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Edited Transcript of CWH.N earnings conference call or presentation 8-May-19 8:30pm GMT

Q1 2019 Camping World Holdings Inc Earnings Call

LINCOLNSHIRE May 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Camping World Holdings Inc earnings conference call or presentation Wednesday, May 8, 2019 at 8:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brent L. Moody

Camping World Holdings, Inc. - President & Director

* Marcus A. Lemonis

Camping World Holdings, Inc. - Chairman & CEO

* Melvin L. Flanigan

Camping World Holdings, Inc. - CFO & Secretary

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Conference Call Participants

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* Bret David Jordan

Jefferies LLC, Research Division - Equity Analyst

* Brett Richard Andress

KeyBanc Capital Markets Inc., Research Division - Associate VP

* Craig R. Kennison

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

* Frederick Charles Wightman

Citigroup Inc, Research Division - Assistant VP & Analyst

* Gerrick Luke Johnson

BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst

* John Lovallo

BofA Merrill Lynch, Research Division - VP

* Nels Richard Nelson

Stephens Inc., Research Division - MD

* 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 first quarter of 2019. (Operator Instructions) Please be advised that the 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 the call today is Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; and Mel Flanigan, Chief Financial Officer.

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 & Director [2]

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Thank you, and good afternoon, everyone. A press release covering the company's first quarter 2019 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; RV and outdoor 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 EBITDA earnings per share -- 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 measures are included in our earnings release and on our website.

All comparisons of our 2019 first quarter results are made against the 2018 first quarter results unless otherwise noted.

I'll 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 more importantly, your interest in Camping World. We are very excited about the progress we have made in our business over the last several months. Our financial results for the quarter and the directional trends for the business are effectively in line with our full year guidance expectations.

Consistent with our forecast and despite the industry shipment data, we have seen an improvement in sales trends beginning in mid-March and it has continued into April and early May.

To reiterate, we are reaffirming our full year sales and adjusted EBITDA outlook of $4.9 billion to $5.1 billion and $320 million to $340 million, respectively, for the 2019 calendar year.

We are the #1 RV retailer in America. We believe that the combination of all of our assets and resources, both tangible and human capital, are what makes us unique and creates a massive moat around our business.

In looking at our business late last year, it became clear to us that managing our dealership and retail businesses independently was not the most efficient or effective way to manage the business. It also did not reflect how the customers shopped and how the associates served our customer: One brand, one voice, one location. We manage our field operations of over 200 locations by looking at the overall profitability, organic growth and the return on capital one location at a time. We are brand agnostic and profitability focused.

The directive from me and Brent and Mel is to maximize profitability at each of our locations by utilizing the entire array of products and services in our vault to meet market demand for that specific location by having the right product at the right price at the right time.

Since the beginning of the year, we have taken steps to realign the operating and reporting structure of the company, which has allowed us to eliminate redundancies, flatten the organization and increase efficiency, all of which we believe will ultimately reduce SG&A and increase sales.

With this realignment, we have consolidated our field operations under 3 divisional presidents: Josh Erickson, TJ Smith and Scott Jensen, who have responsibility over all locations in their respective geographical areas. This management team averages over 20 years of experience in the RV business.

I've also elevated Matt Wagner to Executive Vice President overseeing the areas of inventory management, digital development, digital marketing, media services and RV e-commerce. These categories must work in concert with each other to maximize both sales and inventory turns. Matt has been with the company for over 12 years and has been instrumental in developing management tools and systems that have improved our business.

We have successfully recruited Russell Gentry as our new Executive Vice President of Consumer Data and Strategy. Russell is responsible for the acquisition and management of all consumer data across our entire business. Russell brings years of experience in scientifically targeted approaches that improve growth rates while reducing associated SG&A. Either way, this is a huge win for our company.

We have also added one of the strongest team members in recent history with the addition of Peter Jelinek, our new Senior Vice President of Strategy, Merchandising and Product Development. Simply stated, it is our expectation that Peter will improve our inventory assortment while enhancing margins, vendor relationships and most importantly ensuring that we have the right products at the right price at the right time. Peter spent the last 13 years with West Marine in senior positions and is a spectacular addition to our team.

In the areas of e-commerce, we have charged [Chris Courier], our new Vice President of E-Commerce, who has been with our company for years, with overseeing and developing our e-commerce business. [Chris] was instrumental in and has driven the launch of our new website. Additionally, Chris drove the newly established relationship with Amazon that holistically introduces our company's entire retail product offering to Amazon's entire marketplace. We see this as an entirely new untapped channel of business and we could not be more excited about teaming up with Amazon.

To oversee our supply chain, which includes our distribution centers, we are fortunate to have added Mike Kalck to our team. Mike brings over 40 years of experience and is tasked with improving the efficiency and effectiveness of our supply chain, increasing throughput, reducing costs and effectively integrating with Amazon's platforms and most importantly their standards.

We believe these and other changes will allow us to drive profitability and revenue both in our field operations and our fast-growing e-commerce business.

I'm going to let Mel review our first quarter results, and then I'll come back with some closing commentary.

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

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Thanks, Marcus, and good afternoon, everyone. As Marcus noted, we are pleased with how the first quarter played out, which overall was in line with our expectations.

