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Edited Transcript of CWH.N earnings conference call or presentation 7-Mar-19 9:30pm GMT

Q4 2018 Camping World Holdings Inc Earnings Call

LINCOLNSHIRE Mar 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Camping World Holdings Inc earnings conference call or presentation Thursday, March 7, 2019 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent L. Moody

Camping World Holdings, Inc. - President

* Marcus A. Lemonis

Camping World Holdings, Inc. - Chairman & CEO

* Melvin L. Flanigan

Camping World Holdings, Inc. - CFO & Secretary

* Thomas F. Wolfe

Camping World Holdings, Inc. - President of Good Sam Enterprises, LLC

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Conference Call Participants

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* Craig R. Kennison

Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst

* David J. Tamberrino

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Frederick Charles Wightman

Citigroup Inc, Research Division - Assistant VP & Analyst

* James Andrew Chartier

Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst

* Nels Richard Nelson

Stephens Inc., Research Division - MD

* Ryan J. Brinkman

JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst

* Timothy Andrew Conder

Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst

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Presentation

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Operator [1]

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Good afternoon, and welcome to Camping World Holdings' Conference Call to discuss financial results for the fourth quarter and fiscal year 2018. (Operator Instructions) Please be advised that this call is being recorded, and the reproduction of the call in whole or in part is not permitted without written authorization from the company.

Participating in today's call is Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; Mel Flanigan, Chief Financial Officer; and Tom Wolfe, President of Good Sam Enterprises. I will turn the call over to Mr. Moody to get us started.

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Brent L. Moody, Camping World Holdings, Inc. - President [2]

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Thank you, and good afternoon, everyone. A press release covering the company's fourth quarter and fiscal year 2018 financial results was issued this 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 goals, plans, abilities and opportunities; industry and customer trends; growth and diversification of our customer base and increase in market share; retail location openings, acquisitions and related expenses; increases in our borrowings; 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 Factors section in our Form 10-K 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 adjusted EBITDA and adjusted earnings per share diluted, which we believe may be important to investors to assess our operating performance. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and on our website.

All comparisons of our 2018 fourth quarter and fiscal year results are made against the 2017 fourth quarter and fiscal year results unless otherwise noted.

I will now turn the call over to Marcus.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [3]

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Thanks, and good afternoon, everyone. We appreciate your time and interest in our company, Camping World.

In 2018, the company generated $4.8 billion in revenue, up $512 million or 12% from the previous year. Our RV sales force also sold 104,296 RVs compared to 97,063 RVs in 2017.

After several years of very strong growth, our sales of new RV vehicles began to moderate in the second quarter of last year. While this trend accelerated through the end of the year, sales of used RVs were up in every quarter last year. As demand for new RVs softened throughout the second and third quarters, we reacted by lowering new RV inventory levels.

As the year progressed, the softening sales trends and excess RV inventory in the industry lead to material margin compression. In the fourth quarter, as the market continued to soften throughout the quarter, we made the decision to implement a more aggressive strategy at the expense of margin to further reduce inventory levels and to be better prepared for opportunistic inventory purchases in 2019. As a result of this strategy, we ended the year with our RV in-stock inventory down 19% on a per-dealership basis and more than $120 million on a same-store basis.

Look, there will always be fluctuations in the sale of new RV inventory, and we have built our RV sales business on a variable expense model to help mitigate the full effects of these fluctuations. Additionally, our RV service and collision business, our parts and aftermarket business, our used RV business and our Good Sam Consumer Services and Plans business primarily serve the installed base of the RV users and have historically experienced less fluctuations than the new RV market. That's why we put so much effort and so much emphasis on building our database and our Good Sam Club, which are comprised of RV and outdoor enthusiasts.

In 2018, our company generated over 7.4 million transactions across thousands of products and services. We currently have over 5.1 million active RV and outdoor consumers, up from 3.6 million in 2017, and 2.1 million members in our Good Sam Club, up from 1.8 million in 2017, and both of them are all-time highs.

Additionally, our call centers handled over 2.4 million calls and responded to over 420,000 e-mails and social media contacts. And our various websites generated approximately 129 million visitor sessions last year through our various e-commerce platforms like the good -- like goodsam.com, campingworld.com, ganderoutdoors.com, ganderrv.com, overton.com, TheHouse.com and a variety of others.

I'm going to let Mel Flanigan take you through the numbers, and then I'll come back to you with more details around our strategic priorities and initiatives for 2019 and take your questions. As most of you know, Mel was appointed to the CFO position as part of our management realignment in early January. He brings more than 15 years of public company CFO experience and a finance and accounting background of more than 35 years. He has already proven to be an unbelievable asset to our team, and we're very pleased to have him as part of our executive leadership group.

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [4]

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Thanks, Marcus, and good afternoon, everybody. Let me start by acknowledging the timing of this call and the filing of the 12b-25. I want to be crystal clear that we take our filing responsibilities extremely seriously, and we are laser-focused on getting the numbers right. The 12b-25 resulted primarily from an issue that the company found during our year-end review process that required additional work to assess and resolve.

Unfortunately, because the error was identified late in our process, that work simply could not be completed within the normal 60-day window. In the end, some immaterial adjustments of the prior year numbers were booked, all of which can be -- will be disclosed in our Form 10-K.

