Camping World Holdings, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unaudited results; comparisons are with Q1 2018 unless stated otherwise. Amounts are in U.S. dollars.
Business context and reporting changes
Camping World sells new and used RVs, RV and outdoor products and services, and Good Sam membership, insurance, roadside-assistance and related offerings. It reported 226 retail locations at quarter-end, up from 183 a year earlier, and 5.1 million active customers. In Q1 2019, it reorganized reporting into Good Sam Services and Plans and RV and Outdoor Retail; comparative segment data was recast.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $1,064.8 million | $1,058.7 million |
| Gross profit / margin | $298.3 million / 28.0% | $301.9 million / 28.5% |
| Operating income | $16.9 million | $45.7 million |
| Net income (loss) | $(26.8) million | $13.5 million |
| Net income (loss) attributable to Camping World Holdings | $(19.4) million; $(0.52) per share | $1.8 million; $0.05 per share |
| Adjusted EBITDA, a non-GAAP measure | $21.4 million | $67.7 million |
| Cash from operating activities | $(74.0) million | $(57.0) million |
| Cash from investing activities | $(22.9) million | $(79.7) million |
| Cash from financing activities | $28.4 million | $243.8 million |
Cash and cash equivalents were $70.0 million at March 31, down from $138.6 million at year-end 2018. Working capital was $505.1 million, versus $583.0 million at year-end. Inventories were $1.623 billion.
At quarter-end, long-term debt carrying value was $1.163 billion, floor-plan borrowings were $882.3 million and the floor-plan revolver balance was $42.6 million. The senior term loan principal was $1.195 billion. Operating lease liabilities totaled $877.4 million, separately from debt. Available capacity included $266.1 million of unencumbered floor-plan borrowing capacity, $17.4 million under the floor-plan revolver and $9.4 million under the senior secured revolver.
Material changes and drivers
- Revenue increased just 0.6%, while aggregate same-store sales fell 11.0% to $847.9 million.
- New-vehicle revenue declined 8.6%; units sold declined 7.9%. Same-store new-vehicle revenue fell 15.6%. Management cited weaker demand across nearly all product types and a mix shift toward towables.
- Products, service and other revenue rose 24.8%, partly from stores not open in the prior-year period, but same-store revenue in this category fell 9.6%. Its gross margin declined to 33.6% from 41.6%, primarily due to a greater mix of lower-margin products.
- RV and Outdoor Retail segment income fell to a $0.4 million loss from $24.5 million of income. Good Sam Services and Plans segment income increased to $22.4 million from $21.7 million.
- SG&A rose 8.8% to $268.1 million; SG&A equaled 89.9% of gross profit, compared with 81.6%. Higher store and property costs, variable selling expenses and professional fees contributed. Other interest expense increased 37.4% to $17.6 million.
- The company adopted ASC 842 lease accounting on January 1, 2019, adding substantial operating lease assets and liabilities to the balance sheet. Management said the adoption did not materially affect the income statement or cash flows and did not affect existing debt covenants.
Outlook, risks and unusual items
- No quantified full-year financial guidance is provided in the filing. Management expects liquidity sources to support operations, growth plans, dividends and other needs for at least the next 12 months, but cautions that operating cash flow and available borrowing may prove insufficient and additional financing may be needed.
- Management intends to continue opening RV and outdoor retail locations and anticipates regular quarterly dividends, subject to board discretion. The business is seasonal, with revenue and profits generally highest in spring and summer; weak demand, inventory misjudgment or adverse weather could pressure sales and margins.
- Income tax expense was $22.9 million despite a $3.9 million pretax loss. It included $16.3 million of deferred tax expense related to transferring Good Sam Club and co-branded credit-card assets to a corporate subsidiary, as well as other tax and valuation-allowance effects. An $8.5 million Tax Receivable Agreement liability reduction was recorded as other income, partly offsetting other expenses.
- Q1 operating cash use increased to $74.0 million; management attributed the change chiefly to lower growth in payables and accrued liabilities and lower earnings, partly offset by reduced inventory purchases.
- The company reported ineffective disclosure controls as of March 31, 2019 because of material weaknesses involving finance and insurance cancellation reserves, asset valuations and accounting review resources, and income-tax accounting. Remediation is underway but was not considered complete.
- Several securities class actions and shareholder derivative suits were pending. The company said the asserted liabilities were not then probable or reasonably estimable; adverse outcomes could nevertheless be material.
- The filing corrected immaterial errors in comparative 2018 information. It reports a $19.1 million reduction to opening 2018 equity from the corrections and revisions to Q1 2018 results and cash-flow classifications.
Important facts for investors to verify
- Whether new-RV demand and same-store sales stabilize, and whether inventory levels and product mix support margins.
- Whether continued store expansion can generate returns sufficient to offset elevated SG&A, interest and lease costs.
- Cash conversion, seasonal working-capital needs, borrowing availability and compliance with debt covenants—particularly because management stated it would not have met the senior revolver leverage covenant if the covenant had been triggered.
- Progress in remediating internal-control material weaknesses and the reliability of tax, reserve and valuation estimates.
- Potential financial exposure from pending litigation and future payments under the Tax Receivable Agreement and lease commitments.
- How much of the reported year-over-year Adjusted EBITDA decline reflects operating performance versus prior-year Gander Outdoors pre-opening-cost adjustments; this non-GAAP measure is not a substitute for cash flow or GAAP results.