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Camping World (NYSE:CWH) Misses Q4 Sales Targets


Full Report / February 21, 2024

Recreational vehicle (RV) and boat retailer Camping World (NYSE:CWH) missed analysts' expectations in Q4 FY2023, with revenue down 13.4% year on year to $1.11 billion. It made a GAAP loss of $0.49 per share, down from its loss of $0.20 per share in the same quarter last year.

Camping World (CWH) Q4 FY2023 Highlights:

  • Revenue: $1.11 billion vs analyst estimates of $1.14 billion (2.7% miss)
  • EPS: -$0.49 vs analyst expectations of -$0.48 (2.9% miss)
  • Free Cash Flow was -$267.9 million compared to -$370.6 million in the same quarter last year
  • Gross Margin (GAAP): 31%, up from 30.6% in the same quarter last year
  • Same-Store Sales were down 14.7% year on year
  • Store Locations: 202 at quarter end, increasing by 6 over the last 12 months
  • Market Capitalization: $1.15 billion

Founded in 1966 as a single recreational vehicle (RV) dealership, Camping World (NYSE:CWH) still sells RVs along with boats and general merchandise for outdoor activities.

The core customer is someone in the market for an RV, someone who already owns an RV, or a general outdoor enthusiast. At a Camping World location or on the company’s website, this core customer can buy RVs, boats, camping tents, fishing rods, and all manner of equipment to accompany your RV or boat.

The average Camping World store is around 20,000 square feet and is typically located in or near popular camping destinations or along major highways. RVs are displayed outside, while camping gear and accessories are arranged inside the store in sections. States such as Florida, Texas, and Ohio have the highest concentration of Camping World stores while Northeastern states, where the weather isn’t as conducive to outdoor activities, have the lowest.

Camping World’s e-commerce presence was launched in 2008, and today, customers can buy the company’s offerings online for direct shipment. Camping World's e-commerce platform has been an important part of reaching customers who may not have easy access to a physical store.

Vehicle Retailer

Buying a vehicle is a big decision and usually the second-largest purchase behind a home for many people, so retailers that sell new and used cars try to offer selection, convenience, and customer service to shoppers. While there is online competition, especially for research and discovery, the vehicle sales market is still very fragmented and localized given the magnitude of the purchase and the logistical costs associated with moving cars over long distances. At the end of the day, a large swath of the population relies on cars to get from point A to point B, and vehicle sellers are acutely aware of this need.

Competitors offering merchandise for outdoor activities or recreational vehicles include Thor Industries (NYSE:THO) and Winnebago Industries (NYSE:WGO) as well as private competitors such as Lazydays Holdings and General RV Center.

Sales Growth

Camping World is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's annualized revenue growth rate of 6.2% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was weak , but to its credit, it opened new stores and expanded its reach.

Camping World Total Revenue

This quarter, Camping World missed Wall Street's estimates and reported a rather uninspiring 13.4% year-on-year revenue decline, generating $1.11 billion in revenue. Looking ahead, Wall Street expects sales to grow 6.2% over the next 12 months, an acceleration from this quarter.

Number of Stores

The number of stores a retailer operates is a major determinant of how much it can sell, and its growth is a critical driver of how quickly company-level sales can grow.

When a retailer like Camping World is opening new stores, it usually means it's investing for growth because demand is greater than supply. Since last year, Camping World's store count increased by 6 locations, or 3.1%, to 202 total retail locations in the most recently reported quarter.

Camping World Operating Retail Locations

Over the last two years, the company has opened new stores quickly and averaged 5% annual growth in new locations, meaningfully higher than other consumer retail businesses. With an expanding store base and demand, revenue growth can come from multiple vectors: sales from new stores, sales from e-commerce, or increased foot traffic and higher sales per customer at existing stores.

Same-Store Sales

Camping World's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 9.5% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

Camping World Year On Year Same Store Sales Growth

In the latest quarter, Camping World's same-store sales fell 14.7% year on year. This decrease was a further deceleration from the 12.1% year-on-year decline it posted 12 months ago. We hope the business can get back on track.

Gross Margin & Pricing Power

Gross profit margins are an important measure of a retailer's pricing power, product differentiation, and negotiating leverage.