As we disclosed in the 12b-25 filing and press release last week, the evaluation of our internal controls over financial reporting -- in the evaluation of our financial controls over internal reporting, we identified a new material weakness in our internal controls that existed at December 31, 2018, specifically related to the sufficiency of technical resources of the company. Simply stated, this means we plan to, among other things, add additional finance and accounting personnel to better support the organization.

With respect to the weaknesses identified last year, we have remediated the issues related to the documentation and valuation process of trade-in units and the communication and documentation of certain accounting policies within the corporate accounting functions in our RV dealership business. The issue related to accounting for income tax liabilities and related deferred income tax balances remains open if we continue to work toward remediation. We've begun a process to evaluate our resource needs and will be working diligently to address those needs as expeditiously as possible.

We finished the year with $4.8 billion in consolidated total revenue, up 12% from $4.3 billion a year ago. Consolidated gross profit was $1.4 billion, up 9.8% from $1.2 billion last year. On a percentage basis, gross margin came in at 28.4% compared to 29% last year. The decrease in gross margin is largely attributable to the margin compression associated with the reduction of inventory and a change in product mix.

Consolidated adjusted EBITDA was $313 million, down 20.7% from our very strong and all-time high performance in 2017. Pricing and margin compression in the new RVs component of our business, along with our -- with investments in our new-store locations, negatively impacted overall profitability.

Turning to segments. The Good Sam Consumer Services and Plans segment continues to do well, posting revenues after elimination of intersegment transactions of $214 million in 2018, up 9.4% from $196 million last year. Gross profit was $127 million or 59.5% of revenues, up from $114 million and 58.2% last year.

In our RV Dealership segment, revenues after elimination of intersegment transactions grew 6.2% to $3.9 billion in 2018, and RV Dealership gross profit increased 5.6% to $1 billion or 25.9% of revenue. Our RV and Outdoor Retail segment revenue, after elimination of intersegment transactions, was up 65% to $670 million, driven primarily by contributions from our Gander openings.

During 2018, we increased our RV and outdoor retail store footprint by over 46%, ending the year with a total of 212 stand-alone or cohabited locations and setting the stage for growth in the years to come. RV and outdoor retail gross profit was $225 million or 33.5% of revenues, up from $170 million last year.

For the fourth quarter, consolidated total revenue was $982 million, up 10.6% from $888 million a year ago and represents an all-time fourth quarter high for the company. Consolidated gross profit was $276 million, up 3.8% from $266 million last year. On a percentage basis, gross margin came in at 28.1% compared to 29.9% last year.

Consolidated adjusted EBITDA was $10 million, down from $64 million a year ago. This was primarily driven by margin compression from some of the more aggressive promotions at our RV dealerships taken late in the quarter to improve our inventory positioning and from losses in our fast-growing RV and outdoor Retail segment.

As Marcus discussed, we ended the quarter with inventory down 19% on a per-RV-dealership basis with same-store inventories down more than $120 million. In the fourth quarter, we also took a hard look at operations, inventory, various product and insurance reserve assumptions and, given the current market uncertainties, took a more measured -- took more measured positions in many of these areas. In the end, we increased our RV and outdoor retail inventory reserves by more than $5 million, increased insurance-related reserves by nearly $12 million, and wrote down $40 million in RV and outdoor Retail segment goodwill as a result of our annual impairment testing.

Good Sam Consumer Services and Plans revenues in the fourth quarter, after elimination of intersegment transactions, were $55 million, up 8.5% from $51 million last year. Good Sam Consumer Services and Plans gross profit was $34 million or 61% of revenue, up 8.9% from last year's fourth quarter. RV Dealership revenues in the fourth quarter, after elimination of intersegment transactions, were $718 million, down 0.8% from $724 million last year. RV Dealership gross profit came in at $185 million in Q4, down 1.6% from last year's fourth quarter.

In the RV and Outdoor Retail segment, fourth quarter revenues after elimination of intersegment transactions were $209 million, up 84.7% from $113 million last year. Gross profit at our RV and outdoor retail locations was $57 million or 27.1% of revenues compared to $47 million and 41.1% last year.

Consolidated operating expenses increased 31.3% to $1.2 billion for the year, including a 25.3% increase in SG&A to $1.1 billion. The increase in operating expenses was primarily driven by incremental wages, selling and associated overhead expenses related to the additional RV and outdoor retail locations opened over the past year but was also impacted by the $40 million goodwill write-down I mentioned earlier, an $18 million increase in depreciation and amortization, a $17 million increase in retail preopening costs and about $3 million in costs associated with store closings.

Other expense totaled $105 million in 2018 compared with other income of $30 million last year. $100 million of this change is attributable to the TRA liability adjustment booked in 2017. Additionally, floor plan and other interest expense was up a combined $31 million in 2018 due to both increased borrowing rates and higher average borrowings.

Net income was $66 million, and earnings per share were $0.28 for the year ended December 31, 2018. Adjusted earnings per share was $1.42, and adjusted EBITDA was $313 million for the year.

