Q1 2022 Camping World Holdings Inc Earnings Call
Good morning, and welcome to the Camping World Holdings Conference call to discuss financial results for the first quarter fiscal year of 2022.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time. Please.
Please be advised that this 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 are Mark this laminates, chairman and Chief Executive Officer.
Pink Moody President Karen Bell, Chief Financial Officer, Tamara Ward cheap Chief operating Officer, Matt.
Matthew Ackman Executive Vice President Lindsay Christian Executive Vice President and General Counsel, and Tom Quinn, Chief Accounting Officer.
I will turn the call over to Lindsay Christian to get US started please go ahead ma'am.
Hello, everyone. Our press release, covering the company's first quarter 2022 financial results was issued yesterday 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 the impact of COVID-19 on our business financial results and financial condition.
Our business goals plans abilities and opportunities industry and customer trends, our recently disclosed cyber security incident.
Our strategic initiatives acquisitions and planned capital expenditures.
Stock repurchases future dividend payments increases in our borrowings our liquidity and future compliance with our financial covenants and anticipated financial and anticipated financial performance.
Actual results may differ materially from those indicated by these statements.
A result of various important factors, including those discussed in the risk factors section in our Form 10-K, our form 10, Qs 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 EBITDA adjusted EBITDA and <unk>.
Adjusted earnings per share diluted which we believe may be important to investors to assess our operating performance record.
Reconciliations of these non-GAAP financial measures the most directly comparable GAAP financial statements are included in our earnings release and on our website.
All comparisons of our 2022 first quarter results are made against the 2021 first quarter results unless otherwise noted I will now turn the call over to Markus Thanks Lynn and.
Good morning, and thanks for joining us I'm here with members of our senior management team as we report results for the first quarter 2022.
On today's call, we're going to lay out our financial results and the supporting comments around them well also discuss macroeconomic industry tends trends with our short and long term view.
As all of you know 2021 was a historic year for camping world than 'twenty 'twenty was right behind that our industry grew at explosive rates during the pandemic, but it's important to remember the historical path leading to 'twenty 'twenty for over 50 years, our viewers have loved this lifestyle.
And the industry has grown every single decades since inception.
From our perspective, the world's passion for the outdoors has never been hotter.
With new and younger buyers coming into the market and new lighter more innovative units being produced our perspective customer file continues to grow.
Look I've been in this industry for almost 20 years, now and I'm going to continue to work diligently to ease People's concern when they see a flattening or a reduction compared to prior years of new Rvs sold.
While some see temporary shifts as a risk.
Our company sees it as a new launch pad.
An opportunity to strengthen our infrastructure improve areas of weakness and most importantly make opportunistic and strategic acquisitions that further strengthen our foundation.
We're proud to report for the first quarter of 'twenty, two we generated record revenue and saw that trend continue into April .
Our total sales for the quarter were nearly 1.7 billion up over last year by $105 million.
Well some of that revenue increase is attributed to a rise in prices year over year. It is also true that some of that came from an increase in our service and repair business specifically when you eliminate the sale of outdoor categories that we exited in Q3 of 2021.
It was also bolstered by our core good Sam business as well as our used RV business.
Our adjusted EBITDA for the quarter totaled 182 million compared to $189 million a year ago.
Our second highest first quarter since the inception of our company the.
The primary change to adjusted EBITDA was due to rebalancing our distribution centers costs associated with opening new locations added to the system, our cyber incident, and our increased floorplan expense.
Our gross profit for the quarter was up $40 million from the previous year stemming from a combination of same store contribution and additional locations added onto the platform over the last 12 months. Our SG&A was also up but it was attributable to those same additional stores we added.
And the before mentioned expenses.
One metric that we focus on heavily is our variable cost structure.
It is important for us that is a different segments come under pressure either in revenue or in margin that we maintain our variable approach to expenses, namely compensation.
For the quarter, we were pleased that our expenses as a percentage of gross or 69%, which is well below the historical Q1 average.
Included in that number where the expenses from the internal adjustments to our supply chain process separation costs for right sizing our staff and the cyber incident.
Those items are what drove the increase up from roughly 65% the same quarter last year.
But we're proud of the overall result, and we recognize that there's a constant need for improvement.
When we feel the investor questions about our business and the industry. These questions commonly emerge number one what is the current status of inventory in the industry.