Consolidated total revenue was $1.1 billion, up slightly from last year's first quarter and a new record first quarter for the company. Consolidated gross profit was $298 million, down 1% from $302 million last year. On a percentage basis, gross margin came in at 28% compared to 28.5% last year. The decrease in gross margin is largely attributable to a change in the product mix and the impact of certain inventory optimization programs.

Adjusted EBITDA was $21 million, down from $68 million a year ago. As a reminder, adjusted EBITDA last year included the add-back of preopening expenses, which were $20 million in the first quarter and $43 million for the full year. An 8.8% increase in SG&A resulting from the 23% increase in RV and outdoor retail locations coupled with margin compression were the primary factors impacting profitability in Q1.

Turning to our segments. We affected a number of organizational realignments in Q1, which necessitated a change in our reporting segments. Beginning in Q1, we're reporting under 2 operating segments, Good Sam Services and Plans and the RV and Outdoor Retail segment.

The new segments represent the following activities. The Good Sam Services and Plans segment primarily derives revenue from the sale of emergency roadside assistance, property and casualty insurance programs, travel assist programs, extended vehicle service contracts, vehicle financing and refinancing, shows and events, and publications and directories.

The RV and Outdoor Retail segment primarily derives revenue from the sale of new and used RVs, the sale of RV and outdoor products and services, commissions on the finance and insurance contracts associated with RV sales, Good Sam Club memberships and co-branded credit cards.

The Good Sam Club and co-branded credit card lines of business were moved to this segment effective January 1 to drive greater synergies between those 2 programs in the RV and outdoor retail locations that are primarily responsible for selling and servicing them and to reflect how we're managing that business.

The Good Sam Services and Plans segment continues to deliver strong top and bottom line results, posting revenues after elimination of intersegment transactions with $47 million in the first quarter of 2019, up 4.8% from $45 million last year. Gross profit was $26 million or 55.9% of revenues, up from $24 million and 54.4% last year.

Our RV and Outdoor Retail segment revenue after elimination of intersegment transactions was $1.02 billion, up slightly from $1.01 billion last year. RV and Outdoor Retail gross profit was $272 million or 26.7% of revenues, down 2% from $278 million and 27.4% of revenues last year. The decrease in profitability was attributable through a combination of changes in product mix and the impact of certain inventory optimization programs.

During the first quarter, we worked hard to address certain slower moving or overstocked products in order to both reduce inventory levels leading into the normal seasonal build cycle and to free up additional cash to affect that build. In the end, total inventory increased about 4% in this year's first quarter compared to an 11% increase in the same quarter last year.

So while we always need to build inventory seasonally in Q1, the increase this year was far more modest than the previous year, and we believe we are entering into the busy season with a meaningfully improved product selection across the board.

Consolidated operating expenses increased 9.8% to $281 million for the quarter, including the increase in SG&A I mentioned earlier. The increase in operating expenses was primarily driven by incremental wages, selling and associated overhead expenses related to the year-over-year increase in RV and Outdoor Retail locations and a $4 million increase in depreciation and amortization.

In addition, we incurred approximately $4.5 million in unbudgeted and/or nonrecurring charges related to store and distribution center closings, certain professional fees, termination costs as we streamline and realign the organization and storm damage at one of our stores in Oklahoma.

Overall, we believe that our aggressive expense management will yield significant benefits as the year progresses.

Other expense totaled $21 million in the first quarter of 2019 compared to $25 million last year. The $6 million increase in combined floor plan and other interest expense due to both increased borrowing rates and higher average borrowings was more than offset by an $8 million benefit related to an adjustment to our tax receivable agreement, or TRA liability, associated with the transfer of the Good Sam Club and credit card assets to the RV and Outdoor Retail business.

This -- the transfer impacted this quarter's P&L both above the line and other income and in our tax provision. It resulted in a reduction of future expected tax amortization of goodwill related to the -- to previous 743(b) steps-ups that originated from earlier exchanges of units at the partnership level. The transfer has the effect of converting previously amortizable goodwill to unamortizable subsidiary stock as a result of the move from our GSS Enterprises subsidiary and LLC through our CWI, Inc. subsidiary (inaudible). This resulted in reduction in the future tax benefits available for payout to TRA members and thus reduced the TRA liability by $7 million.

This $7 million combined with an additional $1 million reduction in the TRA liability or a change in state income tax rate applicable to CWH make up the bulk of the $8 million included in other income in Q1.

A tax provision was also impacted, as I just mentioned. The $23 million tax expense reported in Q1 is driven primarily by 3 factors: First, $15 million pertains to changes in certain deferred tax assets and associated changes in the valuation allowance related to the intercompany transfer of Good Sam Club and credit card assets from GSS Enterprises to CWI, Inc.

Second, $6 million related to the -- is related to the fact that ongoing taxable losses generated by CWI are subject to a full valuation allowance and thus not available to offset group level taxes, at least not until such time as the entity turns the quarter to profitably.

And third, the company recorded $1 million of income tax expense related to the revaluation of certain deferred tax assets resulting from a change in its estimated state income tax rates.

Net loss was $27 million and loss per share was $0.52 for the quarter ended March 31, 2019.

Turning to our balance sheet. We ended the quarter with cash and cash equivalents of $70 million and net working capital of $505 million.