Turning to our balance sheet. We ended the year with cash and cash equivalents of $139 million and net working capital of $583 million. Total inventory was $1.6 billion, up 10.1% from a year ago. The $221 million increase due in part to the opening of new RV and outdoor retail locations was partially offset by an 8.6% decrease in new vehicle inventories overall for a decline of 19% on a per-RV-dealership basis from December 31, 2017.

At December 31, 2018, we had $1.2 billion of term loans and outstanding under the senior secured credit facility, $886 million of floor plan notes payable under the floor plan facility, $39 million of borrowings under the floor plan facility's revolving line of credit, and $10 million outstanding under our retail -- real estate facility.

Looking ahead, we all saw the challenges faced by the industry accelerate in late 2018, and some of that softness has naturally spilled over into the first quarter. So as we think about our expectations for 2019, we want to be cautious and need to factor in the uncertainties impacting our markets, especially this early in the year.

Our initial outlook for 2019 is for total revenues in the range of $4.9 billion to $5.1 billion and adjusted EBITDA in the range of $320 million to $340 million. Looking at quarterly seasonality, we'd note that Q1 2018 is a particularly tough comp, and we expect the uncertainty coming out of Q4 to bleed into Q1, after which we'd expect to see more typical seasonal trends kick in.

With that, let me turn the call back over to Marcus.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [5]

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Thanks, Mel, and we're all glad to have you on board.

Our comprehensive network of assets and offerings allows us to engage with consumers in a variety of ways, and we're continuously developing ways to widen our customer funnel and increase our share of wallet across the RV and outdoor sector. This includes expanding our RV and outdoor footprint through dealership acquisitions, building new RV and outdoor locations, and expanding our product and service offerings. It also includes building Gander RV into a prominent brand that will allow us to have the #1 and #2 dealership networks in the marketplace.

We've learned over the last several years that consumers start their RV shopping process online and, more recently, have gone deeper into that process, expecting more information, more digital communication, and the ability to transact in that process. We have seen the digital benefits of clearly defining trade areas and offering customers choices and different buying experiences within a given market.

While Camping World's digital footprint is the clear #1 ranked online brand, our desire to find new customers in new and existing markets led us to realize the importance of using our size, scale and knowledge to create the #2 RV brand dealer network in the nation.

At the beginning of the year, we made a number of organizational changes to better streamline our team and bring a renewed focus around these initiatives. Tom Wolfe, a senior executive who has been with the organization for more than 20 years, who was serving as the company's CFO and also leading the Good Sam business, became the President of Good Sam Enterprises; and Mel Flanigan was hired to fill the CFO position. Tom's appointment to President of Good Sam Enterprises gives this very important segment of our business renewed leadership to continue to develop and grow new products and services.

I'm going to let Tom tell you about some of the Good Sam initiatives.

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Thomas F. Wolfe, Camping World Holdings, Inc. - President of Good Sam Enterprises, LLC [6]

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Thank you, Marcus, and good afternoon, everyone.

The Consumer Services and Plans segment has always been focused on developing unique products and services to enhance the RV lifestyle. The Good Sam Club itself dates back more than 50 years and got its start as a group of RV owners who came together to share ideas and assist fellow members on the road. That original heritage of bringing people together, sharing ideas and resources, is still core to the way we think about our Consumer Services and Plans business.

Our Good Sam Club is the largest RV membership club in the world, and we are leveraging our core competencies and infrastructure to extend our offerings into the outdoor community and broaden our membership base. The club members save up to 10% to 20% every day on a variety of products and services across Camping World, Gander Outdoors and Overton's businesses as well as other special benefits, such as free online shipping and member-only discounts.

Beyond the discounts, we are broadening all of our publications, blogs, websites to include more content around outdoor and recreational activities. For example, our Good Sam directory now features information on parks with access to hiking trails, hunting areas and boat launches, and our motorhome and trailer life magazines run regular features on a variety of outdoor products and activities.

Within the next few months, we will be expanding our customer financing options by rolling out a new private-label credit card program that complements our existing cobrand credit card program. In addition to the financing offerings, both cards will allow customers to build royalty points and receive additional benefits and discounts.

Within the roadside assistance and extended warranty program, we are developing additional offerings that extend the reach of these services into the auto category while, at the same time, leveraging our IT and call center infrastructure. And on the marketing side, we are focused on analyzing buying habits and spending patterns to personalize our offerings and communications around the unique interest of our club members.

With 2.1 million Good Sam Club members and 5.1 million active customers across our platform, we have a tremendous opportunity to continue extending our Consumer Service and Plan business and broadening our reach within both the RV and the outdoor community.

And now, I'll turn the call back over to Marcus for his closing comments.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [7]

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Over the last 17 years, I have grown more and more confident in this industry and its long-term growth potential. As Mel outlined our forecast for 2019, our management team and our entire staff is focused on achieving those results.

Thanks, everyone, for your time today. This concludes our prepared remarks. We're now ready for the question-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We'll take our first question from Rick Nelson with Stephens.