How will the stabilization of the supply chain affect margins and will the manufacturers resist the temptation to overproduce and what are the financial factors that have the greatest impact on this industry.
Let's start with the inventory levels.
From our perspective, the products that make up the bulk of the industry. What's your total bowls are now adequately restocked.
As a reminder, right now the start of the key selling season is when inventory is at its highest on a same store basis.
Over the next few quarters through the natural selling season, it will appropriately reduce.
We are hopeful and we rely on manufacturers just shift back to production that matches retail demand.
And in an abundance of caution we have positioned ourselves strategically in case that doesn't happen with rigorous and disciplined forecasting and ordering for our own just in time process as.
As for our used RV business, we have continued to see progress we stocked on an additional $100 million of used revenue growth for the quarter on top of the $1 7 billion of US revenue that we reported at the end of last year.
We reached a peak used inventory of over $423 million in the quarter, but have since made the decision to increase our turns essentially reducing that inventory.
We continue to see robust demand for used and believe it to be a great alternative.
Specifically in a rate increasing environment. So that we can provide multiple payment options for our consumers.
In addition, it is important to note that we closely monitor values on a daily basis, and we run a very tight days' supply of used of less than 100 days.
Turning to the supply side.
<unk> city of RV inventory that existed during 2021 has for the most part repaired itself.
From our perspective, it happened a little quicker than anybody anticipated.
And that's a credit to the work done by manufacturers to keep our industry moving.
With the shelves now restocked, we are now operating with stocking levels on the new side.
Similarly to historical levels.
We hope to maintain these levels, but see manufacturing production discipline is the key to that.
As we move through the balance of the year, we in tissue, we anticipate margins continuing to normalize on the new side. However, we expect used margins to be more consistent with historical five year averages which are pretty good.
Lastly, when we look at the macro factors that impact new RV sales.
It's easy to recognize the pressure consumer confidence inflation rising interest rates et cetera.
But for US it's more complex than that.
When you study our business, it's true that new RV sales are a big part of our company's revenue.
However, it's also important to remember the other key areas that serve the installed base of our viewers.
Based on retail data over the last several years, we believe the installed base of our viewers grew by over $1 million in the last several years.
The installed base feeds our high margin service collision parts business, our recurring steady and predictable good Sam business, which happened to grow 9% quarter over quarter, and our used RV business, which was up over 35% in revenue.
As a management team, it's our job to anticipate changes and adjust our business for them to.
Common discussion we have is what would our business look like if the new RV sales retracted at different levels, we sensitized the model.
If you make the assumption that revenue is the only factor in determining the variability of our business results and this is often the guide that I use.
As a reminder, we.
We generated $3 3 billion of new RV revenue in 2021.
For every one dollar of new RV revenue reduction that our company could experience we would eliminate we would expect to eliminate approximately 30 cents in gross profit related to that one dollar of revenue.
After factoring in the elimination of SG&A attributable to that 30 sensitive gross profit, which is primarily compensation and commission the expected impact to EBITDA could be around 20 to 25 sets. So we don't lose every dollar.
This small example does not include any additional modifications that we would make to SG&A as a result of the reduction in revenue.
The reason that I provide this math is to give all of our investors a clear path to their own expected questions what happens if and I hear that a lot.
After doing this for 20 years, we've learned a great deal we understand the importance of a variable cost structure and our results show that.
The importance of acknowledging what the market is both giving you and telling you and most importantly, being nimble in all cases to maximize our results.
While we can't forecast exactly where the economy is growing we do know that our core business fundamentals are solid wood.
We're proud to have delivered meaningful dividends since going public quarter after quarter with several increases along the way.
To be clear, we are confident in that strategy.
We're also committed to growing the dividend through consistent improvement in our business results.
And a disciplined stock repurchase program.
During the quarter, we repurchased 2.6 million shares totaling $80 million.
And then last year, we have reduced our net outstanding total common units by 5.4 million units are outstanding fully exchanged share count today sits at $83 7 million in both class a shares and common units held by the Noncontrolling interest.
That's down from $89 2 million, just a year ago.
As we head into the core selling months for our company. We are pleased with revenue trends in April and through today, and we're going to continue to monitor closely those factors that affect our industry.
Our consumers and your investment.
Part of that investment our commitment is to grow profitably.
We added four stores in the first quarter and.
