Noah Zatzkin: Thank you.
Operator: Our next question is from Tristan Thomas-Martin with BMO Capital Markets. Please proceed with your question.
Tristan Thomas-Martin: Good morning.
Marcus Lemonis: Good morning.
Tristan Thomas-Martin: Can you talk to just OEM promotional support in 1Q? Do they just kind of stop to speak it when the year turned? Or how has that played out?
Marcus Lemonis: No. I mean, look, the manufacturers are always supportive. It’s not about stopping the spigot, it’s so that there’s not a lot of water left in the tank. There’s not a lot of necessity for it. And we made the commitment with them to be proactive together. And the assistance that we’re getting is similar to the assistance that other people are getting. They may be showing it in marketing co-op or floor plan assistance or a variety of other areas. But the manufacturers have been, in my opinion, stellar in understanding that the overall growth of the market is dependent on the cleanliness of the inventory. And if you look back in 2023, each manufacturer took a lot of pain and a lot of gas, both on the top line side, and on their overall contribution to dealers to cleanse inventory.
We’re hopeful that the bulk of that’s done. There are still a subset of dealers out there that have issues with their inventory. You can see it in the general marketplace. We don’t think it’s as prevalent as it was seven months ago, but there are still some. That’s usually how acquisitions come to our front door because our inventory struggles. The manufacturers in the 20-something years that I’ve been doing this, for the first time to this degree, really do understand the importance of units moving through the channel. And I compliment them on three specific things: one, they don’t seem to be making spec inventory like they were before, trying to be far more in line with what the retail registrations are; two, they acknowledge the need to drive down the cost of a like-for-like unit by being more innovative, negotiating with suppliers, suppliers being more willing to participate; and three, everybody really does understand that inventory management for the first time and hopefully.
The final time is key to having symbiotic communication with the dealer to not outpace it. In the past, manufacturers would overproduce, dealers will get overstocked, and we’d go through the same cycle. I think maybe for the first time, that lesson has been more learned than ever.
Tristan Thomas-Martin: Got it. And then you kind of mentioned this, are you expecting more, kind of price concessions from model year ’25 relative to model year ’24? And then just as a whole, how are you thinking about tailwind model year ’24 ordering ahead of the ’25 rollout? Thanks.
Matthew Wagner: And I think the manufacturers have been very effective at targeting certain price points to ensure that they’re spurring some demand in the marketplace. What I mean by that is specifically within that travel trailer segment and under, I’d say, a 30,000 retail price point, we believe that the manufacturers are very creative in terms of either decontenting or perhaps having some sort of price concessions to actually ensure that we’re able to yield more market growth. But ultimately, within other categories, I do believe that there’s going to have to be a little bit more wiggle room specifically when we talk about motorized or even fifth wheels. We’re keeping a very diligent eye on that just as well because we understand that when prices are modified within the overall new marketplace, it could impact used.
So we believe that we have factored that in moving ahead to understand that there’s going to perhaps be some other price concessions in different categories. Albeit I don’t think they’re going to be necessarily as material as what we just saw across the board. But I think we’re set up pretty well as a company, I can’t necessarily speak for our competition and the broader base at large.
Tristan Thomas-Martin: And then just your kind of plan for ’25 ordering/end of ’24 ordering?
Matthew Wagner: Planned for ordering at the end of ’25?
Marcus Lemonis: Yes – we don’t. Yes. Let me jump into this one. We don’t order – like we don’t wake up in the morning and just order. We have a six to nine-month planning that we sit down with each manufacturer to ensure that we’re ordering inventory the right way. And what we want to be careful of is that we’re ordering and looking at demand while we’re ordering. So we’re not just going to go out and place a ton of orders. ’25s are going to come at some point. And we don’t know when that’s going to happen. We believe that the manufacturers are going to stay disciplined and allow dealers to work through their ’24 inventory as we hit the selling season in the spring and the summer and then roll out ’25 at the appropriate time.
Matthew Wagner: Specifically motorized convert quicker. That will probably happen in the next couple of months here. And in all likelihood, my hope to Marcus’ point, is that towables don’t convert that model year until July, August time frame. In which case, there won’t be an abundance of 2025, within the overall network until probably like October, November. It generally takes a little while to ramp up that production and start to sell down ’24s to introduce ’25. So to suggest what the game plan is. I mean that’s really tough to say at this moment. But just understanding that there is a scarce supply of rolling stock inventory and generally speaking, of the dealers that we’re acquiring, they’ve been apprehensive to restock as of this moment.
So when I say restock really in Q1 and perhaps bleeding into Q2. There’s going to come a moment though, where all dealers are going to have to restock, because they simply are either just so low on inventory, and they need to have some sort of way to entice consumers to come back into the overall network. My guess is Q3, Q4, there could be a fair amount of wholesale shipments within the overall industry. I think there could be some material increases, and that just suggests with the fact that we’ve reduced inventory to such an extreme level as an industry over the last 2.5 years. So there has to come a point where restocking occurs.
