons. Our gross profit is still under temporary pressure, and while we don’t like it, we find it to be more important to continue to move inventory, continue to keep our inventory clean, and gain market share. Second, the average selling price has dropped more than $5,000 on like-for-like models from a year ago.

120,000 units have a $5,000 lower ASP. That’s a significant amount. Now, when you lower ASPs, keep in mind that even when our margins maintain historical levels on new, for example, at 15 or used 19 to 20, there is a significant reduction in the gross profit per unit simply because the average selling price is lower. Third, as the company grows with acquisitions, new store openings, advanced training, rapidly expanding technology, infrastructure around new tech and cybersecurity, rising wages, yeah, it’s a long list. It’s a long list about building an infrastructure and maintaining infrastructure to be the company that we’ve always been and will continue to be. We are a growth company now. We’re not naive to think that we shouldn’t be making changes.

And we have. As I mentioned earlier, we’ve closed locations, we’ve laid people off, we’ve deferred initiatives into the future, but we still have an infrastructure that we want to protect, because we believe, particularly in recent times, that we’re starting to see the inflection point and we’re seeing that simply on the new side. It is important to be complete — it is important to be clear that our conviction stems from our current outperformance of our competitors. Our growth in market share, which is record breaking, and our belief that 2025 will be a much better year is how we’re entering the balance of the year. I’ll now turn the call over to Matt.

Matthew Wagner: Thank you, Marcus. As mentioned, our intentional and disciplined inventory management led to another quarter of robust new unit sales growth. We continue to significantly outpace broader new RV industry sales, resulting in material market share gains in April and May based on the most recently reported staff survey information. And as we exited May to June, we started to see new comp trends accelerate to mid-teens growth, with July increasing further into the low-20s. As Marcus discussed, we moved through the quarter and we became a bit more risk averse in our used procurement strategy as we were seeing little to no improvement in the amount of competitors out there with aged inventory, and we were concerned about the overall health of the larger dealer body.

In the back half of the quarter, we saw some stabilization and gained a bit more visibility into the model year 2025 pricing. With that knowledge, our used unit intake in June increased year-over-year for the first time in over 10 months, with record volumes of consignments and inbound leads. We are proceeding judiciously into the second half of the year and expect continued pressure on used vehicle unit volumes and margins, particularly in the third quarter. We are committed to building the infrastructure for used RV sales business that the consumer, and ultimately, we as Camping World will benefit from. Specifically, our CW auction business has created both market efficiency and market transparency. In just eight months, the CW auction business has had over 3 million unique views on over 1,000 sold assets, with over 4,300 individual bidders.

Today, we are pleased to say we have multiple third-party banks and manufacturers signed onto the platform, presenting a unique countercyclical opportunity for us. We’ve also invested in infrastructure, meant to reduce transaction friction and increase sales volume across our new and used assets, including nationwide mobile inspections, online private party listings, centralized procurement teams, an industry leading parts portal for our service shops and the formal launch of our CW direct channel. As we’ve proven over the last decade, the investments that we make from our perch as the industry leader have the effect of both influencing and throttling the behavior of the broader RV industry. As we begin to look into 2025, we know that our company gets much sharper in downturns.

We are focused on prudently reestablishing our used business, establishing our dominance as the market maker in the RV industry, all while expanding upon the tremendous progress we have made in Good Sam service and our new unit market share. Lastly, throughout our history, we’ve demonstrated our expertise in taking distressed dealerships and quickly turning these assets around. Most recently evidenced by a large multilocation chain that was losing nearly $10 million annually prior to our acquisition. In just six months, all seven dealerships are profitable, reporting top quartile dealership KPI metrics, and all of them are taking market share in their respective geographies. We are positioned to act upon what we will believe — what we believe will be a number of unique dealership acquisition opportunities in the coming months.

I’ll now turn the call back over to Marcus to discuss our financial results and also provide concluding remarks.

Marcus Lemonis: Thanks Matt. As a reminder, I’m covering this section for my teammate Tom Kirn, who’s out today. He’ll be available post this call in the coming week to answer any specific questions that people may have. Turning to the financials for the second quarter. We recorded revenue of $1.8 billion, a decline of 5% from last year, driven primarily by used unit volume, with new vehicle rising for the second consecutive quarter to $847 million, an increase of 6% over last year. Good Sam services and plans posted another quarter of record gross profit at $35.4 million, with products, services and other, our core dealer services revenue continued to show growth. While product sales declined primarily due to lower retail accessory attachment as we sold fewer used vehicles in the quarter and top line was partially impacted by the sale of our furniture business in early May.

Our adjusted EBITDA for the quarter was $105.6 million, with the primary driver of the year-over-year decline stemming from our deliberate actions to remain risk adverse in our used inventory procurement, impacting used vehicle volume and consequently used vehicle gross profit. We now expect used vehicle volume for the full year to be roughly 50,000 units with margins in the back half in the range of mid to high teens. While our conservative stance on used procurement will still — will have the effect of weighing on used gross profit dollars and thus our SG&A to gross profit ratio by anywhere from three to six points higher than we previously expected. We continue to aggressively manage our cost structure and assess underperforming assets.

We have been extremely pleased by the performance of our OEM exclusive stores as we ramp our consignment and CW auction channels. We are undergoing a review of our dealership portfolio with plans to reconfigure brand banners and protect mix and product mix at select stores in key markets to improve the yield on our fixed cost base. On the balance sheet, we ended the quarter with about $223 million of cash, including approximately $200 million of cash in the floorplan offset account. We also have $262 million of used inventory net of flooring and roughly $187 million of parts inventory. Finally, we own about $145 million of real estate without an associated mortgage. I’d now like to turn the call back over to the operator for Q&A.