Total inventory was $1.6 million, up 4% from year-end and up 3% from a year ago. The increase versus a year ago was due to an increase in used vehicles driven by our initiative to grow our used business this year and an increase in products, parts and accessories driven by our new stores.

New RV inventory declined 6% in total and 20% on a per dealership basis year-to-year.

At March 31, 2019, we had $1.2 billion of term loans outstanding under the senior secured credit facility, $882 million of floor plan notes payable under the floor plan facility, $43 million of borrowings under the floor plan facilities revolving line of credit and $9 million outstanding under our real estate facility.

Looking ahead, we feel that we're weathering the challenges facing the industry well and are optimistic as we look ahead to the all-important summer season.

With our performance in Q1 being essentially in line with our expectations, we're reiterating our previous outlook for 2019, as Marcus just mentioned earlier.

With that, I'll turn the call back over to Marcus. Marcus?

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

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Thanks, Mel. 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 go first to Rick Nelson with Stephens.

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

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Marcus, can you talk about sales trends that you saw during the quarter and what you're seeing in April and May? And a little color I guess around the guidance. First quarter EBITDA was about 1/3 of prior year levels. That would imply 20% plus growth in EBITDA over the remaining quarters, the drivers to that growth.

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

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Yes, sir. So as we had previously discussed in our last call, we all knew that the industry was facing serious headwinds in the fourth quarter and it had leaped over into January and February. And when we look at last January and February, we knew that those were the 2 biggest months, 2 biggest Januaries and Februaries that our company had ever seen. And we had disclosed in our forecast that it was going to be a tough first quarter comp. The results that we saw about mid-March and in April and in early May clearly show us that, that trend is reversing. And that while there may not be a ton of tailwinds pushing us, we don't experience the headwinds that we were experiencing in January and February.

Our web traffic is up dramatically. Our foot traffic is up. And in April and in May, we feel like we're returning to a more normalized, stabilized cadence of sales that we had experienced previous to the softness in the fourth quarter.

As it relates to the earnings, the earnings were in line -- revenue, gross profit and earnings were in line with our full year forecast. And as we talked about on the previous call, we knew that the first quarter was going to be tough, but we also knew that the third and the fourth quarter were unusually terrible for us last year. And whether that was headwinds that we experienced with margins or softness in sales or expenses in ramping up new locations, we knew that we had a much easier hurdle as we get deeper into the year and we feel very confident, very confident that our $320 million to $340 million range of guidance is very achievable. Obviously, we're working hard to exceed that number, but we feel good about where we are as we sit here today because we met our expectations.

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

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Just to be clear, what you're saying in April and early May, are the declines moderating? Or are you in fact seeing growth over this period?

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

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No. I mean much like the industry, I think we have 2 funnels of data to work from. We have the manufacturer shipment data that quite frankly has been I'm sure alarming to some, but not to us, down 30, down 40, down 30, down 45, whatever these big numbers are. And then we have what I would call the unaudited, unauthenticated numbers that stat surveys provide, which is more of a guide because it doesn't include all states and there's timing issues. But we definitely predicted that we would be down for the year. I think our projection was around 3% to 4% down for the year. We knew that, that number would get significantly easier.

To answer it in the most succinct way, January and February were down more severely. And then as we climb into March and to April, that really started to normalize. In April, right, where I think our total comp stores in April were down about 4% -- just right around 4%. And what's interesting about it is that while our new continues to be soft, not as large as what you're hearing from stat surveys and from the manufacturers, our used is up about 10%, which is really part of the strategy.

We anticipate that the new business on a comparable basis could continue to be softer, but not as severe over the next several months and then mitigate itself and hopefully turn positive in the back half of the year at some point, assuming that all macro factors stay constant. But we mitigated a lot of it, quite frankly, with the strategy that we're employing on our used side.

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

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Got you. Finally, if I can ask you about Gander RV. What your early learnings are there and how that is performing relative to your initial expectations?

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

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To be candid, I'm pleasantly surprised as we have pivoted more severely away from thinking about Gander as a retail business and more as an RV company, a sister to Camping World. We have taken historical underperforming Camping World locations and rebranded them and reassorted them and the early signs are positive. It also has allowed us to take outlier locations, stand-alone locations that didn't necessarily warrant the Camping World brand because the facility or the market, but they offered a full RV assortment in service, in collision. And we now -- have branded and are continuing to brand those Gander RV.

I think the marketplace can expect that, as we think about our 200-plus locations going forward, we wake up every day and we know that we have an edict to make every one of those locations profitable, regardless of what they're called, regardless of what their assortment is.

Let me be very clear about one thing. When we wake up and we look at those locations, regardless of the brand name, regardless of their assortment, we are not in the business of operating locations that do not positively contribute to our company.

Now when we're doing that analysis, we need to understand where they are in their life cycle. Are they 10 years old, 5 years old or 5 months old? And we want to be cognizant to make sure that we've done everything responsible to make those locations work. But we don't have a pride of authorship that would require us to keep things open that don't work.

In the fourth quarter, as you know, we closed locations. Some were stand-alone Camping World stores, some were stand-alone Camping World RV dealerships and some were Gander locations. We will not hesitate at any time to close any locations that we believe does not work in the long term. And we're monitoring it on a daily basis. And I think we even closed an RV location called Camping World in the first quarter because we want to make it clear, we will not operate locations. Our field organization is 3 distinct divisions that are responsible for those locations regardless of what their assortment is. Obviously, we're an RV company first, and we will never forget that.