And we will continue to be disciplined in meeting the range of new locations, we forecasted.
Between acquisitions that are signed and new stores that are under construction. We believe we will finish the year with no less than 14, new operating locations.
On an annualized basis with maturity.
We expect those locations to add approximately a half a billion dollars of revenue with profitability consistent with our other mature locations.
Me clarify that's on an annualized basis with maturity.
Lastly, we are making great progress on two specific fronts that we've spoken to you about in the past first our good Sam RV peer to peer rental platform.
We're experiencing significant month over month growth as we enter season, and it's a new business.
With rental dollars processed through the platform in March of 'twenty to over seven times higher compared to the end of 2021.
Our rental units on the platform have grown over 67% from the end of the year to now.
We ended the quarter with friendly relationship setting up the platform for continued growth at scale throughout the remainder of the 22 year.
Secondly.
By the end of Q2 2022.
<unk> Dot com expense expects to launch our beta end to end RV purchase experience and specific states.
This digital consumer experience, including unit selection.
Nance and home delivery.
What allow our company to serve customers well beyond the markets that we currently operate in.
Our company on.
Unlike some other fully digital automotive companies will be able to sell both new and used in 42 States, where we currently have a physical presence and license today.
Over the next 24 months, we anticipate operating a physical location in 47 of the 48 contiguous states consistent with the goal we laid out last year.
I'll now turn it back over to the operator for questions.
Thank you.
At this time, we will be conducting a question and answer session. If you like Lance I'll ask a question. Please press star and then one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
Let me start and then two if you would like to remove yourself from the question queue.
For participants using speaker equipment, it might be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Yeah.
Our first question is from Craig Kennison of Baird. Please go ahead with your question.
Hey, good morning, Thanks for taking my question and for the summary of your results I wanted to ask about.
G P U or gross profit per unit on your new business. You had mentioned that inventory is now back to optimal levels I'm wondering if that means.
We should look at Gpus coming down further.
To be more consistent with what you had on a pre pandemic basis or if you think they can hang in at a higher level.
Well, you know, obviously, Craig with traditional supply and demand curve. There are there is going to be pressures on margins is the competitive landscape ramps up but it is important to note that we do not believe that we are going to return in the short term to margins like we experienced in 2018 and 19 and so.
When we talk about pre pandemic margins, we want to extract 18 and 19.
Because there was a glut of inventory in the marketplace, but I want to caveat that.
A return to 18 and 19 margins could happen if but we don't expect it to the manufacturers continued to produce at a rate that far exceeds retail demand and from the conversations that we've had with all the manufacturers I think everybody learned their lesson.
We thank everybody learned their lesson, but we have to be clear, we're pretty good on inventory right now and so we have seen some pressure in the first quarter as you saw by our results on the new side, but are very pleased and very confident that we can continue with.
Pretty decent margins on the used side. So we're comfortable we have forecasted it internally.
And one of the things that we are looking to do consistent with what we did in Q1 has continued to make sure that we're getting our fair share we do not want to get our fair share by creating a race to the bottom and we are a bellwether both for pricing and for promotion and we believe that a hell.
The industry by all dealers in all manufacturers benefits us just the same and so we want to make sure that we're not creating unnecessary pressure on margins along with the manufacturers doing the same.
That's very helpful. And then I think I heard you say that you plan to reduce your investment.
In used Rvs I'm curious if that's true what drove that decision and then if you could follow up I believe last quarter.
You had targeted a goal of getting that used RV business to $3 billion over some horizon like 18 months or so.
Is that still attainable or just your approach to that market changes to try to balance inventory.
I think ultimately what happens anytime youre going to try to test new highs you have to put more.
More on the table to see what the appetite of the market is and we want to be very disciplined and recognizing when we can achieve increases in sales much like we did in the first quarter, we want to be prudent about the amount of capital we have deployed to achieve those goals and when we ran our models we believe that.
Reducing that inventory at or slightly below $400 million would yield us about the same result, but most importantly, keep the margins, where we want them and while we want to chase revenue, we want to make sure that we're not breaking our revenue, we're not breaking our margin model and because we manage.
Our days supply so tightly looking at our goal of less than 100 days and we want to have turns at four times, we want to find that balance and as you know Craig when we try something if it works we go for it and if we want to make slight adjustments to be sure that we're efficient with our capital well.