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Nels Richard Nelson, Stephens Inc., Research Division - MD [2]

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Marcus, thank you if you could comment on sales trends that you saw during the quarter. Some of our RV chats were suggesting December got quite difficult, and the early going of 2019, what you're seeing and how you see the year unfolding.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [3]

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Yes. I mean, what was odd about the fourth quarter was that October -- the last half of October got really rough. And then November had a mild bounce back. And then December, the bottom really fell out. And it didn't catch us by surprise because we started preparing for it. But we have seen a softening in the first quarter of 2019 compared to 2018, but we have not seen a softening in online lead generation or foot traffic, just transactions. And so we are hopeful that the first quarter was a big quarter to come. December of '17, January of '18, February of '19, and the first half of March of '18, they were good. They were really solid last year. In fact, it's our best, call it, 75, 80 days. We have seen, though, Rick, the return to a small degree, a stabilization of our margins. We're not seeing the kind of margin erosion that we experienced in October, November and December. And while it isn't where we want it to be, we think it'll improve. We think some of that margin is the inventory channel sort of destocking, and it's the fact that we destocked so aggressively in the back half of 2018 that we were able to be opportunistic with our buys and be better positioned with our inventory.

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Nels Richard Nelson, Stephens Inc., Research Division - MD [4]

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Sounds like you're comfortable with your inventory levels down 19% on a per-store basis. You think the channel inventory is also getting cleaned up?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [5]

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Well, I can't speak to the channel. We are monitoring the inventory literally every morning based on the sales trends from the previous day, looking at our orders, making sure that we stay on a 24-hour basis to not have, if we see any dip increase or decrease in any sales trend, we're going to adjust our inventory realtime. At this moment in time, we're comfortable with where our inventory levels are on the new side but are aggressively pursuing inventory on the used side, particularly since quarter-after-quarter last year, our used business was up, and we think that that's a perfect opportunity for us to mitigate any softness on the new side.

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Nels Richard Nelson, Stephens Inc., Research Division - MD [6]

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Okay. Finally, if I could ask about Gander Outdoors. If you could quantify the magnitude of the loss in the period and just an update on the RV stores and how they're performing.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [7]

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I'll take the first half and then have Mel answer the second half. I don't know how we break it out. But we, today, only have 56 Gander Outdoor locations open. We closed 7, as we said we would, and we're obviously always monitoring those. We are all pretty close, in the next 60 to 90 days, to having approximately half of those locations selling RVs. We're opening literally as the snow melts. We are noticing that the stores that we're adding RV to, keep in mind, also have the full RV parts and accessories assortment. The management team has been consolidated, and so we no longer are managing Gander Outdoors and Camping World's retail -- RV and outdoor retail business separately. We have one individual with the management team that's doing that. Additionally, we consolidate -- in addition to closing the 7 Ganders, we closed 2 Camping World locations that weren't profitable and 3 dealerships that weren't profitable, and we consolidated our 4 distribution centers down to 3. To-date, now that all of the inventory is in Oracle, both the Camping World and Gander Outdoors retail locations and the campingworld.com and Gander Outdoors and Gander RV online businesses, are all selling all of the products. So we're now looking at this business more holistically, saying, they're really not different other than modest assortments with some of the categories, but they are both now well positioned to be full-throttle RV businesses with complementary RV and outdoor accessories to drive traffic and to drive transaction counts. I'll have Mel address the Gander question.

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [8]

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Yes. So I think we'll be filing the 10-K within the next couple of days, and that's where we'll put out all of our segment information. I think it's safe to say, though, that losses in the Retail segment overall, which obviously includes Gander, and Gander's a big driver there, was significant for the year. But I think everybody understands -- at least I hope everybody understands that you're talking about a business that added a number of locations, 46% increase in footprint over the year. And as we ramp that up to sales, we're going to be able to cover more of the overhead more efficiently, and we'll see things start to turn. But it was a significant loss. And again, you'll see it in the segment disclosures in the K.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [9]

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And that significant loss now, I think, includes -- may include the goodwill adjustments and as well as the -- a decision we made to increase the inventory reserve, correct.

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [10]

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Yes. Yes, sure, of course.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [11]

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So that's important. That's important, Rick, to note that.

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Nels Richard Nelson, Stephens Inc., Research Division - MD [12]

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Yes. The guidance of $320 million to $340 million EBITDA, what would that assume about Gander in 2019?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [13]

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So we're not looking at Gander specifically in a vacuum. We're looking at our Retail segment -- our RV and outdoor Retail segment, and we're looking at our RV dealership segment. And because everything's been collapsed and because both sell RVs now and because both have RV and outdoor products, we're not looking at it the same way. We'll do a little more research and come back to you if you're looking for specific location information.

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Operator [14]

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We'll take our next question from Craig Kennison with Baird.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [15]

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Just a follow-up on Rick's question on your EBITDA guidance. Can you help us understand what is excluded from any sort of costs related to Gander and anything else to get to your adjusted EBITDA number?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [16]

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For 2018 or for 2019?

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [17]

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For 2019.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [18]

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There's no add-backs in the 2019 number because the stores are now open. So in that number, in that range of $320 million to $340 million, includes all of the payroll, all of the operating expenses, the distribution centers, all of our dealership business. It includes everything with no add-backs.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [19]

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And that would include preopening costs? I know that was a drag in 2018 related to Gander.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [20]

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Yes, there are no preopening costs there that I can think of for the 2019 number.

