Camping World Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited results compared with Q1 2021. Camping World operates RV dealerships and service centers, an e-commerce platform, and Good Sam services and plans. It reported two segments: RV and Outdoor Retail, and Good Sam Services and Plans. Amounts below are in U.S. dollars; financial statement figures are generally in millions unless stated otherwise.
Financial performance and position
- Revenue: $1.662 billion, up 6.7% year over year. RV and Outdoor Retail revenue increased 6.7%; Good Sam Services and Plans revenue increased 9.0%.
- Gross profit and margin: $560.2 million, up 7.6%; gross margin was 33.7%, versus 33.4%. Higher vehicle gross profit was partly offset by lower products, service and other gross profit.
- Operating results: Operating income was $149.1 million, down 11.5%, with a 9.0% operating margin versus 10.8%. SG&A rose 14.3% to $385.3 million, and depreciation and amortization rose to $25.5 million, including $8.8 million of accelerated trademark and trade-name amortization.
- Net income and EPS: Consolidated net income was $107.3 million, down 27.2%; net income attributable to Camping World Holdings, Inc. was $44.7 million, versus $62.3 million. Class A basic and diluted EPS were $1.03 and $1.02, respectively, versus $1.43 and $1.40.
- Cash flow: Operating cash flow was negative $210.1 million, compared with positive $87.8 million in Q1 2021, principally reflecting inventory investment. Investing cash flow was negative $84.0 million; financing cash flow was positive $166.2 million. Cash declined by $127.9 million to $139.5 million.
- Liquidity and inventory: Working capital was $645.4 million, down from $685.6 million at year-end 2021. Inventory was $2.152 billion, up from $1.793 billion at year-end, including new RV inventory of $1.420 billion. Floor-plan borrowing availability, after specified commitments, was $103.1 million; a further $49.1 million was available on the floor-plan revolving line.
- Debt and leases: Long-term debt was $1.390 billion before current classification and unamortized financing adjustments; floor-plan notes payable were $1.237 billion and floor-plan revolving borrowings were $20.9 million. The $1.4 billion term loan carried an average rate of 3.25%. Operating and finance lease liabilities totaled approximately $917 million. The company reported compliance with applicable debt covenants.
- Capital returns: The company repurchased 2.59 million Class A shares for $79.8 million at a weighted-average $30.76 per share; $120.2 million remained authorized. It paid a quarterly dividend of $0.625 per Class A share.
Material changes versus Q1 2021
- Revenue growth was driven by used RV sales, up 37.0%, and finance and insurance revenue, up 10.9%. New RV revenue rose 1.6% despite new unit sales falling 11.3%, as average selling price increased 14.5%.
- Same-store revenue increased 1.7%, but same-store new RV units fell 16.6%. Used vehicle average selling prices rose 28.8%; used units increased 6.4%.
- Products, service and other revenue declined 14.4%, primarily following the exit from certain non-RV product categories. Its gross margin fell to 36.7% from 38.7%, reflecting higher freight and product costs.
- SG&A increased by $48.3 million, including higher wages and variable compensation, costs associated with more locations, and $1.8 million of net costs related to the cybersecurity incident. Higher expenses and accelerated amortization outweighed gross-profit growth.
- Income tax expense increased to $21.0 million from $2.0 million. The prior-year period included $14.9 million from a valuation-allowance release and a $4.1 million deferred-tax benefit, making the comparison unusually favorable in 2021.
- Adjusted EBITDA, a company-defined non-GAAP measure, was $182.1 million versus $189.3 million; adjusted EBITDA margin was 11.0% versus 12.2%.
Outlook, commentary, risks and unusual items
- Outlook: The filing provides no formal full-year earnings or revenue guidance. Management expected $225 million to $330 million of 2022 dealership expansion spending through acquisitions and capital expenditures, and $25 million to $50 million for other announced initiatives. Construction contracts for new dealership buildings represented $50.2 million of future capital commitments at quarter-end.
- Management said new-vehicle replenishment had become more consistent by mid-Q1 2022. It expected higher average inventory and floor-plan interest expense in 2022, and anticipated interest-rate increases. Management also expected RV average selling prices to decline as industry supply normalizes, potentially reducing new-vehicle gross margins.
- Management attributed elevated RV demand partly to pandemic-era consumer interest, but warned demand may not persist as other travel options recover. Supply constraints, component shortages, consumer spending, fuel prices, inventory management and the seasonal concentration of sales in Q2 and Q3 remain relevant risks.
- The February 2022 cybersecurity incident involved encryption of some IT systems and theft of data; the company believed personal information was among the stolen data. Systems were restored and the forensic investigation was complete, but the company could not yet estimate all incremental costs. It warned costs could exceed insurance limits and noted possible regulatory, reputational, litigation and insurance-coverage consequences.
- Remaining 2019 strategic-shift costs primarily concern leases and wind-down activities. Estimated total restructuring costs were $113.6 million to $133.6 million; future cash expenditures were estimated at $4.9 million to $19.9 million for lease terminations and $2.1 million to $7.1 million for other associated costs.
- Litigation remains a contingency. A shareholder derivative case dismissed with prejudice was appealed; separate derivative cases were stayed. A counterclaim involving the “The Profit” television program sought damages, including a claim for at least approximately $2.5 million and treble damages under RICO; a motion to compel arbitration was fully briefed. Another related case was ordered to arbitration in April 2022. The company could not assure that litigation would not result in material exposure beyond insurance.
- A February 2022 sale-leaseback of three properties for $28.0 million was accounted for as a financing transaction, with 20-year lease agreements. The company stated that it expected available cash and credit sources to fund operations and planned spending for at least the next twelve months, while cautioning that future liquidity was not assured.
Most important facts for investors to verify
- Whether RV demand, pricing and inventory turnover remain resilient as supply normalizes; Q1 inventory rose sharply while new-vehicle units and same-store new-vehicle sales declined.
- Whether gross-profit growth can outpace SG&A, depreciation, floor-plan interest and other financing costs.
- How working-capital needs, floor-plan availability, interest rates and planned dealership expansion affect cash, debt and liquidity.
- The ultimate cost, insurance recovery and legal or regulatory consequences of the cybersecurity incident, and the outcomes and potential exposure from pending litigation.
- Whether the dividend and repurchase pace remain supportable given negative Q1 operating cash flow and the company’s investment needs.