Got scared to make that move as well so it's a slight reduction from 423 back down to call. It $3 90 to 400, if we continue to see positive results in the second quarter, which we did in April and we can do it on $3 80, or $3 75, we're going to continue to finesse that number so we get.
The optimum results based on the capital that's deployed.
Got it hey, thank you.
Yes.
Our next question is from Andreas <unk> of Keybanc. Please go ahead with your question.
Hi, good morning.
Following up on Craig's question I hear you on not returning to 2018 2019 levels, but on the new vehicle GPU could you maybe help us understand.
Where you entered the quarter and maybe where you ended it or exited it into April I think we're just trying to get a little bit more color on how the second quarter and kind of the back half could play.
Play out based on maybe where we are today.
Yeah, I'm going to let I'm going to let Matt cover that.
Good morning, as we entered into this year, we obviously, we're very optimistic with our 2021 result, and we.
We took what the market was giving us at that time, and we saw a little bit of a change from our Gpus at the end of last year heading into this year, but frankly, not a very material change heading into the year by February we saw a little bit of an adjustment and we made some changes in our online pricing environment and then by March we continue to see.
Sustained heading into April we've really not seen much of a change in terms of those gpus and we're confident that throughout this quarter will just continue to modify as necessary based upon whatever demand trends youre seeing out there and what sort of pricing logic, we want to make certain that we're using to actually garner as much opportunity out there as possible as Mark has said.
We're not gonna have a race to the bottom at all and we don't see major fluctuations in short terms. However, as we continue to see quarters of lapse and depending upon what the inventory situation is then there's always the possibility that those gpus could come down a little bit more over the coming quarters, what that is I'd hate to speculate as we like to manage <unk>.
Upon current demand current supplies and of course, we recognize what our competitors are going to do to actually garner a little bit of attention and we want to make certain that we're getting our fair share of that marketplace. I think one thing that I'd like to add to that is no.
I I.
Look at the trends and I look at our goals.
And I combine those together and I wouldn't be surprised if the gpus in the second quarter were anywhere from a half a point to one point lower than the first quarter that we just reported as they stabilize into that number part of that is when we look at the core of our business and we look at attracting continuing to.
<unk> first time buyers to the market, we're taking a different approach both on how we present payments to the market in terms of affordability and making sure that we're leading the charge on those entry level units. So we're still trying to sell a $13000 unit arriving at call it $129.
<unk> hundred $39 monthly payment as we look to bring in new people into our ecosystem, we're not going to ever resist trying to capture that in one metric that I thought was interesting is what happened to our trade percentages in the first quarter.
Well, we started to realize that we're going back to those normalized levels of trade percentages, we're going back to 2020, we had that reduction in trade percentages, where we were down in the teens at that point. However, we've reached that more sustainable level of hire for 20% of trade and rates and we've really maintain that same track.
Over the past.
Few quarters now at this point, while continuing to see that returning buyer coming back into the marketplace as well as the first time buyer sales showing up and so that's a good indicator for US is that when we continue to see that entry level travel trailer still being a big part of our business and I can I can't recall what month. It was it could have been in March we had.
Totaled 800 of what we consider our entry level unit. Our Coleman 17, B that was the single biggest month that we had had in that particular space and it's important to note that we don't think that that 800 units of entry level came at the expense of a more expensive unit. We don't think that somebody said I want to buy in.
V and I'm now not going to buy the bigger one we actually think we found new audiences in that quarter and that's a big focus for us through the balance of the year is continuing to attract new buyers not only to the industry, but more importantly to our business.
Got it okay.
And the markets, where we've been getting more questions lately on the dividend and the payout ratio and then look I know no. One here has.
Perfect Crystal ball on macro, but but how low would EBITDA I have to go before Navy you take a step back and think about the current dividend level.
We have no plans in the near term to modify our dividend strategy at all and we have sensitized multiple scenarios to ensure that our strategy is sustainable.
Thank you.
The next question is from Daniel <unk> of Stephens, Inc. Please go ahead.
Hi, This is Joe <unk> on for Daniel Thanks for taking our question.
Noting the negative growth and good Sam club members. What do you think is driving that and what do you think is going to drive positive growth moving forward.
Actually very pleased with the performance of our good Sam club, it's important to note that when we exited the gander business and we exited the categories in Q3 of last year, particularly firearms hunting equipment fishing equipment and apparel that we lost a set of buyers that were part of that file.