Operator: We will now begin the question- and- answer session. [Operator Instructions]

Marcus Lemonis: Go ahead with the first question, please.

Q&A Session

Operator: Our first question comes from John Healy with Northcoast Research. Please go ahead.

John Healy: Thanks. Good. Marcus, I wanted to dive into a comment you made. You said you feel like 2025 will be a better year. Can you maybe give us a little bit of a hint of what you think 2025 looks like and maybe some framework of maybe how you might be approaching merchandising or just kind of sizing and building your book of business for next year?

Marcus Lemonis: Yeah. I’ll split it into three distinct sections. First, with the rapid increase in our new same-store sales, we feel very confident that we have reached an inflection point with our ability to drive new sales year-over-year improvement again in 2025. I think what we’re really excited about on the new side is that we won’t be liquidating out of 22s and 23s. So we see an opportunity to see margin stabilization in that 15% range, which I’m hopeful that maybe we can be a little higher than that. But that’s sort of what we’re forecasting. On the used side, it is our anticipation, with the hopeful rate cut and getting the election behind us and having 2025 model years come out, that we can become aggressive again in our acquisition process.

We have the infrastructure to do it, and quite frankly, we’re more — we’re better equipped today than we were even two years ago when we were setting records with what Matt has done on the auctions and a variety of other things. And then lastly, our most important asset, Good Sam. As RV are start to get comfortable again with getting out and campground activation start again and people start using the rigs again, we expect to see continued growth on the Good Sam side. What we do also know is that as those gross profits return to normal on new and they return to the 19% to 21% range on used, and Good Sam continues to stabilize, that will quickly bring our SG&A as a percentage of gross back in line closer to the goal of 72 to 73. I don’t know that we’ll get there right away, but it will start to bring it back in line.

I think the thing that I’m most excited about is that we’ve acquired a number of locations over the last two years, and even with the ones that Matt referenced, that are profitable after being significant losers in the past, that we’re going to enjoy the fruits of the labor from all of those acquisitions, improvements in our original stores, the growth of the acquisition stores, and us getting back into acquisition mode again is really going to all fuel 2025.

John Healy: Got it. And just a mechanical question for me, the relationship between new unit sales and Good Sam. I was just trying to get a little color on why Good Sam’s not seeing maybe as much momentum as you’re seeing just on the new unit side. Is there some offsets that I might not be aware of or might not quite understand?

Marcus Lemonis: No. The Good Sam business is the steady eddy horse in the race. It always has been. And when the market starts to collapse like it did a couple of years ago, with negative same-store sales quarter-after-quarter, month-after-month, Good Sam hung in there. On the opposite side, keep in mind that the way that we record our revenue at Good Sam is deferred. And so if we sell a warranty today or sell a product today, we don’t enjoy that immediately. Matt, you want to add anything to that?

Matthew Wagner: Well, I wanted to also split it up into two separate buckets here, because in terms of our Good Sam products, that we actually sell direct consumers well, as are attached by means of our new and used RV sales, that business has performed quite well where that was actually a record breaking gross profit quarter for us, for the second quarter for that business. However, John, you might be alluding to the Good Sam membership size, which, if you are alluding to that, just even further clarify. Technically it is down slightly year-over-year. That was a conscious decision, though, that we made by means of a transition from a traditional membership file to an actual loyalty program. Through the introduction of that loyalty program, we’ve also actually entered into a free tier, and there’s in excess of 300,000 free tiers that consumers are already subscribing to right now.

That’s not included in the number. So technically, year-over-year, we’re actually up on our membership size. And we made that decision going from a traditional membership, which used to cost individualists $29 a year. We actually raised the price for the first time in goodness, Marcus, probably over 15 years.

Marcus Lemonis: 15 years.

Matthew Wagner: Yep. And when we think about why we did that, we were able to remove what was I would regard as excess discounting at times through our retail channel. And we were able to reestablish a margin profile through our retail channel and actually enrich our cash position, while at the same time providing customers the opportunity to come back and get repeat buyers and engage in a points subsidy. They’re able to actually earn points every time they come back to us. So we’ve changed the entire narrative around that, and we’ve seen a lot of early success.

Marcus Lemonis: Yeah. I think one thing that we learned as we really dug into the numbers is that in some cases, there was a subset of members who were strictly getting the membership to exploit the discounted retail, and we weren’t getting the lifetime value by them taking on other products and services. And so we decided to add more benefits, reward those members who did shop with us across multiple platforms, raise the price, but more importantly, raise the benefits at a greater rate. We saw a number of members who didn’t necessarily want those other products fall off. And candidly, our cost to fulfill that membership, the discounts we were providing them, it actually wasn’t a profitable member for us. And so it’s a way for us to break that mold after more than a decade.

John Healy: Great. That’s super helpful, guys. Thank you so much.

Operator: Our next question comes from Jill Altobello with Raymond James. Please go ahead.

Joseph Altobello: Thanks. Hey, guys. Good morning. So, first question on pricing. Marcus, you mentioned you had greater insight into model year ’25. Are you still anticipating that pricing for this model year will be flat up modestly?