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Operator [8]

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And we'll go next to 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 [9]

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So just getting back to the first quarter adjusted EBITDA metric. I mean, if I do the math right, EBITDA margin was close to 2%. Clearly, that's not your expectation embedded in guidance. Was there something unique to the first quarter that impacted that metric so severely?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [10]

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No. It -- quite frankly, Craig, it was in line with our forecast. And as you know, we had a softer January and February on the new side than we would have hoped for, but it is what we forecasted. And as we continue to become a larger company and have more locations either through acquisitions or whatever it may be, we all know that January and February is not our bellwether months. And so we expect those locations to contribute to us more positively as the year goes on.

But as we sit here 3, 4, 5 years from now, if we have 100 more dealerships that are all profitable on an annual basis, there will continue to be pressure on January and February because it's not part of our normal business.

We also had $4.5 million of unexpected expenses in the first quarter, almost $2 million of that directly attributable to the extension of our filing as it related to the taxes for the K. We also had expenses associated with the closing of certain locations that historically the company may have added back that are in our P&L and some of the other ones that Mel mentioned that weren't budgeted. But even though we had those $4.5 million, we are not adjusting our full year guidance.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [11]

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Okay. And then I think, Marcus, you had mentioned partnership with Amazon. Could you clarify are you selling all products, including RVs via that channel?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [12]

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So the relationship that we have with Amazon is a new one. It's one of the more important relationships both for Amazon and our company as they wanted to get further into the outdoor and RV space. Camping World, as a company, had never participated in that.

At this time, we can't speak to the things that are going to be added to the relationship in the future, but we can tell you that our full offering of what's in our vault, both in our own distribution center and soon to be in their distribution centers, will put every product that's in our company vault in the Amazon channel, which we think will be huge.

It's the start of the relationship. I can't speak to what will happen in the future. But at this time, it's only the commoditized retail products that will be sold on Amazon. And it will all be branded Gander Outdoor and RV. So as the consumer across the enterprise, across Amazon's platform receives that product or sees it as they're searching for it, we were able to, in discussions with Amazon, select a brand that we felt could best attract consumers and obviously with prices as well we expect that to happen.

So a huge win for us. I mean I can't -- I'm trying to underplay it so that we don't make it a bigger deal. But it took us about 7 months to get it done. And we were not permitted to talk about it until the thing actually launched, not the idea was born.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [13]

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And a lot of people when we talk about Amazon realize what a powerful company it is, but also comes with some challenges with respect to pricing and margin. Can you speak to that dynamic? And then again, it wasn't clear. Are you selling RVs through that channel or just the commoditized products that you mentioned?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [14]

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At this time, we are not selling RVs, but we cannot discuss what could happen in the future. And so as it relates to margins, we believe that our entire assortment is properly priced today because we launched a new web platform for Overton's, for Gander and for Camping World. And so we expect to be properly priced at all times, and we use technology to support that.

In our discussions with Amazon, we all knew that we needed to be appropriately priced to be competitive in the marketplace. And ultimately, we're not in this business to have extreme margin compression, but we are in this business to expose consumers to our brand, to our products and to open up and expand our moat in the RV and outdoor space. And this is a new funnel of revenue that we did put in our forecast, but did not discuss previously because we weren't permitted to. We don't expect any extreme margin compression.

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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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And lastly, with respect to Q2 adjusted EBITDA...

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

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And Craig, let me add one more thing, I apologize. Part of the reason that the Amazon relationship was so important to them and to us is because we have a wide array of private label products in all of our categories that allow us to be the price leader and product innovator without a bunch of noise around it. And so that was a big part of the decision as well. Sorry about that.

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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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No. That's helpful. And then, finally, with respect to second quarter adjusted EBITDA, just so we set the right bogey, what is your internal budget for revenue and adjusted EBITDA as you forecast for the second quarter?

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

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Yes. So we aren't providing quarter-by-quarter guidance. Our guidance of $4.9 billion to $5.1 billion and $320 million to $340 million is what we're reaffirming. And we achieved our objective in line with that forecast in Q1. What I will tell you is that Q2 was still a decent quarter to comp in comparison to last year, not as high of a hurdle. And as we get into third and fourth quarter, it becomes easier.

We believe that because we were not able to or we chose not to provide detailed guidance around the quarter-by-quarter, that it looked to me that the miscommunication around quarter-by-quarter breakdown was really vaulted into the SG&A, not in top line and not in gross profit. And so we think that the marketplace should just really understand that our full year guidance is strong and we can't really provide more guidance than that.

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Operator [19]

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And we'll go next to Brett Andress with KeyBanc Capital Markets.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [20]

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Just to kind of be clear here, are you keeping the down 3% to 4% new vehicle sales outlook intact? And then also, when you said April was down 4%, were you referring to new and used combined or was that just new vehicles?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [21]

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The down 3% to 4% for the year we are keeping intact, which is in total. And when I referred to 4% down in April, that is also in total. But we are keeping that number intact for our forecast for the year.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [22]

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Okay. And then so RV inventories ending up at the end of the first quarter. I'm not sure if you were planning for that or not. But can you maybe elaborate on some of the, I guess, better quality of that inventory, maybe what you've done over the last few months to optimize that mix?