And we made a decision not to chase that particular buyer because the crossover between their behavior in our core RV behaviors didn't match up and so for US it's more of a cleansing to a pure <unk>.
File and we feel good that we've done that in our core RV customer, particularly with our acquisitions and our new stores and our ability to add new names to our file we're positively seeing growth in some of those areas and so we're very happy with where that's happening, but we understand through the.
The third quarter of 2022.
On the revenue side and on the membership side, we have to cleanse out all of the consumers and the revenue associated with those categories that we exited.
Thank you that's super helpful. Just as a follow up it was noted in the release are the new and used inventory, partially driven by the easing of new vehicle supply chain and in the prepared remarks, you know new inventory closer to historical levels, just wondering what's kind of driving the easing of supply chain or what is normalized.
When do you expect that's more of a structural step in the right direction or could that'd be more of a temporary alleviation.
When you look at historic levels were still actually maintaining as an industry relatively light supply of inventory levels out in the field. However, we know as the largest dealer. We also have a disproportion of the ability to be able to source from a variety of manufacturers given our relationships with manufacturers.
To create exclusive products exclusive brands, so over the past year and a half as we saw that scarce supply of inventory. We worked diligently to make certain that we were not without these core products and floor plans. We feel good with all of the work the manufacturers put in that they've been able to take care of our inventory needs adequately well to make sure.
We are well prepared heading into the season. However, we also wanted to make certain that we were more than covered heading into the season, because we know that there's always certain things that could happen in the supply chain moving forward, we don't see any of that today, but we also know right now we're in April .
Sorry in May excuse me just ended April and as we're heading into the prime selling season, we are adequately prepared and we feel like we are well stocked to be able to capture what the market requires of us and then hanging on the back half of the season, we see those inventory levels seasonally adjusting to be prepared for the natural sell season of actually reducing inventory levels and less and less.
Even at a layer of texture on there.
We are monitoring on a daily basis. The open orders that we have in our own system.
And historically, we would always base those orders on what we forecasted with demand and what throw a wrench into all of that is when we had breaks in the supply chain and so a lot more orders had to go into the system in anticipation that we knew we weren't going to get a great percentage of them as those shelves have restocked.
And we brought some inventory forward for the selling season, we have already planned for reductions in inventory in excess of normal seasonal reductions and so when you look at the amount of inventory that's going to come in in May June July August September we expect.
You have right sized our in new inventory to a level that we're comfortable with because we've proven that we can sell more with less but we did not want to go into the selling season, particularly with Covid still.
Having a presence in Asia, and other markets, where parts and pieces were coming from that the supply chain could get disrupted in May June July and August and so we brought some inventory forward, but let's be very clear as we take inventory in over the next several months. It is our plan.
Take inventory in at a slower rate than we're selling it.
More than we normally would as we seasonally adjust and so however, much people wanted to read through those lines I'll make it more clear than that we are not going to be keeping our inventory levels, where they're at today as we go through the balance of the year because we recognize.
The risks associated with inventory and the importance of the disciplines that have made us a lot of money in the last several years and are not going to give that up at anybody's expense at our own expense excuse me.
Thank you guys. That's super helpful. That's all for me.
Okay.
Yes.
Our next question is from Mike slots of Jewish. Please go ahead.
Hey, good morning, everyone.
Let's start off maybe markets with with regards to 'twenty two outlook I know you didn't you didn't provide much detail, but I think on the last call. You had said that you had expected.
Comparable sales to be slightly positive for the full year is that I guess is that still the outlook.
If you could give us some thoughts around you know how how maybe that plays out throughout the year.
Yeah, you know when we when we did have our last call the market had not the macroeconomic issues and the geopolitical issues had not really flared up to the extent that they have and as we deal in a rate increasing environment. It's tough when you look at our new same store sales.
For the first quarter, we were down 16% I think thats slightly outperformed the overall market. When we look at are used we were relatively <unk>.
Flat and then on a combined basis, which is how we look at it we were down 11%. We expect those types of trends to continue and have adjusted our SG&A internally to address that.
We know we have some further modifications to make.
Based on the new information that presented itself after the last call, including the political unrest, including inflation, including all the other macro factors that affect consumer confidence, we have retracted our own selves, but still feel confident very confident that our used business will continue to perform.