Marcus Lemonis: I think we’re anticipating that it’s going to be up modestly, but up modestly, similar to how it was all the other years in the history of the industry. And as you know, Joe, we had this record rise in pricing on, like-for-like units, and then we had for the first time in the history of the industry, this record deflation coming back down. I think the stabilization of new pricing and normal and customized sort of increases year after year that are small in nature, because of normal inflation is kind of what it feels like we’re getting back to. Matt?

Matthew Wagner: It’s, of course, Joe, going to just vary across different segments of the business, where we believe some of these motorized segments could experience a little bit higher price points, in which case, we’re keeping a close eye on where we could pick and choose our opportunities within the market to satisfy consumer demand. Because our greatest concern and our greatest focus has always been the affordability of this lifestyle, which is why we consistently worked with the manufacturing partners like Thor, Winnebago, Forest River, and they’ve been very effective in helping us to actually create demand and satisfy demand in the marketplace. In fact, within the month of July, we had pretty material growth within our new motorized segment on a same-store basis.

Within that Class C segment, I mean goodness, we were up very high double-digits year-over-year. So I use that as one data set just to prove that the manufacturers are willing to be very aggressive in certain segments with us. Just at the same time, they have different margin obligations that they need to hit and we know that we need a hit while at the same time continue to expand this overall segment.

Marcus Lemonis: Let me put a finer point on the increase on motorized or the increase in travel trailers. In every single instance, it’s at the bottom of the price stack in those categories. And so if we look at travel trailers, our exceptional growth points really back to our strategy that we disclosed to all of you of driving down that average selling price and finding the elasticity and bringing customers in. We believe that the US consumer on products like this, is focused on one thing and one thing only, their monthly payment. They know what they want. And while we’ve still seen strong demand across all the categories, when we don’t carry price points at the bottom of those individual type codes, we don’t do well. And what I think Matt and the inventory team did exceptionally well, and I’ll use that motorized case that Matt just mentioned as an example, that was the reengineering of opening price points inside of the Class C business, the Class B business and the Class A business where we are taking some chances with volume buys, some levels of decontenting, and some creative ways to present the product to the customer on term, on rate.

Because all we’re essentially doing is giving them the product they want, maybe with a little less bells, but at the payment they can afford. That’s simply why you’re seeing our market share and our same-store number explode. We’re following the customer to the affordability point that they are telling us to go to and not being ignorant to the fact that they don’t want to buy expensive things. They’re not going to take their monthly payments up too high. As interest rates come back down, and I want everybody to really understand this point. As interest rates come back down sequentially, hopefully over the next couple of years, we believe that those ASPs will slowly rise back up. Because at the end of the day, the way that you come up with a monthly payment is the price of the unit and the rate.

And so, as those ASPs come back up, GPUs will come along with it. But we believe in order to see kind of a midcycle environment, we’re going to need to see probably 200 basis points of reductions. It doesn’t need to go back to free money. So we went from zero to five plus on the Fed funds rate. It doesn’t need to go all the way back down to zero. But I think at this level right now, you’re keeping certain buyers out of the market, because even with the cheapest travel trailer imputed against a 9% or 10% interest rate, it’s a bit of a barrier. So as those rates come back down, the funnel opens up, not only in travel trailers, but in each of those segments individually. To offset that in the short term, we’re just driving prices down by stocking and selling less expensive units inside of each of those type codes.

Joseph Altobello: Got it. Very helpful. Maybe just a housekeeping item. Dealership locations. Looks like they were flat versus Q1. Where do you guys expect to end the year at?

Marcus Lemonis: I expect — we don’t have a final number, but we will end the year lower in our dealership headcount than we’re operating today. The one thing I’ve learned over the 20 years that I’ve been doing this is if you have a situation that’s not presenting a return on investment, you exit, you convert, you come up with another strategy. And while we are not removing our goal of getting to 320 locations in the foreseeable future, we are not going to do it at all costs. So if certain locations have to consolidate or convert or close, we’re not going to hesitate. We take our SG&A very, very seriously, and we know that locations that are of breaking even or losing money really don’t help that cause of hitting the target that we want to be at, and we’re not going to hold back in making those decisions.

Joseph Altobello: Got it. Okay. Thank you.

Operator: Our next question comes from James Hardiman with Wedbush Securities. Please go ahead.

James Hardiman: Hey, good morning. So I wanted to dig into the June, July inflection that you spoke to a little bit. I think you were careful to point to market share gains. I guess, I’m curious what you think the broader industry is doing. Obviously, may took a pretty big step down. I think the general expectation or belief among investors is that things have only gotten worse since May. But you seem to be seeing something different, not only in the immediate term, but you seem to think that that’s sustainable. And so I don’t know if the sustainability of that is a function of you think your market share is going to get even better, or you actually think maybe there’s some inflection happening in the underlying industry?

Marcus Lemonis: Well, I think first and foremost, we’re not happy that we’re seeing 12% to 15%, 18% declines in the overall stat survey information. And based on what we have read and what we have heard, it did get progressively tougher in June and July. I think part of the difference that separates us from everybody else and the reason we think our company is so special is we understand how to modify our business, modify our inventory, modify our marketing, modify our cost structure in the face of very strong winds. We knew without a shadow of a doubt that the path to prosperity on the new side was taking our average in stock selling price and stocking price down to a level where the intersection of payment would meet the customers’ expectations.