Tristan Thomas-Martin: Perfect. That’s what I was looking for. Thanks.
Operator: Thank you. Our next question is from Brandon Rolle with D.A. Davidson. Please proceed with your question.
Brandon Rolle: Good morning. Thank you for taking my questions. Just first, a follow-up on your fiscal year ’24 assumptions. You had said maybe two rate cuts in the back half of this year. Does your 30% EBITDA growth forecast baked in, the improvement in flooring cost and maybe overall retail demand? Or is that just a comment you felt like rate relief would be minimal this year?
Marcus Lemonis: I mean we have very, very little enhancement to our number based on any rate cuts happening. If it’s $1 million, that would be a lot in the back half of the year.
Tom Curran: That’s right. It’s really just a couple of rate reductions in the back half of the year impacting the floor plan interest expense. We have not tried to really get bullish on the demand impact of it.
Brandon Rolle: Okay. Okay. Great. And then also just on new RV pricing, you had talked about continuing to drive prices lower. How much lower do you think pricing needs to go in some of your higher velocity categories to really get the industry back to normalized retail volumes?
Matthew Wagner: I mean for us, I feel pretty good, Brandon, that within our high-velocity products, especially those that are under 20,000 retail price point, but we’ve been very effective at hitting that right invoice price and in turn right retail price. I think as you go up the pricing funnel, there’s going to have to be some concessions here and there, especially as you get up to the Motorized segment. That’s where that’s going to be a head scratcher for me in so much as. It’s going to be very difficult to actually continue to yield the demand that we’re seeing out there, knowing that Ford is still imposing price increases on their chassis. So motorized manufacturers truly are going to be just subjected to whatever Ford is going to suggest in terms of their cutaway chassis and raising those prices. And they can only work with suppliers to such an extent to reduce the overall content that’s being put into those assets.
Marcus Lemonis: I think the one thing that we don’t want to have happen to be totally honest with these. We want this perfect balance between prices reducing, and the consumer not losing confidence in the value of the asset they just bought. That’s a really, really important thing. Like we want to drive value to the consumer. And we want the manufacturer to make money, and we want to make money. But if we keep moving having these wild swings in invoice pricing, the customer is going to lose confidence and more importantly, the banks will lose confidence in what their end value is. This whole model for 2024 was really built on a couple of assumptions, and I want to close out with just kind of clarifying a few things. Number one, we expect new volume sales to improve.
We expect used volume to stay relatively flat, and there will be nip and tuck. But for the full year, we expect it to stay relatively flat. We expect gross margins on the new side to sequentially improve, but are not going to have some COVID type margin return. That’s not going to happen. We expect used margins to materially sequentially return as we start the year in that 15% range in Q1 and get back to a normalized number by year-end. On the expense side, this is maybe the most important takeaway. We’ve always had a goal of having SG&A at 70% or below. But a number of factors are important in understanding how we get there. One of them is taking care of our people. And what we did not want to do is start going through our organization and just eliminating head count without any logic to it because we know this industry comes back.
In a matter of 60 days, we saw our numbers go from negative — materially negative on the new side to reasonably positive and that happened really quickly. And we know that as we get in the selling season that can happen. The worst customer experience and the worst overall brand building that a company can have is when customers come in and there’s nobody to answer the phone, nobody could call them back, nobody to take care of them. So as we manage the SG&A as a percentage of gross, we have to have a finer balance. When I say things like 72% and 73%, the rest of the team looks at me like I’m nuts. I’m probably more optimistic about how things could return. But the reality of it is, is that expenses are going to continue to be there, particularly when floor plan is high and marketing dollars are high, and we’re taking on acquisitions.
Our standards are not going to change in the foreseeable future, for the overall mid-cycle look. And that is an 8% EBITDA margin, SG&A as a percentage of gross at 70%. Those two numbers have been constant forever, and we’ve had numbers as high as 13%, and we’ve had numbers – excuse me, as well as those two numbers, and we’ve had the opposite. As we work through the 2024 calendar year, we are confident that we’re going to do what it takes to get to the 30% plus number of EBITDA. The inputs are still moving around a little bit. Maybe pick up a little bit more margin, we hope. Are our expense is going to be better? Of course, they are. But we have to be realistic about what we’re dealing with in this environment and not set ourselves up for credibility issues with the customer, with our employees or with you.
So we’re sticking to our number because we know we can get there. But there is a lot of moving parts and pieces. And we do believe that the bulk of the earnings for the company, like every other year, are going to happen in Q2 and Q3. I think the difference for us, is that we expect Q4 to be better. We expect it to be better, because there was a lot of noise in our Q4 number last year. And we want to be super clear about that. So if there are no other formal questions, we want to move into the Q&A section.
Brandon Rolle: Okay. Thanks.
Marcus Lemonis: Operator, we’ll go ahead and move into the Q&A section, please. That’s it, we’re done. Okay. Thank you very much for joining our call. We want to confirm there’s no more questions.
Operator: There are no further questions at this time.
Marcus Lemonis: Great. Thank you so much.
Operator: This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