We feel confident we saw that in April again, we feel confident that our service parts and other business will continue to perform and as the caveat to that I received a lot of questions last night why is our service parts and other down year over year I wanted to clarify one more time, our service parts and other was down.
Because of the elimination of the Gander products firearms hunting fishing in apparel, but when you extract that from the number are pure labor labor hours and parts associated with servicing and repair performed very nicely and it's one of the months, we actually broke a record year all time record and then when.
We look at our good Sam business, performing 9% up year over year, we feel confident that those things that deal with the installed base will be fine what we're dealing with is the pressure on the part of the business that we don't have as much control over that's the new RV sales here that's for sure we will.
Make whatever adjustments, we need to make to our compensation structures to our fixed structures to our advertising structures to address whatever changes we see on a daily weekly monthly basis, but we think that that negative same store sales number on the new side for the industry and for us.
Continue.
For the next couple of quarters.
Okay.
That's helpful. Thank you for that and then Mark as I think you had mentioned just in terms of maybe the maturity kind of run rate for the new 14, new locations that you expect to open this year was about half a billion.
I think that backs into right around $40 million per per location, maybe help us think about how that ramp to maturity plays out is.
Is that is that something thats reached in two years four years five years, just give us a little context around that yes. That's a great question. You know we look at our stores today I think our average store does about $43 million and we wanted to cut that a little bit shorter because we make acquisitions that sometimes are north of that and then we opened stores.
De novo that take a minute on our new stores that we opened as we forecasted in the past to get to a traditional performance level. It takes 18 to 24 months, we do sense, sometimes see profitability happened a little earlier than that from a positive cash flow standpoint, but it doesn't.
The operating leverage from an EBITDA performance for about 18 to 24 months operating in that EBITDA margin from an acquisition standpoint, oftentimes a variety of things happen, sometimes they integrate into the system and they performed very well and they they exceed our expectations because our systems go in and stuff.
The times, they retract slightly for 12 months, but on average between 35 and $40 million is what we expect to see on average within 24 months of them being in our system and if we can do that on a regular basis, assuming that market conditions don't fit.
Cheerier rate at a rate.
We don't want to be deploy our capital that way. So we should be able to stack a half a billion dollars a half a billion dollars 5 billion every year and then get other organic growth from our core businesses.
Okay, Great that's very helpful. Thanks Margo.
Yeah.
Our next question is from China.
Raymond James Please go ahead.
Thanks, Hey, guys. Good morning, I guess first question Mark I just wanted to go back to your comment you made to Mikes question on same store unit sales. You mentioned you know new was down call. It 17% in Q1 <unk> was flat.
And it sounds like you expect those trends to continue for the balance of the year. We do have some easier compares coming up so maybe you can give us some color on what you saw in April you sound pleased with April up with those.
Did those trends improve a little bit in the month.
They actually did not improve on the new side, but they did improve on the used side and so as we talked about in the latter part of last year, our company's strategy. When we started the sense in the latter part of last year that there could be some pressure around gpus and potentially some pressure around volume.
We had to pivot we think that will continue to see that pressure.
Temporarily on the new side as we're Comping big numbers and you know keep in mind, when you're operating a 189 stores two units here three units there when you multiply it it starts to add up very quickly we're doing everything we can to replace that missed opportunity with finding either.
First time buyers through our funnel that we haven't met before which is probably why we performed slightly better than the marketplace and our used business as an alternative based on people's payment preference our value proposition as well as the fact that we're performing nicely in light of these macroeconomic.
I'll make issues on the used side gives us a lot of bright light for the future because historically, we relied on our service business, our retail business, our good Sam business as the predictable part of our business, but now that we can add our used business in all segments by the way has another tentpole of predictability.
<unk>, we have set a goal as a company to take out that erratic behavior, but in terms of the new RV sales are internal discussions have focused around what adjustments do we need to make to our overall business in anticipation of that new same store sales number stay.
<unk> in that same range, if we're wrong.
We're wrong and they repair themselves because the comp set is easier as we go through the back half of the year than our business will be the beneficiary of it but we don't want to anticipate it and then be wrong on the SG&A side.
Okay got it that's actually segue to my second question, which is your comment earlier about Oh, yeah, I'm seeing discipline. All production you seemed fairly optimistic there yet we look at the RV EIA data.