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [21]

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That's correct, Marcus.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [22]

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Okay. And then maybe to further unpack your 2019 guidance. Can you give us a feel for what your expectations are for gross margin and SG&A?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [23]

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Yes, we're not, at this time, comfortable providing that level of guidance. We do expect our margins to improve over 2018 because, if we manage our inventory like we are at this moment, we don't believe that we'll have the margin compression associated with the liquidation of that inventory. Additionally, with more time to prepare for both the spring/summer and fall seasons, we're able to better prepare for onetime buys and special buys and margin builders in our Retail business. And we expect our Good Sam business to continue to contribute high margins to our business.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [24]

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And then one more on guidance. Are there any transactions or acquisitions included in your guidance? Or would that be additive?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [25]

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There are no transactions included in our guidance. However, we are in the process at different stages of acquiring multiple stand-alone RV dealerships throughout the country. As we have said in the past, as long as we have available cash for the company, we're going to be looking for opportunistic acquisitions in markets where we feel like there's either, A, whitespace, or B, a market share opportunity. And so we are still heavily focused on growing our RV dealership platform.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [26]

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That's great. And maybe just as a final question related to that. As you think about capital allocation, you still have the consolidation opportunities in front of you. You've also got a stock that's trading at a discount to where maybe historically it's been. Is there any tradeoff consideration of a buyback relative to acquisitions?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [27]

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So our focus as a management team for 2019 is to bring cash back into the system. And there's really 3 principal ways we want to do that. Number one, we are taking a very draconian approach to CapEx in 2019, essentially investing in the maintenance of our facilities to ensure the safety of our customers and our associates; number two, any technology enhancements. No new initiative would drive that CapEx number past -- much past the maintenance level. Number two (sic) [number three], we are laser-focused on driving down the current level of our retail inventory. We believe that the warehouse consolidation along with shared resources between the different businesses will allow that to bring a lot of cash back in. And then the third (sic) [fourth] is, obviously, our results. As we think about using our cash flow, whether from operations or from reducing inventory, we think about it principally in 3 ways: one, for 2019, we definitely want to put on our radar the reduction of debt. We would like to focus on delevering our company when it makes sense. Number two, we will always look at other opportunistic acquisitions that make sense, that fit in that are purely in the RV dealership business space. And then third, with that excess cash flow, as you know, we provided dividend. We have a tax distribution to make. And if the board sees it appropriate, then a consideration will be given to a share buyback. But at this moment in time, delevering the company and looking for RV dealership opportunistic buybacks are primarily our focus.

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Operator [28]

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We'll take our next question from Fred Wightman with Citi.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [29]

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Last quarter, you had talked about getting more aggressive both in terms of buying and then selling inventory. It sounds like that happened. But can you just sort of walk through the progression of the quarter from a promotional, and then, internally, how that played out versus your expectations?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [30]

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Yes. We really started with me making the decision that I wanted to restructure how the company was being managed at the time. And in the fourth quarter, I took the key facts specifically to the day-to-day operations of our RV dealership business, which included all of the promotions, all of the inventory, the closure of certain stores, and made the conscious decision with the senior management team that manages the inventory to get VIN-specific, type-specific and manufacturer-specific on liquidating inventory that we felt wasn't going to do us any favors in 2019. As we did that, we were very specific about the markets and the types. At the same time, we were working with our key manufacturers to provide opportunities to us to replace inventory at a lower cost in some cases. And so while we ended the year with significantly lower inventory, what we generated in the way of revenue in the fourth quarter of 2018, we replaced that inventory with what we think is far better inventory. We will never take our foot off the gas. Again, of managing our inventory with a tighter day supply focus and a tighter type VIN-specific focus. What that comes with is an opportunity to buy in a more calculated way. And I think that the reason we have seen a stabilization of our margins in the early part of the first quarter, and hopefully, an increase as the year progresses, is because of those 2 factors.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [31]

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Great. And then the interest rate environment has leveled off a little bit. But I think in the past, you've mentioned you're going to be thoughtful for the assumptions behind your 2019 guide. Can you just explain what you guys have baked in either from a floor plan perspective or just at the consumer level for 2019?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [32]

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For 2019, I think we factored in a no interest rate hike because we don't want to act like we have a crystal ball into it. But we did factor in keeping our inventory a lot tighter. And so we're looking to reduce our floor plan expense by keeping our inventory tight and not trying to speculate on where the rates are going.

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Operator [33]

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And moving on, we'll take our next question from Tim Conder with Wells Fargo Securities.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [34]

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Just a couple here. Marcus, I'll follow on, on what's a little bit baked in the assumptions here. So if I heard Mel right -- Mel, welcome aboard. You said $4.9 billion to $5 billion in revenue, and $320 million to $340 million in adjusted EBITDA. Was that correct?

