Camping World Holdings, Inc. (NYSE:CWH) Q3 2023 Earnings Call Transcript
Camping World Holdings, Inc. (NYSE:CWH) Q3 2023 Earnings Call Transcript November 2, 2023
Operator: Good morning, and welcome to Camping World Holdings Conference Call to discuss Financial Results for the Third Quarter of Fiscal Year 2023. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Please be advised that this call is being recorded and that the reproduction of the call in whole or in part is not permitted without a written authorization from the company. Joining on the call today are Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; Karin Bell, Chief Financial Officer; Matthew Wagner, Chief Operating Officer; Lindsey Christen, Chief Administrative and Legal Officer; Tom Curran, Chief Accounting Officer; Will Colling, Executive Vice President, Good Sam and Brett Andress, Senior Vice President, Investor Relations. I will turn the call over to Ms. Christen to get us started.
Lindsey Christen: Thank you, and good morning, everyone. A press release covering the company's third quarter 2023 financial results was issued yesterday afternoon and a copy of that press release can be found in the Investor Relations section on the company's website. Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding our business plans and goals, industry and customer trends, inventory expectations, the expected impact of inflation, interest rates and market conditions, acquisition pipeline and plan, future dividend payments, and capital allocation, and anticipated financial performance.
Actual results may differ materially from those indicated by these remarks as a result of various important factors, including those discussed in the Risk Factor section in our Form 10-K, our Form 10-Q, and other reports on file with the SEC. Any forward-looking statements represent our views only as of today, and we undertake no obligation to update them. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA, and adjusted earnings per share diluted, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial statements are included in our earnings release and on our website.
All comparisons of our 2023 third quarter results are made against the 2022 third quarter results unless otherwise noted. I'll now turn the call over to Marcus.
Marcus Lemonis: Good morning and thanks for joining us for Camping World's 2023 third quarter earnings call. I'm joined in the room today by members of our senior management team. But participating on today's call is Matthew Wagner, Camping World's Chief Operating Officer; and Lindsey Christen, Camping World's Chief Administrative Officer. The last 48 months was the fastest and most profitable growth period our company had ever experienced. During that period, we generated over $2.4 billion of adjusted EBITDA. Look, while we recognize the cyclicality of our business, we also stand strong in recognizing how the business performs consistently over time. Early last year, we boldly forecasted the industry slowdown we saw coming.
We immediately canceled over $900 million of new RV orders and further accelerated our shift towards the used business to help bolster revenue and gross profit. To start this year out, our company had over 16,000 model year 2022 in stock. Today, we have less than 100. Today, we're also sitting with less than 11,700 new model year '23s, and we're on track to be around 9,000 by the end of December, a significant improvement year-over-year. And with the new model year 2024 is quickly arriving, the cost of those units in our core segments are coming in more than 12% less, and we must remain steadfast in this model year elimination strategy. The execution of rigorous inventory management, however, comes at a short-term cost, higher wages to maintain the stability of our top performers, higher digital marketing costs to generate the activity and compressed front-end margins.
This management mandated strategy will likely result in fourth quarter, historically, our industry's toughest quarter with an EBITDA in the neighborhood of breakeven to slightly negative. Our investment in that, our team feels is absolutely necessary. We believe this prudent approach to managing our inventory sets us up for market share and earnings growth in 2024. As a management team, we are adamant that this strategy will set us up for the next 48 months. We want to materially outpace our competitors and gain market share. We want to build strong alliances with manufacturers around the proper inventory levels and forecasting for them and us. We want to maximize the return of working capital to continue our supercharged acquisition plan. We want to increase the velocity of our turns in this higher floor plan interest environment.
And lastly, we want to continue to build our active buyer file to bolster Good Sam's unprecedented growth. Speaking of Good Sam, our high-margin recurring revenue business, it set records in many categories. It will be the first time in its company's history that it exceeds $100 million in contribution to the overall business, driven by our roadside assistance product, extended warranties and vehicle insurance. Our leader, Will Colling has done an outstanding job over the last 3 years of streamlining the operation, launching the company's first loyalty program and renegotiating agreements with partners. We feel strongly that the Good Sam products and programs are both undervalued and underappreciated for its contribution and consistency to our company.
When I think about our company's most greatest achievements, I land on one in particular, the tenure and strength of our team. In order for our company to achieve the growth I expect, we must continue to build, train and promote our leaders. Going forward, you will be hearing from more of them, new and innovative ideas, fresh perspectives and a bench that is built for several decades. Truth be told, it's the most exciting part of my assignment here. Most of you know Matthew Wagner, our Chief Operating Officer. And for a little color before I hand the call over to Matt. Matt has been with our company since 2007. He began as an intern. And over the last 5 years, in particular, has been one of the most instrumental members of our team, and I could not be more proud to turn the call over to him to cover the financial results as well as his perspective on the future of the business.