Up double digits in Q1 on a record Q1 last year, So maybe help us understand what kind of square those two data points. If you will.
I always try to hesitate commenting on any RV IAA forecasting your data and I always hesitate to try to speculate why the manufacturers would continue to produce at a rate when they can see the retail registration information as all of us can but I also.
So do know that the prudent managers that run those businesses also see the data and when you think about lead times for ordering raw materials for ordering frames for ordering other parts and pieces. Those lead times are not just in time, especially when youre coming out of the supply chain breaks that we had in the last 24.
Months, we complement the manufacturers on hedging and bringing some of that in <unk>.
<unk> product in speculatively, but Matt and I both had conversations.
With each individual manufacturer both that we purchased from and even ones that we have no relationship with telling them. What we were seeing in January and in February and we strongly encourage them to cut their production back to scale to meet and match.
At what retail demand was and in some cases, even withdraw it a little bit so that the inventory that's out there in the system can settle in and then we can get into more of adjusting time inventory. We're confident that these manufacturers see the benefit of that in their own business because.
E D.
Ignoring of that factor ultimately would lead to a glut in their finished goods yards.
A rigorous and disciplined approach to ordering and purchasing on dealers sides and it would lead to unnecessary discounting by the manufacturer to clear those yards.
I don't believe they want to go back to that level of business, where they're trying to push out product at all costs I don't believe they will do that and I think collectively as an industry, we learned that lesson.
We are hopeful, but I want to reiterate like I've said before we are not going to bank on anybody elses decisions, but our own and so I have planned our forecasting and our ordering and our intake of inventory as if they're not going to.
And if they do great the inventory right sizes and margin stabilize.
Okay. Thank you.
Yeah.
Our next question is from Ryan Brinkman of Jpmorgan. Please go ahead hi.
Hi, Thanks for taking my questions I think I recall, you, suggesting maybe around the middle of 2021 that the industry was probably a year or so away from matching demand with supply, but there could also be a period after that where inventories remain lean because of you know.
It needed a restock of wholesale inventory. So the comment that you made today about total stocks being adequate does that indicate that you know.
Inventories are normalized maybe faster than was previously thought and what do you say that is a function primarily of higher supply or lower demand or both or what do you think.
I think two things are definitely happened quicker than all of us could have anticipated.
Anticipated I think it's a function of two things.
Manufacturers ran hotter than normal in November December and January than they normally do.
And you look at the January shipments that broke I think it was like 60 something thousand. It was it was the hottest number that we had ever seen and I think in fairness to them. They are trying to get all dealers not just us all dealers back to a stocking level that creates some level of normalcy for their own business and we are supporters.
Of that because of the healthy industry by all dealers is good for everybody I think one thing that that none of us could have anticipated is that there would be the manufacturers would be running hot because they had to forecast months and months in advance and that slowed down or normalization of demand I'd call. It more of a normalization.
Because I want to remind everybody the demand that we saw in the first quarter of 'twenty, two and even we're seeing in April and May is still one of the hottest years, we've ever had in this industry. So while we look at like where are we.
Retracting, a little bit we're retracting to a level that is still pretty darn good and I think so when that happened there manufacturing hot and retail registrations are dropping by 10% to 15%, 20% those two things working in tandem probably got the inventory levels back to normalcy quicker by maybe.
456 months than we could have anticipated easy solution.
Slow down your manufacturing continued to take inventory in at the slower pace and have a great selling season begins.
Big mistake, if you do that if you continue to manufacture at a high rate dealers continue to buy at a high rate you have a good selling season and you don't bring it down going into August and September all Youre going to do is push that concern into the fourth quarter.
Because the industry is smarter I expect us to to normalize that here quickly in the next four or five months as the industry sells tens and tens of thousands of units I think we'll be fine, but it did happen quicker.
Okay. Great. Thanks, that's very helpful. And then just you know.
I think the pandemic and its aftermath.
It resulted in the demand for RV is of course, increasing more than the supply did that resulted in large upward pressure on on new RV prices likely by association you started the prices too and there were other reasons prices were increasing including the higher raw material and other manufacturing cost depreciating dollar or whatever but generally speaking I think prices and margins rose.
More than might have been expected and so as we move forward.
Just curious how you think about if demand were to fall you know relatively modestly our supply increase relatively modestly do you see the potential for.