Early on in the process, customers were coming in the same way they always have, and they would see the interest rate in the payment, and they would — we don’t want any part of that, which is why we made that strong pivot to lower price units in each of the tiers. We actually believe that our performance will continue. For example, in the month of May, we were up 4% on a new same-store sales basis while the industry was down, I think from my best recollection, close to 20%. Okay? In June, we were up just north of 15%, and in July, we were up in the mid-20s on a same-store basis. Now, in some cases, right, it just is really simply about having the right product at the right price at the right time. By the way, that’s the whole business. That’s what separates us from everybody else.

We expect that same performance to continue through the back half of the year on the new side, expecting double-digit same-store sales increases on new for the back half of the year, with margins in that 15% range, 14.5% to 15% range. Usually when we get into the fourth quarter and it’s snowing outside, we just take deals because we want to feed our people and keep things moving. But I feel very comfortable in that range. I am worried about the overall dealer health. I’m not going to lie. And I want to be very thoughtful in explaining that that concern that I have is partially what’s driving our conservative nature on the used acquisition side. We want to accomplish two principal things. One, we don’t want to deploy our actual cash in an environment where things still seem unstable.

We have an election coming up, and typically, when elections come up over decades, it always gets a little squishy. It’s probably more contentious than we’ve ever seen, and we don’t know what’s going to happen. I think secondarily we’re hopeful that there’s going to be rate cuts. And we would sure love it. Our P&L would sure love it, but we have no certainty around that. And so with those two factors and seeing dealers with a lot of aged inventory, that’s why we continue to be more conservative. We also are more conservative because we want to leave a basket of availability on our balance sheet to take advantage of any opportunity that may present itself in the back half of the year on the procurement of distressed or liquidated inventory. When I see 14,000 units out there that are still 22s and 23s, I have to be a little more direct.

Those are essentially used units at this point. And so if we can keep our cash rich and our floorplan ability wide, we see an opportunity, if it presents itself, to capture a lot of those units at material discounts to the invoice and in line with market values. So we are playing a little bit of a hedge here at the same time mitigating our risk.

James Hardiman: That’s all really good color. And following up, you’ve mentioned sort of that affordability math a number of times now. I thought one of the most encouraging things you said today is the idea that we don’t need to go back to where we were in terms of interest rates. That maybe 200 basis points is what we need to get back to more of a midcycle environment. I guess continuing down that path, I don’t know, the over under, by the time we get to the selling season, which it sounds like is ultimately what we’re playing for here, is maybe 75 to 100 basis points. If those were come through, if we were to see that that level of cuts over the next, call it six or seven months, what type of an impact do you think that that would have on your business outside of the obvious math that you laid out in terms of your actual cost?

Marcus Lemonis: Listen, I think everybody appreciates and enjoys the brotherly sparring between Matt and I on certain topics. And I have a very definitive position that every quarter of a point in rate cut will turn into a certain amount of rise in ASP. And that rise in ASP will start to return our GPUs to levels that we want to be at. But where Matt and I do agree is that in order to get the kind of volume out of the industry and we’re not just thinking about ourselves. Our March back to 400,000. We’re going to need to see significant inflection points in that rate.

Matthew Wagner: It’s going to be a multifaceted component, though, where you have to think about not only obviously the interest rate and the implications of what that could mean for a consumer on monthly payments, but also the term and the invoice price. And what sort of volume do we want to yield out of this, James? So there is an opportunity for us to actually increase the gross profit per unit and then turn the average selling price per unit with each rate reduction that comes out. The question is, how much did that ASP go up? And that’s where we can go round and round in terms of the theory behind it. But you see, that year-over-year, our new average selling price went backwards $4,000. Our used average selling price went backwards $4,000.

And this has been a relatively rate stable environment. So now that we have established kind of this control, okay, the question is, how much more does this go up? Don’t know for a fact. But what I can tell you is I feel very confident in our prospects within the new space to actually satisfy further price points compared to what we have today, which should naturally drive up our ASP. It’s no secret that the best selling travel trailer in America right now is the Coleman travel trailer. And largely, we are hitting entry level price points to actually satisfy the demand that exists out there. On the used side, we’ve taken a very similar approach where we have procured and consigned assets. We’re actually up. When you look at our used segment of what we’re selling had a cost basis under $15,000.

So there’s a corollary between consumers that are seeking that value versus those that what they can afford. So I think on the upside, I think we’ll see growth in the new. I think within the used segment we can be a bit more aggressive. Just given the mere fact that 2025 model year pricing has stabilized, period, and given those two components, I feel a lot better about growth for next year.

Marcus Lemonis: Look, when you think about how fragile the customer is between the summer of ’22 and the summer of ’23, all of the interest rate increases happened in that 12-month period. We have never seen that in our history. And we’re happy to report that in both June and July, we crossed 13,100 units both months. And in July we actually sold more units than we did in June, and that has never happened. So that sort of inflection point where we’re bucking the seasonal trend gives us a lot of hope. I think for me that tells me that customers are starting to, I guess, not accept, but embrace the fact that the rates are what they are. They love the lifestyle. So I have to believe that as rates come back down, they’re going to love the lifestyle even more. And the affordability bans are going to widen because as I said earlier, it’s simply a monthly payment gain. Lower rates, lower monthly payments, lower monthly payments, the funnel’s wider.

James Hardiman: That’s really helpful. Thanks guys.

Operator: The next question comes from Craig Kennison with Baird. Please go ahead.

Craig Kennison: Yeah. Hey, good morning. Thanks for taking my questions as well. And Marcus, I appreciate you taking a stab at 2025 so early. That’s not easy. And maybe just to push back a little bit. If we look at ’24 it clearly will be a year in which you and the industry would have discounted more than you would have liked in order to stimulate demand. The hope is next year you won’t have to discount in order to stimulate demand. But just pulling the rug out from under consumers looking for promo, I mean, isn’t that a tougher environment to grow volume? And I’m wondering where you see the offsets.