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [35]

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Yes, $4.9 billion to $5.1 billion.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [36]

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Oh, $5.1 billion. Okay, okay. Okay. So within that, from a comp store sales basis, I think that's been a big concern among investors and many of us that are you all -- you guys are consolidating, making acquisitions. But is there self -- cannibalization going on? Is there -- do you have the ability just to hold share or really gain share with these acquisitions? And given the state of the industry, and again, you're focused on keeping CapEx minimized, would it maybe be better off here, at least in '19, to maybe push the acquisitions off a little bit and then focus on really honing up what you have?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [37]

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So I'm going to -- Tim, thank you for your questions. I'm going to separate the issues because I think you're making good points, but they are separate things. First off, our acquisitions have to be very opportunistic, and they have to present either a clear whitespace opportunity or something that is a market that is on fire that maybe didn't see a decline in 2018. I think when people ask us about our market share, what we learned in 2018, and quite frankly, even in the first month of 2019 is that we do have some proximity of stores. And so part of that strategy is bifurcating our brands between Gander RV, which could be a stand-alone dealership, and Camping World because we know that the customer transaction starts online. And as we look at our data and we look at our lead volume, we know that we can differentiate the product enough in the same market to be able to capture more share. We don't believe that we had as much cannibalization as some people believe. In fact, the stat surveys came out today that I think validated that the market was down in December, and it validated that it was down in November. And I don't think it's something that is towards us. And remember that the stat survey numbers are directional in nature. I'm not sure that anybody's ever audited the specificity of the number, but we know that, directionally, it's correct. As we think about our business and where it's going directionally, and we think about where the manufacturers are, we find that to be a better guide of where the industry is. And it is true that the market is softer, but it is softer relative to 2017, and it still is going to deliver more results from a transaction standpoint than '16 and '15. And so I don't know that we're necessarily feeling like the sky is falling. I do appreciate the comment about focusing on what we have, and we feel like we have very, very tight focus, particularly with the bifurcation of the Camping World RV brand and the Gander RV brand.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [38]

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Okay. Well, what is -- I guess, what's your expectations for the industry? And then what type of comp store sales do you have baked in to the revenue numbers?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [39]

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So I don't have an expectation for the industry, but we have predicted in our numbers a negative same-store sales number on the new side of 3% to 4%.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [40]

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Okay, okay. And then to your statement earlier about the variable cost structure. Given there's been a lot of changes and Gander's been added on, any comments you can make? I think at the IPO time, you said that your variable cost structure was roughly 70%. How do you see that now within the RV operations or on a consolidated company? How is that now?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [41]

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I actually feel like with the management changes that I made in the last 75 days, I feel more confident about the variability of our model than I did. And I saw the fruits of that labor in January and February when I looked at the gross margins and the net income as it related to how much the revenue was up or down. January was softer on a top line basis than January of 2018. February was softer on a top line basis than it was in February of 2018, but our margins were better. And we feel like the changes that we made on the expense side proved out our thesis with how the bottom line actually ended up in those 2 months.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [42]

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Okay. And then 2 more briefly, if I may. Could -- how are you thinking about -- so units, you're thinking about down 3 to 4 in comp store sales basis. Do you anticipate taking your RV inventories at the company level lower than where they ended the year? If we look forward to year-end '19, would we expect that on a same-store basis?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [43]

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I'm not convinced that -- I'm sorry, Tim, I should have been more clear. We believe that our new inventory is where -- new inventory sales is where our problem's going to be, and the projection that we've made internally about a dip in new inventory is the equivalent, a sort of assessment we've made on how we think our new -- our used inventory can mitigate some of that. We've already taken our new inventory levels down to a level that we believe matches the projections that we have. And if we see any change in that pattern, up or down, we will adjust accordingly. But our current inventory levels account for the projection of the new inventory business being down for the year by that percentage that I previously mentioned.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [44]

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Okay. And then the second question was related to the EBITDA. If I take the best-case scenario there, you were kind of coming up with about a 6.9% EBITDA margin, which we haven't seen in a while -- if you take out '18, of course, but we haven't seen in a while. How do you see that progressing back to that goal that you had of 8%? How should we think about that over -- I mean, are we looking at 2, 3 year type of time frame?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [45]

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Brent and I will continue to dial into the SG&A. We're obviously doing that more feverishly right now, trying to get back that EBITDA margin where it belongs. I can't speculate of whether it's going to take us 2 years or 3 years because they would require me to speculate on how long I expected the softness in the new side of the business to last. We know that we can mitigate some of that, and our goal is to use our parts and service business, our collision business and our Good Sam business and our used business to mitigate some of that delta and raise that up because, obviously, those things that I just mentioned have a higher gross margin. And so if you can drive more high-margin products on a low revenue base, you're going to have a higher gross margin. If you can control your expenses, then we should be able to find ourselves inching our way back up there. I don't want to be below 7%. That's a personal goal of mine. And I have to be realistic about what the numbers tell us that are on paper in front of us right now.

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Operator [46]

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(Operator Instructions) We'll hear next from Jim Chartier with Monness, Crespi & Hardt.