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

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Yes. I'm sorry, the new RV inventory actually declined 6%. And on a store -- same-store sales basis, our RV inventory is down 20%. So I'm sorry, I don't know if we miscommunicated that it was up. But our new RV inventory is down 6% even with the addition of all the locations. And on a same-store basis, it's actually down 20%.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [24]

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Got it. That's probably a byproduct of getting the press release a minute before. But anyway, the next question I had is -- I guess I'm sort of still trying to digest the press release. Can you maybe -- and this is more of a housekeeping, but update us on the leverage profile of the business at the end of the first quarter? Just remind us of -- are there any outstanding covenant levels out there or just -- where that stands in relation to your leverage?

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

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Mel?

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [26]

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Yes. Well, overall, it's about core ex. I think in terms of covenants, we're in compliance with everything at the end of March that's out there. There's really only 1 minor, not really a covenant, it's more of a test. And it's on a revolver facility that we have. But it was -- we are still good on that at the end of Q1. So I'm not going to say it's not -- it's -- we're cautious, of course. We always are. But I think we're doing fine for now from a (inaudible)

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

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The way that we think about it is we prefer that our leverage be significantly less than that. And as we think about the balance of the year, we know that, that number through the end of 2019 will come back down, but as we think about our available capital for the year because we are going to dramatically continue to reduce our retail inventory and bring that cash back into the vault, as we think about how we've tightened up on CapEx because we're not opening a bulk of new things, we want to build a ton of cash through the balance of the 2019 calendar year. And as a Board, we want to make prudent decisions. And one of the things that I would be in favor of, which I'm sure other people would be in favor of, is using some of that excess cash to delever the company as opposed to doing other things.

Now we have historically always been a company that focuses on buying RV dealership acquisitions, and we're always going to keep our minds open to that idea, particularly when things are a little softer because we know that the multiples drop. But in terms of our priority, improving the health of our balance sheet and improving our leverage even when our earnings come back is still at the forefront of the company's objectives in its 2019 plan.

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Brett Richard Andress, KeyBanc Capital Markets Inc., Research Division - Associate VP [28]

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Got it. And just one quick last one. How many Gander Outdoor locations did you have open at the end of the quarter? And how many Gander RV locations did you have open at the end of the quarter selling RVs?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [29]

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So we have -- I don't have that number and I don't want to misquote it, but we also don't think about it that way. But we have less Gander RV locations opened up. We had less Gander Outdoors locations opened up -- open at the end of the first quarter than we did at the end of the fourth quarter. And we continue to think about Gander RV differently because we actually have rebranded some underperforming locations and some standalone non-Camping World branded locations. And so I'm not trying to skirt the issue, but what I will say is we have over 200 locations. And if we have locations that are not profitable, we may -- we will not allow those to exist as we move forward. We are not in the business of operating any kind of location regardless of what it sells that doesn't contribute to the company.

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Operator [30]

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And we'll go next to Fred Wightman with Citi.

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

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I'm wondering, Marcus, could you just talk a bit more about what you're seeing in the used business? I know that, that was something you were planning to emphasize entering the year. But can you just talk about what you're seeing from a customer perspective, inventory availability within used specifically, just how that's playing out versus plan?

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

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Yes. I'm -- so we were up pretty nicely on a year-over-year basis in April. I don't have the exact figure, but pretty nicely in used. I will tell you that the demand for used in the marketplace is very, very strong. Obviously, meaning that the supply is tight. If you go to the auction today, prices are bringing above book value, which is a very, very strong sign, which is something we did not see in 2008 and '09, where the used values are very strong.

The customer still has a high expectation of what their unit is worth if they are selling it to us outright, if they are consigning it or if they are trading it. And I have directed the team through a very formulaic process to be more aggressive on trades because we know the market is so strong on the remarketed side, on the auction side. We have launched aggressive consignment campaigns and we have deployed a significant amount of capital, as Mel pointed out, into investing into our used inventory.

As we continue to reduce our retail inventory, even if I have to take some margin compression to do it, we will redeploy some of that capital into securing more used inventory. Nobody can compete with us on the used inventory side because every particular item is unique.

And quite frankly, I still feel like we're $30 million under inventory in used today, especially when we're experiencing 5, 6 and 7x turns on that inventory. And so we know that there is strong demand for it. We proved it out in the first quarter. And if the new market continues to be soft, we have a counterbalance to that, which showed up in our -- the back half of March and in our April numbers.

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Frederick Charles Wightman, Citigroup Inc, Research Division - Assistant VP & Analyst [33]

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Okay. And then the industry is still facing some tough wholesale comparisons over the next couple of months. Just based on where you guys sit in the marketplace and some of the improved retail momentum you've discussed, how would you sort of expect wholesale production cadence to shake out over the next few months?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [34]

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So we have -- we can't predict what's going to happen to the rest of the market, but here's what we can tell you about ourselves. We are a big customer of Thor, a big customer of Winnebago, a big customer of Forest River. And there is a considerable amount of planning that's going on. And I know that we have our orders planned out 90 and 120 days in advance. The orders that we are placing today are robust and are healthy, but they are not overly aggressive. We don't see the manufacturers -- our opinion only, we don't see the manufacturers continuing for the entire year to have the drop in shipment numbers continue.