Marcus Lemonis: Yeah. I’m really glad that you brought that up, Craig. I agree that other dealers have had to discount to move product because they did not do what we did, which is get out of the burning building before everybody else. But if you look at our margin profile, other than the COVID years, our margin profile on new is actually pretty good at 15%. That’s kind of exceptional if you look at history. So we haven’t had to discount what we have done and maybe to people’s satisfaction or dissatisfaction as we have become more aggressive in the way we find new customers and attract new customers and bring back old customers. So if you look at our SG&A, our marketing expense was up a little bit. Our marketing expense was up as we look to find new customers.

So when we talk about promotional activity, we’ve been successful at gaining market share, getting back to 13,000 type units in a month of June and July without having to discount. But we did spend a little bit more money to get people in the door to get people to send us a lead, to get people to, to sit down. And it has been a little tougher to convert people in the higher rate environment. Our conversion has started to improve and we believe it’s only going to improve from here. I worry again though, Craig, that with 14,000 22s and 23s still out there, that’s a problem because no matter how much those dealers discount, 10%, 20%, 30% off of invoice. Now that pricing, 20%, 30% off of 22 and 23 models is still higher than the price we’re selling 24s and 25s for.

They got really caught there. So I expect our discounting to be the same as it is. And I expect our margins to stabilize as we go into ’25. I do worry about the dealers, though. The other dealers.

Craig Kennison: That’s great. Thanks, Marcus. And then, Matt, I think you mentioned a reconfiguration of your dealer portfolio and some other changes. Just curious if you could shed a little more light on those changes with some of the dealers that may be underperforming.

Matthew Wagner: So you heard both Marcus and I, Craig, allude to the success that we experienced with our exclusive stores. And Marcus and I had the opportunity last week actually to visit two more locations. And we were both enthralled by what we saw in terms of general experience, where it feels very different than a very traditional Camping World. Insomuch is it’s that brand focus where our own team members were decked out, in this case in Grand Design gear as well as Coachman gear. It gave the appearance that it’s a manufacturer specific store. And the level of focus on all of the sales processes and service processes gives customers a different experience altogether. We’ve seen that our net promoter scores, but more importantly, our margin profile and our return investment has been amongst the top quartile of all of our locations.

In short order, if you remove one-time expenses to actually get these businesses up and running. So as we look forward, Craig, we believe that we can take some of these dealerships that are underperforming. You’re always going to have to look at a dealership portfolio in excess of 200 locations, and there’s always going to be a bottom 10%. So in our mind, there’s an opportunity to take that bottom 10% and reassess the markets in which they operate and how they actually operate in connection with nearby Camping World locations. For example, we have locations in Texas and Minnesota and Colorado that are in close proximity to one another. We see an opportunity to convert some of those locations to either exclusive stores or a concept and idea that we’ve spoken about of consignment stores.

As some may recall, we acquired a business called RV Arizona, a consignment specialist store. And we’ve learned a tremendous amount post acquisition of this business. In fact, it’s an asset-light model in the sense that nearly all of the assets are consignments. There’s always a handful of units or used units that we will purchase. But this business solely focuses on selling used units. And as we all know, looking at the history of our business, the margin profile on used always exceeds new outside of a period in ’21 and ’22 with outlandish new margins for that short time period. And the RV Arizona business has taught us a scalable playbook that has enabled us to take that same methodology, same concept and expand our consignment process across the entirety of our enterprise.

We would historically average as a company cracking about 1,000 consignment across our entire business. In the span of four short months, we’ve grown that to an excess of over 4,000 units, just using this RV Arizona consignment playbook. We believe that we should be able to take not only our exclusive stores, but also this consignment playbook and start to convert some additional stores to yield that much more out of these underperforming assets.

Marcus Lemonis: Because when you look at taking the floorplan expense out of things, particularly at the rates that we’re at, and you look at taking other labor savings in those locations, we can flip the script pretty quickly. We paid, I think approximately $3 million for that RV Arizona location. And in the last several months, it’s put up 200,000, 250,000 in bottom line performance. And when we look at that and say to ourselves, okay, we don’t have to invest our capital, we don’t have to put it on our floorplan. We’re using other people’s money and we’re getting that kind of return. We think there’s a handful of locations around the country where we’re either losing money because of floorplan expense and underperformance and convert those into something that will be positive, those kinds of swings really matter.

I just want to put one last point on the exclusive stores. Matt mentioned two brands. He mentioned Grand Design, he mentioned Coachman. We also have Forest River. We have Keystone. We have Jayco. Our Jayco business year-to-date, which is a division of Thor, is up approximately, Matt…

Matthew Wagner: Almost double year-over-year in terms of the segments, specifically travel trailers, fifth wheels combined, and the motorized business, specifically Class C has performed quite well.

Marcus Lemonis: So the manufacturers are starting to really enjoy market share gains and volume gains because of these exclusive stores. And it’s funny, when I walk into them, I even — this is the greatest idea that you and I ever had a because it mitigates risk, it gives us a closer focus on product knowledge and the performance has been exceptional.

Craig Kennison: Very helpful. Just one point of clarification on the consignment piece. I think earlier in the conversation or in the script, you talked about that being lower margin. But if I’m not mistaken, those — you don’t actually purchase and then resell those units, you just capture the profit. So what’s the accounting around consignment units?