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James Andrew Chartier, Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst [47]

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Can you just talk about the -- the retail gross margin performance in fourth quarter? It was down significantly versus just a kind of modest decline in third quarter. What drove that? And then any kind of learnings you had on the assortment at Gander that may be changed for 2019 there.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [48]

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So 2 things. There are more outdoor products sold in the fourth quarter as a percentage of the total than RV products sold in comparison to the third quarter. And so that mix changes it. The Gander business has high volume. And while we're working to install more RV and outdoor products, even now that Gander has the full assortment that Camping World has in its box, some of the SKUs and some of the categories inside of the box innately come with a little lower margin and their volume has accelerated. Secondly, I made the decision to accelerate the reduction of retail inventory as well. And so we expect that, in the coming fourth quarter of 2019, those retail margins will have a nice increase over 2018 because they won't be looking to liquidate inventory. We closed 7 stores as well -- excuse me, we closed 9 stores as well. And so in some cases, we were liquidating inventory. So you're comparing total retail segment margins to -- in '18, where we didn't have many Gander stores open, to total Retail segment stores in '18 when we did have them open. And so, we think it'll get better as we move forward. What I learned from the assortment is that we have been able to attract a historical RV customer to these boxes. Obviously, we want to get more of them. They are eating up the RV and outdoor product that typically exists in Camping World. That should help with the margins. And then on the flip side, we've learned that a lot of the assortment at Gander has actually played out nicely in some of the Camping World stores, which is why we started to look at them to be really the same business with 2 names on them.

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James Andrew Chartier, Monness, Crespi, Hardt & Co., Inc., Research Division - Security Analyst [49]

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Great. And then just quickly, what's your expectation for ASP trends in 2019? Should we expect similar declines as we saw in '18?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [50]

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You know what, that's a really great question. It'll depend on where that first-time buyer travel trailer customer lives and how that balances out against our used sales. I would hope that it would maintain some level of similarity. And in the first 2 months of 2019, they look pretty similar to what they looked like a year ago.

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Operator [51]

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We'll take our next question from Ryan Brinkman with JPMorgan.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [52]

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What do you think are the primary factors driving the trends of lower retail demand for new RVs, including as the economy and demand for new light vehicles appears to have held up much better relative to demand for RVs?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [53]

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I don't want to speculate on the industry. But the one thing that I have to at least be honest with myself about is 2017 was just a record year. And I think, as a company -- forget the industry, we have to find new people to bring to the industry. And as we understand the trade cycles and as we understand how to bring in first-time buyers to the market, there's definitely something that we have to crack the code on. I can't speak to whether the trade and the tariffs and that overall macro piece affected it or the stock market movements affected it. I can't speak to it. I'm not an economist. But we know that we definitely saw a softening in comparison to the red-, red-hot numbers that we saw throughout '17 and in the first quarter of '18. What's interesting is, if we look at our projections for 2019, if we had never had '17 happen, it would still be a pretty good year. What we have to do is take that pretty good year and make it better, make it better by having better margins and make it better by driving our expenses even further down and eliminating those assets and those locations or those initiatives that don't give the shareholders the return on investment that they're looking for.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [54]

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Okay. And I heard you say that you expected, I think, was it your same-store unit sales to be down potentially 3% to 4% in 2019 and that you also didn't want to necessarily express a view on industry unit sales? How, though, do you think Camping World is positioned to perform relative to the industry in 2019, including because I think most industry new-unit forecasts are for a steeper decline than 3% to 4%? Are you expecting to gain share or...?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [55]

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We're expecting to accelerate our effort in our used business, and we believe that the used business can help mitigate some of what people say the industry trends are. We have seen the fruits of that in the first 2 months of the year. And so as we drive down our retail inventory, Brent's and my goal is to redeploy some of that capital into our used inventory. And we have plenty of floor plan facility capacity to drive our used business. There were moments in time in the past where our used was 60-40 new to used. We want to drive our business back to, maybe not that number, but we know we have room for opportunity on the used side. And because of our network, because of our size, because of our balance sheet, because of our floor plan facility, and because we chose to liquidate inventory in the fourth quarter and not have curtailments and margin compression in the first 6 months of this year, we think we're well positioned to invest that capital in used and be opportunistic on the new side.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [56]

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And then just last question. Earlier, there was a discussion of the margin for the whole company on an EBITDA basis in 2019. And you're not providing the breakout for gross profit margin or gross profit dollars by segment, et cetera. But can you talk about what your, in general, your assumptions are for the largest dealership segment, including because I think one of the attractive parts of this business model was that there wouldn't be a lot of operating leverage to the downside in downturns. It looks like maybe you are presumably baking some in, in 2019. Can you talk about why maybe the margin degradation hasn't been a little bit steeper than you thought it would be in dealership? Is that because of just the unexpected pace of the slow down? But once we get to a lower level of RV sales, then the margin can stabilize as you cycle path inventory reductions? How do you think about impacts on the industry trends -- impacts on your dealership margin from the industry trends in 2019?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [57]

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Our internal management target is to return the dealership gross margins to historical levels. And you do that principally by doing 3 things. Number one, you don't get yourself in inventory trouble. I believe that the -- as an industry, we got ourselves in trouble, and that cost us dearly by having to liquidate that inventory. And so I think that's step 1. I think step 2 is we have to be more opportunistic and more strategic about what we're buying on the new side and partner with manufacturers that are focused on turns and margins and not anything else. We think Thor, Winnebago and Forest River are those companies. And then third, we believe that we can make up some ground on the used side because, on a transactional basis, a used sale, just on its own, could have anywhere from 2 to 3 percentage points more in gross profit. And so as that mix shifts, we believe we'll be able to make up some ground. But internally, our teams stay planned, and our focus is on returning the dealership's gross margins to their historical levels even if the top line is softer.