The thing that's confusing to me and I'm sure a head scratcher for you is that we have seen manufacturer shipment data for almost 6 months now that has pretty extreme drops in numbers. 20%, 30%, 40% drops. But we have an organization, a for-profit organization in stat surveys that is an unaudited organization that is trying to convince the marketplace, in my opinion, that the retails were not that bad. The math is very simple for me.

If wholesale shipments were down 20%, 30%, 40% month after month after month after month and retail registrations were just perfectly fine, then what we would see at the manufacturers is a very swollen backlog because the dealers weren't that over-inventoried. The reason that I know that is because we -- as we entered the fourth quarter and more importantly, entered the first quarter of 2019, our inventory was actually right on par. And in some cases, in some segments, you could argue that we were slightly under-inventoried. And we're okay with that.

And so we believe as we look at our own orders as a giant part of this industry that we believe that the drop in what you're seeing in shipment data will start to subside at a pretty nice pace. And I'm hoping that it gets to 0 or positive as we get into the back half of the year.

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Operator [35]

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And we'll go next to John Lovallo with Bank of America.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [36]

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Now I don't want to beat a dead horse here, but -- and I certainly appreciate the optimism, Marcus. But we're having a really hard time reconciling how your full year EBITDA outlook can be unchanged. And I think the challenge is going to be kind of convincing the market that it's achievable. And if we look kind of at the historical cadence, the first quarter has been about 20% of EBITDA, second quarter about 40%, third quarter about 30%, fourth quarter about 10%. And if we keep the guidance unchanged, the first quarter would represent about 6% this year. So can you kind of help us kind of put milestones or goalposts on how you think the cadence is going to play out for the rest of the year?

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

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Yes. It's a good question. I mean, I would -- I hope that you're not using 2018 as your allocation, correct?

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John Lovallo, BofA Merrill Lynch, Research Division - VP [38]

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Correct.

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

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Okay. And so as we think about the balance of the year, we expect the second and particularly the third and the fourth to be materially better than it was in 2019. And I can say that to you because we have a forecast that we provided to the market of $4.9 billion to $5.1 billion, and $320 million to $340 million. And our first quarter performance was in line with our expectations as it relates to that forecast. So something on a macro level would have to really fall apart for that to be challenged, and we will be the first to come back to the market if something changes on a macro level.

But as I look at April and I look at the back half of the year, I still feel confident that $320 million to $340 million, which is a wide range because I can't control the macro economics, is achievable. And I can't today speak to whether it will be 324 or 339, which is why we provided that range.

We think that the -- if you look at the first quarter and you match up against what the analysts provided in terms of their assessment and what our results were, there was just a disconnect on the SG&A side. And I don't want to debate who is right or who is wrong, but I know that ours was in line with our full year forecast.

And so it could be that there could be a shift in SG&A, there could be a shift in some other things. But top line was there and gross profit was there. And so I don't see any reason why that's a problem. And our business is a different business today than it used to be. And so I don't know what historical year you're looking at. I'm assuming it's 2016 and '17 and not '18.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [40]

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Correct.

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

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Yes. Our business is just a different business today.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [42]

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Okay. And then maybe moving on here, I think last quarter, you made a comment about being more opportunistic and strategic about what you're buying on the new RV side. And I think you kind of alluded to a similar thought process today. Does this mean -- I mean just can you help us understand, does this mean carrying, structurally carrying less inventory than you have in the past? Or does it go -- is it -- does it go further than that?

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

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So we definitely want to carry about 20% less inventory on the retail side and are motivated to bring that inventory down for all the obvious reasons, but more importantly to put some cash on the balance sheet to delever the company. So that's number one. On the RV side, I was very happy at the revenue that we were able to achieve after being down 20% on a same-store sales basis for inventory.

I think when we look at location by location, we want to not paint any broad strokes across the entire inventory, and we want to look at inventory by location. I'll give you a good example. We had a location that we were rebranding and relaunching in the first quarter, and I felt like there wasn't enough inventory there. And Matt Wagner, who oversees our inventory, said, "You want more inventory? Great. You're going to close this other location that, for 7 years, we've made a little bit, lost a little bit, made a little bit, lost a little bit. And it's tying up my inventory and I'm not getting a return on that inventory." Two days later, we closed that location and we reallocated those dollars. So we know that we have to be more prudent on a location by location basis to redeploy inventory to get the most out of it.

Overall, we believe that we can do it with less inventory than we historically had if and only if the manufacturers get back to a regular cadence of production and not a swelling of their yards, which we think they're doing. I believe that 2018, we carried too much inventory. Period, end of story.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [44]

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Okay. That's helpful. And then last question from a high level, are you guys seeing any demographic trends between a new and a used RV buyer? And what I'm thinking about is millennials. And are you seeing any signs that they're just more apt to buy a used RV versus a new RV?