Marcus Lemonis: Yeah. So when we consign a unit, we obviously sign paperwork with the consumer. That asset sits on our lot. It’s still owned by the consumer. No money has changed hands. We do spend a little bit of money to clean it up, to make it presentable. And when we sell that unit, it actually comes into our inventory through a purchase and increases our turns. We are starting to improve our turns. In fact, in the month of July, we’re starting to see our turns get back to where we want them to be. The offset of that is that the margin profile of a consignment is a little lower. And that’s what’s driving some of our margin compression in the back half. When you look at our traditional used purchases, they tend to be around 20%.

When we look at our consignments, they’re in the 16% to 17% range. And while that doesn’t sound like a lot, when you grow your consignment business at a rapid pace and you slow down your purchase business at a rapid pace on a temporary basis, you’re going to change the overall margin profile. What we want to do is continue to ramp up that consignment process because we love free money and we love fast turns, but we want to get back into purchase as well so that we can find that blend that gets us to the margin profile we need to be at the.

Craig Kennison: Got it. Thanks so much.

Operator: Our next question comes from Michael Swartz with Truist. Please go ahead.

Michael Swartz: Hey. Good morning, guys. Maybe sticking on the SG&A topic, I think in the second quarter was of about three points relative to last year as a percentage of gross profit. And understanding that part of that is the denominator being a bit lower on profitability, as we’ve spoken about. But were there any kind of one-time or transitory costs in that number for the second quarter?

Marcus Lemonis: There were, but as you have been with me for a long time, we don’t like to always make excuses about missing our own internal targets. We launched the auction business and I think more important than anything else, and maybe this is the fine point on this, we are a growth company. And when we started this business, and Karin and Brent and I started this business 20 years ago, it was three of us in a cubicle. But with 14,000 employees and a $7 billion-ish type business, we have to deal with a lot of different things. And Lindsey, who we’ll talk about this in just a second, is overseeing an infrastructure that protects our company, that trains our people, that provides them services, that make them want to be here. Just talk about that a little, Lindsay.

Lindsey Christen: Yeah. So we are heavily investing in our people. We’ve been talking about this now for a number of quarters. We’re making significant investments in training our team across the enterprise to improve our sales process, to improve our service process. So we’re really proud of those investments and seeing some — an increase in NPS scores and customer NPS scores, in employee NPS scores. We’re really excited about what that has to do. At the same time, we’re also continuing to enhance our IT infrastructure and security. We all have to do that in today’s environment. So, of course, you naturally see an increase in those costs, but feel good about the contribution in that investment.

Marcus Lemonis: Yeah. I think, Michael, the other thing that’s really important is we’re a growth company. And in order to absorb 16 locations, 18 locations, 15 locations, make acquisitions, open stores, convert to exclusive stores, it required us to put in an infrastructure that allowed that to happen so that it’s a good experience for the customer and the employee. And we’ve had a lot of healthy debates in our organization. Do we just chop everything and cut everything all the way down to the bone? And the answer is, we could. But what we worry about is how do we then prepare ourselves to be opportunistic again on acquisitions and open up stores and convert things? And it really is a choice. So we really have to be really thoughtful around that.

Michael Swartz: Just to follow up, I think you made the comment that the target is low, 70%, 72%, 74%, something in that range in terms of SG&A over the long run, and obviously running above that now. But is there any way to think about it? There’s a lot going on, obviously, in the model and a lot of variability going into ’25. But is there any way to think about what that should actually look like in the back half of the year?

Marcus Lemonis: Yeah. So in the back half of the year, we’re unfortunately going to be higher than we want to be unless the used business picks up, which we’re hopeful that it does. Unless the margins pick up, which we’re hopeful that it does. But as we start to plan for the back half and for our investors, we want to be very clear. We think we’re going to end the year in the mid — in the low to mid-80s, far away from where we want to be by four or five points. And GPUs coming from — lower ASPs are contributing, consignments instead of purchases are contributing. But what we would ask our investors to consider is the thoughtfulness behind risk mitigation, capital preservation, and protecting the business, and still focusing on being a growth company against just making these wide swath cuts that we believe could impair the overall enterprise value arc of our company, the market performance against our competitors, and our ability to grow at the pace that we want to.

We’re asking our investors to trust us in this process, that while we seem probably more conservative than we should, we’ve seen this movie many times, and maybe I have a little PTSD from the past. I’m not 25 anymore, and I want to be really thoughtful about protecting our capital and protecting our business and protecting our shareholders. I’m focused on the fact that we are outperforming every single other dealer in the country, and not by a little. And we know that our infrastructure and our people are really the ones that are doing that. There’s no other magic sauce behind that. So we expect our SG&A to be higher than we’d like. As we head into 2025, we’re still always focused on 72% to 73%, but we need a few things to come together to get down to that number.

We need the ASPs to come back up a little bit. We need gross profits to return a little bit, and most importantly, we need the volume to come back.

Michael Swartz: Great. Thanks a lot, Marcus.

Operator: Our next question comes from Scott Stember with ROTH MKM. Please go ahead.

Scott Stember: Good morning, and thanks for taking my questions as well.

Marcus Lemonis: Yes, sir.

Scott Stember: Marcus, you made a comment that you would expect new same-store sales to be up in ’25. I’m just trying to get a sense of what your expectation for the underlying market will be in units. And if you expect to keep benefiting from this lightning in the bottle of these lower priced units, like with Coleman.