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Ryan J. Brinkman, JP Morgan Chase & Co, Research Division - Senior Equity Research Analyst [58]

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Okay. So that does suggest that the Retail segment will be quite soft, most likely, in 2019 backing into the dealership margins are potentially...

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [59]

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I would not make that assessment or that assumption. As Mel pointed out, we don't know where the market's going to go. We want to be cautious in our range. We are very focused on margin as a company. But as we have said in the past, we are also very focused on driving transaction count, which feeds our Good Sam business, and driving transaction count, which gives our RV sales force an opportunity to talk to people. So we need to draw a line in the sand and make sure that people understand that we're here. We did sell 104,000 units last year. Obviously, our goal is to exceed that number. I will not miss a deal under any circumstance, and I've told my staff that, that we will not miss a deal. And as I work deals on a case-by-case basis or I work trades on a case-by-case basis, there may be deals that we take that are a little slimmer. But I don't want anybody to make assumptions because we're not giving segment guidance. I'm just telling you what our internal goals are.

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Operator [60]

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And we'll take our next question from David Tamberrino with Goldman Sachs.

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David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [61]

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Just one from us. I know you pointed out the variable cost or expense business model that you have. I'm just curious, as I look through the fourth quarter's results, sales were a little bit weaker than at least what people were expecting. But SG&A was up quite nicely year-over-year, $213 million, to I think, $264 million, in that zip code. I'm wondering if that's elevated because of the Gander spend or if there's anything in particular that occurred in the quarter that would have kept that a little bit elevated and you weren't able to react?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [62]

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Yes. So that's a great question, Dave. Thank you. So in addition to the outdoor locations that we opened, we also had 25 more dealerships on the books in December of 2018 than we did in 2017. And what we're always focused on is what is our SG&A as a percentage of our gross profit. And it is true that we were up in that metric, and the reason we were up in that metric is because our gross profit was severely impacted through our decision to strategically lower our inventory. As we move into 2019, I feel very confident that we have made significant position and paid plan modifications that allow 2019 to show you the variability in our SG&A model. Keep in mind that some of our brand-new dealerships, whether they are called Camping World or called Gander RV, have newness to them, and we have -- when we make an acquisition, there are some costs associated with them. But the scale of newness of expenses in 2019 compared to '18, I think you'll be pleased with what the ratios look like as a percentage of gross profit.

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David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [63]

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Okay. And then our second question just be on Gander Mountain, now Gander Outdoors. It was a troubled retailer a couple of times before. Now you have it under your helm. I think you shut down a handful of stores that you didn't see a way forward with them. What is it about this business, the products that are sold inside the store, that has created or continues to create these unprofitable locations, just unprofitable stores within that franchise, legacy or not?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [64]

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Well, I don't know how to answer the question, Dave. I'm sorry, I don't understand the question.

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David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [65]

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Correct me if I'm wrong, but Gander Mountain, you acquired the stores out of a bankruptcy. They used to have like 120 or 160 stores. You're going to have 70 open. You've...

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [66]

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No, no, actually, we have 56 open. We closed 7.

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David J. Tamberrino, Goldman Sachs Group Inc., Research Division - Equity Analyst [67]

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Correct. So what I'm asking is what have you found from those 7 that you've closed was the issues with the business that you weren't able to make it profitable?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [68]

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Look, I think -- that's a great question. I think when we looked at the locations, we were only looking for -- of the 170 locations, we were looking for locations that we felt filled voids in specific geographic markets, allowed us to integrate our RV business into them or had a path to profitability and database growth, both for the club and for our other products, that were clear. I didn't want to wait to react too late on the ones that I didn't feel had that path, and we're always monitoring them. But I feel strongly that Gander RV and Gander Outdoors is a nice complement to Camping World. And whether that's in certain states or certain markets, whether that's in markets where there's already a Camping World, we believe that the RV and outdoor consumer is one in the same and that the offering inside of these stores look pretty similar. If you went on to campingworld.com or you started to visit some of the Camping World locations, you would see that the offering at campingworld.com and now some of the locations look similar. Our company is an RV company first, and an RV and outdoor products and accessory business second. We know that the RV and outdoor products are baked both for our database, for our club and for our RV business, and we've seen the fruits of that in multiple markets. If over time we have Camping World locations that don't sell RVs or Gander locations that don't sell RVs that can't be profitable in their own right, we'll close them. We'll look at them. But ultimately, we now believe we have one clean business, which is an RV and outdoor company principally driven by the sale and service and financing of RVs, principally driven by its annuity business, which is Good Sam, which is why the club went from 1.8 million to 2.1 million in members, but we do not and have never wanted to be a big box retailer. That is not our goal.

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Operator [69]

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Thank you. That concludes today's question-and-answer session. I would like to turn the call over to Mr. Lemonis for any additional or closing remarks.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [70]

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Thanks for your time today, and we look forward to speaking with you and releasing our first quarter results in the near future. Take care.

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Operator [71]

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Once again, that does conclude today's conference. Thank you for your participation. You may now disconnect your phone lines.