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

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We are not seeing any demarcation of demographics as it relates to new or used. The new or used decision typically is made based on payment thresholds or appetites for the type of unit they want to have for their families' needs versus what they can afford. So that's what shifts people around. We have most definitely and most emphatically continued to see a drop in the average age of our buyers, and we are seeing millennials. And we strongly believe that the expanded product offering in our vault is helping that attract -- helping attract new consumers. But we are seeing younger buyers buy smaller, less expensive towables and we're seeing younger buyers buy big motor homes. We think the whole RV market, the mouth of the market has just widened. Much like it's not your father's Oldsmobile anymore, RV-ing isn't for retirees anymore. It's for people that love the outdoors. And we think that markets continues to get wider every single day we're here, which is why we will always make acquisitions, which is why we are a consolidator, which is why our product offering has to be wide, which is why we have to be online to attract people to our funnel.

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Operator [46]

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(Operator Instructions) And we'll go next to Bret Jordan with Jefferies.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [47]

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Quick question on used. I guess as you look at the used environment, you talked about inventories being tight. And your comp was down I guess 5%. Do you -- were you inventory-constrained? Or does that performance largely stack up in line with what used did industry-wide in the quarter?

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

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You're referring to our used being down, sir?

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [49]

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Yes, it says used vehicle same-store sales decreased 5.2% to 7,615.

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

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Oh, yes. On a same-store basis, which performed materially better than our new inventory. I think at the end of the day, there's a couple of issues, right? One is the access to the inventory and our willingness to step up for it. And there's always a fine balance between overpaying and getting stuck with it and putting the right inventory on the ground. There is no glut of inventory. And as we went through the 2008 and 2009 downturn, the inventory was plentiful because the foreclosures had ramped up and there were manufacturers and floor plan lenders foreclosing on dealers, and that created a glut and a suppression of the used values. Today, because the overall RV market is so much bigger, the number of buyers in the marketplace is so much bigger, the demand for inventory has gotten so much bigger, and the supply is not what we would like it to be, unless we want to step up and overpay, way overpay, overbook. So we're trying to find that balance.

The challenge that we have in that model is that you don't want to, and this is an important note, you don't want to step up and buy or trade for late model used units that could be compromised by heavy discounting by distressed dealers or distressed manufacturers with new models that may be '18s or '19s. So we see people trading for '18s and '19s all day long. It's an oddity that exists. And so we're having to be careful that we don't step on ourselves because we still have certain dealers in certain markets that are in real trouble, that are having to liquidate their new 18s or their new 19s at values because of curtailments that are putting pressure on that. What we're stepping up is on 2014s, 2013s, '14s, '15s and '16s. And that's really what our targeted sweet spot is. That's the kind of inventory we're looking for.

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Bret David Jordan, Jefferies LLC, Research Division - Equity Analyst [51]

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Okay. Great. And then one follow-up on Amazon. Is this product that you're selling to them for fulfillment? Or are you doing [P3] where you're listing your product online and doing your own fulfillment?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [52]

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A combination of both. We don't have the mass distribution that they have. So we have agreed to both turn our Greenville distribution center, which is now done, into an Amazon compliance facility. And those standards were very high, as you would imagine. And then we are also going to be shipping product to other Amazon fulfillment centers as well. So we're looking for how do we ultimately maximize the channel revenue. We know that we can't -- we have to play in both sides of the sandbox.

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Operator [53]

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And now we'll go next to Gerrick Johnson with BMO Capital Markets.

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Gerrick Luke Johnson, BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst [54]

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First, just to clarify, the new RV inventory down 6%, is that a year-over-year figure?

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [55]

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Yes, it is.

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Gerrick Luke Johnson, BMO Capital Markets Equity Research - Senior Toys and Leisure Analyst [56]

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Okay. Great. And then could you talk about -- well first of all, the same-store product service and other decreased 10%. Can you talk about the performance of the outdoor lifestyle product, a.k.a. the legacy Gander product? Is there any way to quantify that performance on a same-store basis?

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

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Unfortunately, those stores were not even open. The bulk of them, I think only 1 or 2 of them are open for the full first quarter. So we don't have that data yet. In certain cases, that legacy product in some markets is performing very nicely. In a small handful of markets, it's either flat or slightly down, and we're keeping an eye on those locations as we pointed out.

We did see some pressure in January and February largely attributable to some unfortunate disaster weather that we had, where we had traditional Camping World parts and accessories stores closed in markets like New York, Michigan, Pennsylvania, Colorado for several days. And so we did take it on the chin a little bit in the early part of the quarter in some of those markets. And we also have noticed that there's been a slight shift where some of the more consumable products, the non-installed products, have shifted online. And so we're watching that closely to ensure that, that location profitability isn't impacted. But we did see some softness based on weather in the early part of the quarter.

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Operator [58]

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And we'll go next to Tim Conder with Wells Fargo Securities.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [59]

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Just -- I wanted to be clear, the down 3% to 4%, Marcus, that was your comp store unit sales expectations for 2019? Or is that dollar expectations?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [60]

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Same-store dollars for 2019.

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [61]

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RV.

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

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RVs.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [63]

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On RVs, okay. And then your industry expectations for retail, you obviously don't want to prognosticate there. Or -- is that still down in that similar area?

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

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I don't have an opinion on the industry. In our opinion, we're a great bellwether for the industry, but we don't want to speculate. What we do know, Tim, and I know you're a scientist of the numbers. We expected, as we told everybody, that the first quarter would be more difficult. Because the industry as a whole, as you saw with Thor and Winnebago, there were some big Gulf numbers, I mean I think we've seen some big numbers coming out of the manufacturers. We knew that we had a big hurdle in the first quarter. And as we accelerate into the year, particularly into the third and fourth quarter, we expect those comp numbers to be easier to hurdle.