Marcus Lemonis: Well, I’m going to have Matt take that one, and then I’ll add some color.

Matthew Wagner: We are yielding greater confidence with our opportunity for upside because of segments that honestly, Scott, we vacated this last year, because we weren’t able to negotiate the deal or architect the models at a significant price point reduction that would give us the actual confidence to go out to the market. What I mean by that is we scaled back our entire Coleman lineup pretty substantially over this last year, and it’s still sitting at the number one position. When we actually eliminated in excess of 20 floorplans that was part of the Coleman brand lineup, we did that in the name of a re-architecture of the entirety of that brand. And we’ve also worked with some of our other exclusive products, specifically Heartland, where we’ve actually vacated the entire deal, was the Pioneer Mallard, which, if you look at those floorplans and those brands and staff surveys, they’re amongst the top 15 best-selling brands in America two years ago.

We slowly started to scale that back over the last year and a half, and we’ve been quietly re-architecting all of that. Right now within the Coleman segment, we’ve been largely focused on segments or price points under 20k. We believe, based upon the work that our manufacturing partners have done with us, that we should be able to yield increases just in Coleman and those Heartland segments alone, never mind all the other exclusive products that we have out there. So, independent of what will transpire within this broader industry, which I do believe that the broader industry will actually start to increase sales again next year. To what extent? I think we’re still waiting to see exactly where we settle in this year, where we’ve maintained very publicly that we think that retail and wholesale will end up in that 340-ish range, plus or minus, for both retail and wholesale, depending upon which lens you want to look at it through.

The question is next year, how much does that go up on both sides? Because we do believe that there’s relatively scarce supply of certain new units and general rolling stock across the broad part of our industry.

Marcus Lemonis: Yeah. I mean, I think as we look at the data, and we’re very hopeful for not only ourselves, but for the industry at large, that we would expect 2025 to have a decent increase over 2024, both in shipments and in retail. Now that contemplates things coming together and the world not falling apart, which we don’t expect to happen, or we’re hopeful it’s not going to happen, but we don’t see it returning back to the 400,000 unit level in the next 12 months. We would be very pleased if that happened because we get our pro rata share. But I think we have to be very conservative and realistic about how we step back up on our way back to 400,000 plus. Does it go up to 355 or 360 and then move itself to 385 over the next several years, we hope.

That’s sort of our anticipation, and we want our lion’s share of that. But we’re not building any business model or ordering any inventory as if it’s going to all of a sudden magically go from 340,000 to 400,000. That would be reckless and irresponsible, and we’re not going to do that.

Scott Stember: Got it. And then last question, on customer pay work within products and services. I think the last couple of quarters we were running up organically, mid single digits. At least that’s kind of what it sounded like. Can you maybe give us a little direction how that part of the business did?

Marcus Lemonis: Yeah. Our customer pay work continues to be not as robust we would like it to be. We find that consumers are still camping, but they’re not camping as much. And I’m assuming that with the general pinch on their pocket, with rates being where they are and discretionary income being a little tighter, that instead of people taking net seven trips a year, they’re taking five. And there’s a direct correlation between the number of trips that people take and how often they show up in our service department. The other thing that we’re starting to see is in a tighter economic environment, people just either live with whatever is there or they start to fix things themselves. And so we’re hopeful that as things open up again and people get more comfortable with what’s happening in the marketplace, that all of that will come back.

Scott Stember: Got it. That was very helpful. Thank you.

Marcus Lemonis: Yes, sir.

Operator: Our next question comes from Noah Zatzkin with M3 Partners. Please go ahead.

Noah Zatzkin: Hi. Thanks for taking my question. I guess, just taken kind of all together with the comments around kind of July bucking the trend and remaining soft, I mean, remaining strong. How do you think about maybe this is a bit of a pointed question, like your ability to grow earnings year-over-year in the back half, and then looking out to next year, specifically around margins. Is it your expectation on the used side that you could kind of get closer back to normal levels? And what would it kind of take to get back there from the kind of mid to high-teens rate you talked about in the second half on the used side? Thanks.

Matthew Wagner: Yeah. For the earnings on the back half, there’s really just a couple of simple inputs. One is SG&A as a percentage of gross, and we need our gross profit to return to a level of normalcy. At the same time, we take out additional costs and rationalize locations and things of that nature. The second input in that is how our used is going to perform, and used has become such a staple of contributing to not only our top line, but the gross profit line. We expect our used business to return to a level of normalcy in margins in the 2025. And we see that sequentially happening as we go through the balance of the year with the idea that we’re going to potentially see a rate cut get past the election, and we start absorbing inventory at a faster rate.

We’re hoping that in December, as a very small example, that we’re back at that 18.5% to 19%, and then we sequentially get back to 20% through the first quarter and into the selling season. That’s how we’re building our model. And we see the ways to do that simply by just starting to aggressively acquire again when we have the level of comfort.

Noah Zatzkin: And just so I’m clear, you kind of mentioned — maybe leaning into consignment a bit more. Obviously, floorplan benefits there, but structurally, is there anything to consider on used margins looking kind of longer term if you were to kind of increase your mix of consignment? Thanks.

Matthew Wagner: What we have to weigh out in that equation is the cost of capital against the margin profile and what is the best way to deploy our capital. And so if you told me that we can grow our consignment business materially, which we plan on doing, and we can lower our carrying costs, our floorplan interest materially, which would be a byproduct of that, and that our margins would be 1% lower on the top side, but ultimately be something better on the bottom line, we’re going to find that perfect science. I think that is really, really important. But as rates come back down, we’re going to be aggressive in going out and procuring used again. As we gain more confidence, we’re going to be aggressive in going out to procure used again.