More than might be expected decrease in prices or margins are similar to how we had a more than might have been expected increase earlier I think it's really hard to say, but just curious how you might be thinking about that in the context of you know the inventory management you've been talking about on this call your outlook for margin, which are not being as explicit with us previously et cetera.
Well I want to be more explicit if I haven't been explicit about margins margins have come down over 2021 levels. The results in Q1 of 'twenty to give you an indication that they have done that we expect there to be slightly slightly more contraction of our margin.
<unk> in Q2, as we look to accelerate sales to deal with a slowdown in demand and we look to make sure that the inventory stabilizes, here's what I feel pretty confident about as long as the manufacturers don't overproduce in the next six months, we will not see a written.
Turn to 18 and 19 margins.
While that may not be explicit enough.
It is clear for us what needs to happen and it is clear for the manufacturers I do believe that demand is going to continue to feel pressure and whether that's rising interest rates or general consumer demand. We think it's going to feel pressure our hedge against that is clearly two fold.
Number one in each segment that we stock today, we have to stock at the lower end price point of each of those segments and while we're blessed that financing terms exist from 180 months to 240 months and a rising interest rate doesn't affect the payment that materially.
It is on the consumer's mind, so we have to make sure that we position ourselves at the bottom half we always want to have the least expensive home in the neighborhood not the most expensive home in the neighborhood secondly, our offensive strategy on pre owned is another hedge that gives our consumers.
When they raise their hand, and say I love this lifestyle, either want to trade up or trade something out or are new to the industry. Our pre owned strategy gives us a very smart and intelligent alternative.
To that rising price and it isn't by accident that we started to grow our used inventory and it isn't by accident that we started to really focus on that internally because we knew that if the market started to tighten up we had to give the customer an alternative which is probably why in April for.
Sample our used business was up materially.
The response by the consumer says I'm not going to not go outdoors and I'm not going to exit the industry and I, one well I want to make sure that that's really really loud and clear when the market contracts as it did in 2001 and it did in 2008 and it did in 2018 and 19.
A new entry.
Perspective, what did not happen is that the installed base of our viewers.
Part of the industry that actually supports the bulk of our company.
Never retracted deck.
Decade after decade after decade, regardless of the noise that happened inside of a small cycle every single decade more people got into the lifestyle than the previous decade, and we <unk>.
No with almost certainty.
Unless something happens that we've never seen happen before that 10 years from now we will be saying the same thing 20 years from now we'll be saying the same thing in our business thesis.
And our long term thesis of our company. When you study it from the day, we started it to the day, we went public to today supports that strategy.
Our financial results may fluctuate from time to time.
But if anybody anticipates that the fluctuation that they saw in 2018 and 19 is what the range of performance will be.
I would caution you against that.
When you say that again, if youre looking at this industry and you're sensitizing your models based on it dropping 10% or 20% or 30% the hedge for our company not the manufacturers not other dealers is different because so much of our gross profit comes from service.
Parts and other from us from our good Sam business from our finance business from all of those other things and if you take a billion dollars of revenue off the table like we showed in our prepared remarks, you can do the math.
A dollar of revenue 30 cents of gross profit and the associated cost of delivering that gross profit get removed as well and so.
So for a dollar of revenue do you lose a lot of profitability, yes, you lose some and you can do the math and extrapolate it out and we've done that internally, which is why we're able to demonstrate that so clearly.
The other benefit to our company in a retraction of demand is that it allows us to tighten up our own belt, but the thing that I think people Miss calculate in our company.
Is what we do and how we behave in that retraction period. If you go back and look at every other period, we grow the base of our company at a disproportionate rate.
As we sit here, we have 40, new locations not acquisitions 40, new locations on the board over the next four and a half years and we started to forecast and plan that out because we understand the cost of investment the cost it takes to open them the time at <unk>.
<unk> for them to mature and we started to factor that into our cash flow.
We've also started to think about the necessity to return predictable dividends to our shareholders and we've factored that into our cash flow. So whatever sensitive sensitivity model is everybody is putting out in the marketplace. We're doing them first and we understand what's about to potentially happen with this perception we would caution.
People on looking at other moments in time and thinking that they know where our business is going.
Very helpful. Thank you.
Our next question is from Bret Jordan of Jefferies. Please go ahead.
Hi, