So we pulled back on our procurement knowing that it was going to affect volume because if you have less inventory in stock, you’re going to sell less. But in our thesis, as money came out of our used inventory and came back into our cash account, we felt that it was the right thing to do. We are not done in cleansing that used inventory. There is some hangover, there’s a material amount of hangover in Q1, but that’s self-inflicted. Many dealers, many recreational dealers, auto dealers, et cetera, would do what’s called kick the can, and they would just worry about dealing with the aging later. We have been disciplined since the beginning, of this company on how we manage our used inventory. And the reason for that, is that we know that the #1 thing that could kill a business is poor inventory management.
Our best loss is our first loss and recognizing that the values are overstated, but not a lot, but enough to be material, we needed to act quickly. Our volume on the used side will be temporarily constrained, because we are not chasing procuring inventory just yet. I would expect that in the month of March, probably towards the middle, we will turn back on the procurement, so that we have a more robust spring and summer unused, and we feel more comfortable with how the values have settled in.
Michael Swartz: Great. Thank you
Operator: Our next question is from Scott Stember with ROTH MKM. Please proceed with your question.
Scott Stember: Good morning, and thanks for taking my questions.
Marcus Lemonis: Yes, sir.
Scott Stember: If you look at the products and services, a pretty big decline in the quarter. But if you were to parse out some of the eliminated businesses and look at just the repair side, at the garage or in the shop level, how did that perform in the quarter on an organic basis?
Marcus Lemonis: Yes, sir.
Tom Curran: Well, we don’t report the shop level separately. I’ll start with that. But we were quite pleased with how our core service department performed in the quarter. We did, as we mentioned before, restructured that active sports business at the beginning of the year. Historically, the fourth quarter has been the best quarter for that business as you get through Black Friday and you get into winter season. And we also have our RV furniture distribution business, that OEM distribution business that relies on wholesale shipments and production in Elkhart to drive volume. That obviously was down as well in the quarter. So when you think about the impact of those, maybe about $50 million of top line impact in the quarter.
Marcus Lemonis: Yes. The good news is, right, that we really look at the core business and the core service business seems to be…
Matthew Wagner: Yes, this is Matt Wagner speaking now. I mean, as Tom and I have arm-wrestled over this many times, I would love nothing more than to break out the service business in particular to give credit where it’s, due ultimately where we would love to continue to highlight the success of our service business, and actually pushing more business through the base. Because we’ve seen in times like this, where there’s different calculations valuation issues out there, inflation takes hold in a deflation environment, the service business is the one constant within the dealership network, especially that consistently performs, especially as consumers want to hold on to their assets longer and just simply repair it instead of just a straight-up replacement.
And just as well, we realize the benefits that come along with all the extended service plans and the Good Sam business that tends to be bolstered by such a presence. We did see a nice improvement in service year-over-year. And we continue to see upside in growth, especially with external work within our service base.
Marcus Lemonis: The one thing that I cannot sort of avoid is as the new volume comes back, and as we trade for more units, and as more customers are out on the road, both the existing ones and new ones, that service business has a natural rise that ties back to overall sales growth. So we expect to see over the next several years, continued improvement, continued Bay utilization, et cetera. It was a tough 24 months for us. And I don’t want to avoid that topic. Even service was up because when volume falls, everything sort of falls with it. Yes, our used business helps us keep reconditioning things going. But that’s internal work. We need to see more customer pay work where people are out using their rigs, and we’re eliminating pain points for them. And that is a clear focus for us for the next 36 months.
Scott Stember: Got it. And just one follow-up. Just after a year of absorbing a lot of new companies through acquisition. Maybe just talk about some of the positives that you’ve seen on the synergistic side, whether it’s from a used angle or from F&I?
Marcus Lemonis: It’s always tough to feel really good about acquisitions that we buy at super trough multiples in a trough environment because the trough environment still is the macro environment that, that business has to function with. What we have been successful in doing and what we think is the bright spot is the integration of the brand, the installation of our process in F&I. The installation of our process in service, the readjustment of the inventory matrix to have new use, those things have been real bright spots. But to have those acquisitions really make us feel good, we need the overall market to come back so that our same-store business grows and our new store grows in time.
Matthew Wagner: And if I could even just throw in a couple of other elements. Every time we add a store, we achieve more and more scale in our marketing, tech stack where ultimately, we know that we have such a commanding presence within this entire industry. And each time we add another rooftop, we’re enhancing marketing but also service capabilities. You go back to your first question, Scott, where part of this whole opportunity as we continue to expand is continue to evolve within this whole lifestyle and grow this total addressable market and for our capture of that total addressable market.
Scott Stember: Got it. That’s all I have. Thank you.
Operator: Our next question is from John Healy with Northcoast Research. Please proceed with your question.
John Healy: Thanks for taking my question. Just wanted to ask kind of a high-level question. As you think about the products and service business and Good Sam, are there any aspects of that business that kind of operate today based on what happened 3 or 4 years ago? So when I kind of look at the spike that you saw in your business from ’20 to 2021, is there anything that we should expect in ’24 or ’25 that should, in essence, kind of pop up higher just because of the age and then the flow of the RVs, just kind of migrating just through the consumer holding them for an ex amount or period of time?
Marcus Lemonis: That’s an excellent question. And Good Sam has portions of its revenue that are deferred. And so when we have a good year, the deferred income happens over 2 or 3 or 4 years based on the product that we sold. Oddly enough, when volume is down, the deferred revenue doesn’t – isn’t as robust. And we’ve already been through that process over the last two years, where we’ve had to make other moves inside of the business to grow that business. As volume comes back, we expect first year revenue recognition and then the following year’s revenue recognition to improve materially. And that’s an excellent assessment because that’s ultimately how the Good Sam business works. You need good volume over a long period of time to help. That’s why we’re excited for volume to come back. That business needs just the same.
Matthew Wagner: Even further elaborate on that, going back to the PSOE category. When you think of just the install dates growing in 2023 based on RBIO [ph] records, another 200,000 individuals that are registering their assets. That’s just suggestive of the fact that yes, you are going to need to have more repair cycles as well as all the different products that consumers are going to need. So you’re spot on, John. That’s a good thing for us. As this business grew markedly two years ago, consumers do not leave this industry. Once they get hooked, they’re in this lifestyle and that starts to pay residual value for all of our different businesses like a service in particular and Good Sam.
John Healy: Got it. Thank you. That makes sense.. And then just one final question. On the SG&A growth side of things, I might have missed it, but is there a bogey that we should be thinking about for this year or maybe the exit of this year?
Marcus Lemonis: Yes. I mean we’re not where we want to be in terms of full maturity coming back into mid-cycle yet. We would not consider 2024 a mid-cycle year. We’re still in a — we’re not in the trough but we’re not at mid-cycle. And mid-cycle has always targeted us to be around 68% to 69%. I would expect we’ll be in the 70% to 72% range that – I mean, excuse me, 72% to 74% range in 2024.
John Healy: Great. Thank you.
Operator: Our next question is from Noah Zatzkin with KeyBanc Capital Markets. Please proceed with your question.
Noah Zatzkin: Hi. Thanks for taking my questions. Hoping you could maybe provide some additional color on any updated thoughts around the complexion of the 30%-plus EBITDA growth expectation in ’24 relative to maybe how you were thinking about that 3 or 4 months ago. I think there was a thought that maybe full year same-store unit growth could be driven by both new and used growth, but given some of the commentary around used, would you expect new same-store units to drive that growth with used declines? And then you just kind of touched on this a bit, but given some of the moving pieces on vehicle margins in the quarters, in the quarter. Just any updated thoughts on blended vehicle margins versus SG&A rate as a percentage of gross margin as building blocks to get to that 30% plus. Would be helpful? Thanks.
Marcus Lemonis: Okay. Great. I’m going to try to unpack that in a couple of different ways. The first is we — I don’t recall ever saying that we thought both new and used would be up materially in ’24. I think we believe that same-store total unit sales will be up, but it is largely driven by new on a double-digit basis. So that’s a big contributor. The second contributor is we also believe that we’re not going to experience the same gross margin pain through the second and third quarter that we were experiencing last year. And the third piece is, as Tom mentioned earlier, we have made some material SG&A reductions. The combination of those 3 is what’s giving us the ability to have a fairly decent ’24. We don’t consider a 30% growth in our EBITDA number, anything to celebrate.
We’re coming off of a low number. We’re trying to dig out of a low trough environment, and we’re trying to get back to mid-cycle, which we think is probably going to be more realistic in the 25 to 26 years that, that will be far more robust. We are working our ass off [ph] to get to a number in ’24 that cobbles together better margins, better top line revenue on new sustaining our relevance in used, continuing to grow our service business and stabilize our use — our Good Sam business, while we are contracting costs at the fastest rate that we possibly can. That’s what’s helping us get there. There is no grand macro wind that’s going to take us to 30% up in 2024. We believe that’s possible in ’25 and ’26, and we’ve seen this moving before. But we do have to work through that.
So that is the stacker builder model to get to that ’24 number. Can you remind me on the second half of your question, I apologize?
Noah Zatzkin: Yes. Just any thoughts relative to maybe three or four months ago on kind of the blended vehicle margins for the year and the complexion of that new versus used. And then you kind of touched on SG&A rate as a percentage of gross already.
Marcus Lemonis: Yes. I mean the SG&A as a percentage of gross is a hump to get there. And I really believe that while the 72% to 74% is a goal, we have a lot of work to do to get there. We’re going to need those margins to come back in our model today of 30% EBITDA growth, it’s probably closer to, call it, 76 % 77% and we have a lot of work to do to get there. And so I’m optimistic on the SG&A side, probably more optimistic than I should be. But we feel comfortable with that number. We have no change from 3 or 4 months ago. I don’t see any different strategy. The one thing I do want to put a very strong point on is that we are going to continue to stay disciplined around inventory. I cannot stress that enough. We are going to continue to stay disciplined.
And while we know that, that doesn’t make everybody happy, we promise that the investment in staying discipline will yield much better results in this year and the following years. We cannot get lazy in managing that. So the used margins are going to continue to take pressure.
Matthew Wagner: And no, even just to put a firing point on perhaps more directly your question of margins, especially in Q1 sequentially throughout the year. You heard Marcus earlier speak about new margins being in that like 13.5% to 14% range. We believe it will probably be in that range in Q1 and can maybe improve a little bit throughout the course of the year on the new side. And on the used side, as you suggested earlier, just as well, it’s going to be lower than historically it has been.
Marcus Lemonis: In Q1.
Matthew Wagner: In Q1, if I was a betting individual, probably not like perhaps 14% to 16% range. And we know that that’s a bit of self-inflicted pain, but really good inventory hygiene and management and that’s at the stage very well then for the balance of the year, where I wouldn’t be surprised if we settle into that like 20% to 21% range for the balance of the quarter throughout the year.
Marcus Lemonis: By the end of the year. By the end of the year. It’s kind of interesting, and I’m hoping you guys heard what I did. We’re apologizing and disappointed with used margins that are still going to be higher than everybody’s excitement, around new margins. And what that tells you is the used business is the secret sauce of this company. And the reason that we are so diligent right now in the hygiene around it, it’s because we know that that’s what’s going to carry us for the balance of ’24, ’25, ’26 and beyond. We go as the new market goes. And there are years where we outperformed the market and there are years where we underperformed the market on new. We have to be always outperforming the market unused, and we know that cleansing is the key to that.