Matthew?
Matthew Wagner: Thank you, Marcus. Within the quarter, we sold over 32,300 units, an increase year-over-year, including 17,000 used units, a record for the third quarter. Our sales team absolutely crushed it. The used business continues to thrive. And while we are focused on growing our market share of the used business by adjusting our procurement and remarketing efforts, we believe that we are positioning ourselves to substantially grow our market share of new units in 2024. As a reminder, we pivoted hard into the used business a couple of years back. This was a direct response to the significant price increases of new model year '22 and '23 units. During that time, we informed our manufacturing partners that RV consumer demand is highly influenced by price changes, both up and down.
Over the last few months, we have worked extensively with our key manufacturing partners such as Thor, Forest River and Winnebago to identify segments and price points that will yield a greater volume of new RV sales while maintaining healthy margins. Three months ago, we informed the market that we started to see an improvement in the year-over-year trend line of same-store sales. At that time, we saw the affordability curve beginning to bend. As we push that curve further into the quarter, we established greater evidence of the favorable impact of these price modifications. Throughout the fourth quarter, we will be focused on lending our inventory, refining our used procurement and setting the stage to grow our overall market share in 2024.
Our performance for the third quarter is as follows, we recorded record revenue of $1.7 billion, a 7% decline from last year, driven primarily by lower new unit volume and more importantly, lower ASPs. Good Sam, what we believe is our most stable and predictable business unit posted record revenue and growth for the third quarter with $50 million in revenue and $40 million of gross profit. A portion of that improved gross profit resulted from the successful negotiations with vendors of our roadside assistance business. Total adjusted EBITDA for the quarter was $95 million. While we experienced compressed margins on vehicle sales for the quarter, we were able to offset some of that gross profit through the recognition of additional finance income through improved performance on finance product cancellations.
We ended the quarter with roughly $260 million of cash, broken up by $207 million of cash in the floor plan offset and additionally, $53 million of cash on our balance sheet. We also have about $388 million of used inventory net of flooring and $203 million of parts inventory. Finally, we own about $160 million of real estate without an associated mortgage. I'd like to turn the call over to Lindsey Christen, our Chief Administrative Officer. Lindsay has been with our company since 2008 and started on the legal team under our President, Brent Moody. Today, Lindsey oversees our entire human capital efforts, our training organization, real estate group, our M&A process and our legal department. Lindsey?
Lindsey Christen: Thanks, Matt. We've been adamant over the last 15 months that we would be thoughtful in forward-looking when reviewing SG&A options that impact our workforce. We're planning for leaner operations at our manufacturer exclusive locations as well as at a number of our planned acquisitions, which have smaller footprints. We also believe we can run our existing stores more profitably in the current economic climate with a realistic view of the impact of gross profit reduction. As a result, we made the difficult decision at the end of the third quarter to reduce headcount by over 1,000 people, around 7% of our workforce and rightsized variable pay plans, resulting in about $60 million in annual SG&A savings. We will continue to balance investments in our workforce and growth.
We have and will continue to invest in our employee experience and growth. We have and will continue to invest in our employee experience and aim for best-in-class training, wages and benefits. We have and will continue to close locations that haven't performed as expected. During the third quarter, we closed two retail locations and a distribution center. We also identified up to seven locations that were underperforming and will be closed in the fourth quarter. We have a corresponding plan to eliminate the real estate obligations for these closed locations through sales, sublease or lease terminations. We've also been on a robust acquisition path. Over the past year, we've added 16 locations and continue to add to our pipeline, including a 12-store chain we announced last week.
While some deals fall out of our pipeline during the diligence process, the overall influx of potential deals remains very active. All in, we hope to end the 2024 calendar year with no less than 220-plus locations. Marcus?
Marcus Lemonis: The willingness to take decisive action and mobilize quickly to execute is what makes our management team and our company unique, nimble, decisive and effective. With the last 48 months having generated over $2.4 billion in adjusted EBITDA, we are up for the challenge for the next 48. It is our expectation that in 2024, total company revenue and same-store unit sales will be positive and that Good Sam will continue to improve top line. Additionally, we expect overall company gross margins will be flat to slightly positive. With our disciplined approach to managing inventory, reductions in expenses, elimination of underperforming assets, it is our expectation to improve our SG&A as a percentage of gross by no less than 2%. These items, coupled with our store count growth could result in an earnings increase in excess of 30% in 2024. I'll now turn the call over to the operator to lead Q&A.
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