Camping World has weak unit economics for a retailer, making it difficult to reinvest in the business. As you can see below, it's averaged a 31.4% gross margin over the last eight quarters. This means the company makes $0.31 for every $1 in revenue before accounting for its operating expenses. Camping World Gross Margin (GAAP)

Camping World produced a 31% gross profit margin in Q4, flat with the same quarter last year. This steady margin stems from its efforts to keep prices low for consumers and signals that it has stable input costs (such as freight expenses to transport goods).

Operating Margin

Operating margin is a key profitability metric for retailers because it accounts for all expenses keeping the lights on, including wages, rent, advertising, and other administrative costs.

This quarter, Camping World generated an operating profit margin of negative 1.1%, down 1.9 percentage points year on year. Conversely, the company's gross margin actually increased, so we can assume the reduction was driven by weaker cost controls or operating leverage on fixed costs.

Camping World Operating Margin (GAAP)

Zooming out, Camping World was profitable over the last two years but held back by its large expense base. It's demonstrated mediocre profitability for a consumer retail business, producing an average operating margin of 6.3%. On top of that, Camping World's margin has declined, on average, by 3.9 percentage points year on year. This shows the company is heading in the wrong direction, and investors were likely hoping for better results.

EPS

Earnings growth is a critical metric to track, but for long-term shareholders, earnings per share (EPS) is more telling because it accounts for dilution and share repurchases.

In Q4, Camping World reported EPS at negative $0.49, down from negative $0.20 in the same quarter a year ago. This print unfortunately missed Wall Street's estimates, but we care more about long-term EPS growth rather than short-term movements.

Camping World EPS (GAAP)

Between FY2019 and FY2023, Camping World's adjusted diluted EPS grew 132%, translating into a solid 23.4% compounded annual growth rate. This growth is materially higher than its revenue growth over the same period and was driven by excellent expense management (leading to higher profitability) and share repurchases (leading to higher PER share earnings).

Wall Street expects the company to continue growing earnings over the next 12 months, with analysts projecting an average 92.4% year-on-year increase in EPS.

Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Camping World burned through $267.9 million of cash in Q4, representing a negative 24.2% free cash flow margin. The company increased its cash burn by 27.7% year on year.

Camping World Free Cash Flow Margin

Over the last eight quarters, Camping World has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 1.6%, subpar for a consumer retail business. However, its margin has averaged year-on-year increases of 2.4 percentage points, a great result that should improve its prospects.

Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to how much money the business raised (debt and equity).

Camping World's five-year average ROIC was 15.7%, slightly better than the broader sector. Just as you’d like your investment dollars to generate returns, Camping World's invested capital has produced decent profits.

The trend in its ROIC, however, is often what surprises the market and drives the stock price. Over the last two years, Camping World's ROIC averaged 2.6 percentage point increases each year. This is a good sign, and if the company's returns keep rising, there's a chance it could evolve into an investable business.

Key Takeaways from Camping World's Q4 Results

We enjoyed seeing Camping World exceed analysts' gross margin expectations this quarter. That stood out as a positive in these results. On the other hand, its revenue unfortunately missed analysts' expectations as its same-store sales declined. Interestingly, its used vehicle revenue missed by a wide margin ($322 million vs estimates of $385 million) while its new vehicle revenue beat significantly ($449 million vs estimates of $402 million). Overall, this was a mediocre quarter for Camping World. The company is down 4.5% on the results and currently trades at $23.97 per share.

Is Now The Time?

When considering an investment in Camping World, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

Camping World isn't a bad business, but it probably wouldn't be one of our picks. Its revenue growth has been a little slower over the last four years, but at least growth is expected to increase in the short term. And while its projected EPS for the next year implies the company's fundamentals will improve, the downside is its shrinking same-store sales suggests it'll need to change its strategy to succeed. On top of that, its gross margins make it more difficult to reach positive operating profits compared to other consumer retail businesses.

Camping World's price-to-earnings ratio based on the next 12 months is 18.1x. We can find things to like about Camping World and there's no doubt it's a bit of a market darling, at least for some investors. But it seems there's a lot of optimism already priced in and we wonder if there are better opportunities elsewhere right now.

Wall Street analysts covering the company had a one-year price target of $29 per share right before these results (compared to the current share price of $23.97).

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