What happens when we make that used acquisition isn’t just the sale of the unit, it’s what happens in service, what happens in parts as we recondition those units. So keep in mind, one of the significant deltas on a consignment versus purchase is that the consignment goes through a reconditioning process after the unit is sold, and that definitely puts pressure in the overall margins because the price is established with the customer. When we purchase those units, we go through a rigorous inspection process, and we end up investing in that unit and then enjoying the margins both on the service side, the part side, and the sales side. On the consignment process, we miss a piece of that. Well, that’s offset by not having to take the risk. At this point, we’d rather just not take the risk.

Noah Zatzkin: Very helpful. Thanks.

Operator: Our next question comes from Tristan Thomas-Martin with BMO Capital Markets. Please go ahead.

Tristan Thomas-Martin: Morning. I may have missed this, but did you call it how much carryover inventory you have? And then, Marcus, you mentioned getting turned back to where you want them to be. Where do you want them to be?

Marcus Lemonis: On the used side, we would like our turns to be north of 3.5. And while we experience better than that in July, there are seasonal adjustments to that. On the 2023 side, I think we only have just around 800 left. I mean that — so no 22s of any consequence. And 23s were down to only 800, which is far, far better than we were a year ago. I think one of the reasons we think we’re going to see nice margin stabilization on the new side is that we’re not liquidating through those units and we’re starting to bring in 2025s.

Tristan Thomas-Martin: Okay. And then what about new turns, your target.

Matthew Wagner: Historically our target, Tristan, has been 2.4 turns, which you’ll recognize that we work diligently to try to just get over two turns annualized again. And, of course, there’s going to be certain periods, like we saw in July where that spiked. Just given a seasonal adjustment, even it actually spiked. But our goal is to get back to that norm and that mean of 2.4 times.

Marcus Lemonis: There’s a fine balance between putting the right inventory on the ground so that there’s selection and opportunities for the store. And keep in mind that the way that our business is fueled, we’re not a stand at the front door waiting for people to walk in the door business. We are a digital game. And I think part of what has separated our company from everybody else is the nature in which we find new customers. Our digital game is where the lion’s share of our marketing dollars go. We’re not spending money sponsoring things in a year like this. We’re not spending money on brands branding. We’re spending money on performance marketing to drive leads. And those leads go into a very rigorous lead management process.

And that lead management process goes through a very rigorous sales process. That conversion off of that very regimented process is what we believe is separating us from everybody else. In order to generate those leads, you got to have a wide offering. It doesn’t have to be necessarily deep in terms of having multiple duplicates of the same unit, but you do have to have a wide swath.

Tristan Thomas-Martin: Got it. Thank you.

Operator: [Operator Instructions] Our next question comes from Ryan Brinkman with JPMorgan. Please go ahead.

Ryan Brinkman: Hi, thanks for taking my question, which is on the competitive environment. Given that sometimes in the past, even when you have been differentiated versus peers, when it came to managing the volume of your inventory, still margin could be pressured by discounting other dealers who had gotten out over their skis. It sounds like now, because you had anticipated the customer affordability challenges and been early in tilting toward those lower priced entry models, that maybe there’s an extra layer of insulation there from competitor discounting, which is probably conservative on the higher end as consumers are focused on monthly payment. How differentiated do you think your mix of vehicles by price strata is? And are competitors also shifting toward entry level models, and how long might it take them to catch up?

Matthew Wagner: That is really great insights, and I couldn’t agree with you more in terms of our overall strategy and how we feel like we anticipated everyone else’s move and now everyone is going to be in moving in arrears to us, where I expect a migration down into a price point and segment where they’ll try to compete with our lower priced units, which if you look through stat surveys, we have commanding market share for every asset being sold under 15k right now. And that’s largely a byproduct of how we constructed Coleman over years, in addition to a number of other exclusive brands that we source. We’ve actually worked even more diligently with our manufacturing partners over the last year to come up with an even greater value enhancement to that lower price point for less money.

And furthermore, we built up an entire brand lineup with Eddie Bauer, which we’ve not referenced, which we have slowly started to dribble out into the marketplace. As well as I said earlier, Ryan, reconstructing the entirety of our Coleman lineup and our Heartland Pioneer lineup, and as Marcus suggested earlier, every other entry level price point and segment with every other category leader. So be a Thor Motor Coach, Winnebago, Forest River when we think of their Class C lineups, their entire motorized lineup, and their fifth wheel lineup, we feel like we’ve covered every single major price point heading into this fall season to position us very well, to actually grow our market share again next year, regardless of what happens in the broader macro environment.

Marcus Lemonis: That level of commitment to manufacturers like Thor has given us a strong competitive advantage as we work to help them predict their own supply chain, giving them very intelligent four, five, six, eight, 10 months forecasts so they can procure the raw materials that are needed to drive those prices down. And while other dealers will attempt to move into those lower price points, potentially at the wrong time of year and hold those units over the winter, we’ll start moving into preparing for 2025 and already anticipate the moves that other people are going to make and be one step ahead.

Matthew Wagner: Always one step ahead.

Ryan Brinkman: Very helpful. Thank you.

End of Q&A:

Marcus Lemonis: I think that concludes our questions. We are thankful for everybody’s participation and for their confidence in our company. We’ll see you next quarter. Thank you.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.