Camping World Holdings, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results are compared with the corresponding 2020 periods. Camping World operates through Good Sam Services and Plans and RV and Outdoor Retail; at quarter-end it had 187 retail locations, including 176 RV dealerships.
Financial results and liquidity
- Q2 revenue: $2.062 billion, up 28.3% year over year. RV and Outdoor Retail revenue rose 29.0%; Good Sam Services and Plans revenue rose 5.4%.
- Q2 earnings and margins: Gross profit was $759.8 million, with a 36.9% gross margin versus 30.4%. Operating income was $305.0 million (14.8% margin), versus $203.3 million (12.7%). Consolidated net income was $246.1 million; net income attributable to Camping World Holdings was $109.2 million. Class A EPS was $2.37 basic and $2.33 diluted.
- First-half results: Revenue was $3.620 billion, up 37.4%; gross profit was $1.280 billion, up 61.8%, and gross margin was 35.4% versus 30.0%. Operating income was $473.5 million, up 118.6%; consolidated net income was $393.5 million and parent-attributable net income was $171.5 million. Basic and diluted EPS were $3.83 and $3.74.
- Cash flow: First-half operating cash flow was $460.1 million, compared with $515.9 million in 2020. Investing used $194.3 million, including $99.0 million for dealership acquisitions, $48.3 million for real estate and $47.2 million of capital expenditures. Financing used $240.4 million, including debt payments, member distributions, dividends and $45.5 million of share repurchases. Cash increased $25.4 million to $191.5 million.
- Liquidity: Working capital was $468.2 million. The company reported $1.690 billion of current assets and $1.222 billion of current liabilities. The Floor Plan Facility had $625.1 million of unencumbered borrowing capacity; the New Revolving Credit Facility had $60.1 million of available capacity, subject to its terms.
- Debt and leases: Long-term debt was $1.081 billion before current maturities, including a $1.100 billion New Term Loan Facility principal balance at issuance. Floor-plan borrowings, net, were $485.6 million; the separate revolving line under the Floor Plan Facility had $20.9 million drawn. Operating lease liabilities totaled about $893.4 million. The company said it was in compliance with applicable debt covenants.
Material changes versus the prior comparable period
- Q2 growth and margin expansion were led by RV retail. New-vehicle gross margin rose to 28.4% from 16.2%; used-vehicle gross margin rose to 27.2% from 24.0%. Higher selling prices and gross profit per vehicle offset lower Q2 new-unit sales, which fell 3.6% overall and 12.3% on a same-store basis.
- For the first half, same-store revenue increased 30.6% and same-store unit sales increased 9.4%. The company cited strong demand and elevated RV prices, while new-unit inventory remained constrained.
- SG&A increased 59.2% in Q2 and 42.7% for the first half, mainly reflecting higher wage-related and selling expenses, variable compensation, and comparison with pandemic-related salary and marketing cuts in 2020. Q2 SG&A was 56.9% of gross profit, versus 55.6%.
- Good Sam Services and Plans revenue declined 4.3% for the first half, mainly because no in-person consumer shows were held; segment income declined 3.4%. Q2 segment income fell 5.6%, including higher roadside claims and restored wages and marketing.
- On June 3, the company refinanced its senior secured facilities. It borrowed $1.100 billion under a new term loan, repaid the previous facilities and used $61.4 million of cash, reducing outstanding principal by $38.6 million. The refinancing generated $10.4 million of expense and loss.
Outlook, commentary and risks
- No numerical full-year earnings or revenue guidance is provided. Management said liquidity sources should be sufficient for at least the next 12 months, while cautioning that weaker operating cash flow or reduced facility availability could require additional financing.
- Management reported record RV-industry shipments in Q2 2021 and described continued strong demand, but also cited manufacturer component shortages and low new-RV inventory. The filing warns that demand may not persist as other travel options recover and that future pandemic developments could affect demand, operations and supply chains.
- The company acquired 12 dealerships for approximately $99.0 million in the first half and expects to purchase more than $30.0 million of real estate in the second half of 2021. Good Sam RV Rentals soft-launched in July, with a nationwide launch expected in Q3 2021; development spending for the rental and mobile technician marketplaces was not expected to be material.
- The board authorized an additional $125 million share-repurchase program on August 3, 2021, after quarter-end. At June 30, $33.0 million remained under the prior authorization. The company also paid a $0.25-per-share Q2 dividend.
- Risks include seasonality, volatile RV demand and pricing, supply constraints, inventory management, financing availability, debt covenants, acquisitions and execution, and the controlled-company ownership structure. The filing discusses shareholder litigation and wage-and-hour claims; a $4.0 million reserve was recorded for the Woodings matter, whose settlement remained subject to court approval.
- The 2019 Strategic Shift continued to generate wind-down costs. Management estimated total restructuring costs of $92.6 million to $112.6 million, with remaining lease termination and other associated costs potentially requiring future cash payments. The company reported no material change in risk factors and concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether exceptional RV demand, selling prices and unusually strong vehicle gross margins can be sustained, particularly given lower Q2 new-unit sales and inventory shortages.
- How operating cash flow develops as inventory and working-capital needs change; first-half operating cash flow declined despite sharply higher earnings.
- The full economic burden of debt, floor-plan financing, lease commitments and Tax Receivable Agreement payments, and the availability of borrowing capacity under facility terms.
- Whether acquisition growth, planned real-estate purchases, dividends and repurchases remain supportable from cash generation and liquidity.
- Developments in the Woodings settlement and other litigation, as well as remaining costs and cash requirements from the 2019 Strategic Shift.
- Results from the expected nationwide Good Sam RV Rentals launch and the company’s ability to manage pandemic, supply-chain and seasonal risks.