We do not, by any stretch of the imagination, think 2019 is some bellwether year, right? We all know that there is some softness. What we have to do is realign our management team. We've dramatically cut SG&A in the first quarter, which will have its effects in the back half of the year. And we know that the RV sales number should stabilize as we get deeper into the year.

April is a good example. It wasn't positive comp, but it was a heck of a lot better than what we saw in the fourth quarter and candidly even in January and a good chunk of February.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [65]

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Okay. Okay, helpful there. And the used strategy here...

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

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And Tim, just to give you a little more color. April -- this is a very important note, April, the month of April was the biggest April in top line in the company's history.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [67]

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Okay. Okay. But again, the down 4 was a comp basis, right?

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

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Yes, sir. Totally. Yes, sir.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [69]

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Okay. On the -- on your used strategy, so your used units were down 1/3 of the rate of new on a comp store basis, but the ASP has increased. So the -- pivoting there looks bearing fruit there given the backdrop. Can you give us the color maybe on how those margins are trending year-over-year versus -- used versus new?

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

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The used historically has always performed slightly better. We still saw some margin compression as you would have imagined in the first quarter on new, with manufacturers still trying to get out of a few things, dealers still trying to get out of a few things. And of course, we're wanting to compete. We don't feel the need to liquidate inventory because we're over-inventoried. We feel the need to sell inventory to remain competitive, but not unprofitable. The used margins perform better by I think -- and I don't have it in front of me. I think it's about 4% to 5% on a percentage basis. We think there still is room for opportunity.

We made the decision to be more aggressive in liquidating some aged inventory that was from September, October, November, December as we do in the first quarter every winter, right? You look at the stores in the north that units sat in snow for a while. We want to get that stuff started and going.

And we tightened up our aging policy on used pretty significantly. We changed -- we lowered of standard of acceptability by 90 days. And so we did [gas] a little bit of inventory in the first quarter, though we don't anticipate having to continue to do. But it still, in spite of all that, still performs materially better, in my opinion, than new ones.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [71]

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So just to be clear, your gross margins on used in Q1 were about 400 to 500 basis points higher than the new margins?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [72]

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Yes, sir.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [73]

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Okay. Okay. Yes, I think long-term historically, it's been in that 5 to 6, and a couple of years, got up close to 1,000. But okay, yes, I just want to get an indication of where those are, okay. And then maybe one for Mel...

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [74]

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Yes. And Tim, I'm being uber-conservative when I give you those numbers. I want to just put that extra color on there. I'm being uber-conservative when I say that. It's -- the gap is probably wider than that. And I don't have it in front of me and so I don't -- because I've learned my lesson, I'm being uber-conservative in that number.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [75]

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Well that makes sense though too if you were, as you said, liquidating some -- a little bit more aged inventory that, that would compress, but this is...

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [76]

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No. No, what I'm saying is I know it's better than 4%. I'm being uber-conservative...

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [77]

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Yes, Marcus, it's actually 7% or 8%.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [78]

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Right.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [79]

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Okay. So 7% to 8%. Okay. Okay. Okay, no, no, helpful.

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [80]

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Helpful is a little bit better than that.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [81]

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Okay. And then, Mel, with the change in the lease accounting, did -- everybody knows there's going to be grossing up of the balance sheet as a result of that new pronouncement. But is there any impact to your P&L from implementing the new lease accounting reporting rules?

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Melvin L. Flanigan, Camping World Holdings, Inc. - CFO & Secretary [82]

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No. Not really, no.

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Timothy Andrew Conder, Wells Fargo Securities, LLC, Research Division - MD and Senior Leisure Analyst [83]

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Okay. Okay. And then lastly if I may, any stats that you can give in terms of your -- repeat RV purchaser within the Camping World network, and then how that's gone over the last, say 3- to 5-year trend? I think whether you want to pull in the Gander locations and all that too, but I know that really shouldn't matter here at this point. But just anything you can give, any color you can give on that perspective?

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [84]

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I don't have that data available. And with the addition of people like Russell Gentry, we're going to be providing, at least internally, those types of dashboards so that we understand how to better manage our database. We have a giant relationship with Salesforce. We need to get more out of that machine. We need to be more efficient with understanding who our customer is and what they have. And one of the challenges historically, and quite frankly even today, is that Good Sam, the retail business and the dealership business, for a multitude of reasons operate on disparate systems because of the type of DMS that those businesses need to have. And so we're continuing to work on how to consolidate that customer data so we understand what Joe Smith has and doesn't have with us. And then we build our marketing either through digital marketing, email marketing or print marketing based on their behavior. We don't have the data like we should, Tim, but we're getting better fast.

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Operator [85]

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At this time, I would like to hand the call back over to Marcus Lemonis for closing remarks.

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Marcus A. Lemonis, Camping World Holdings, Inc. - Chairman & CEO [86]

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Look, we couldn't be more excited about where our company is going. We feel very confident about the management additions that we've made, very confident about the SG&A reductions that we've made, and we have put a stake in the ground as the #1 RV retailer in America. So we expect to continue to perform and look forward to reporting the next quarter.

Thank you so much.

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Operator [87]

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That does conclude today's conference.

We thank you for your participation.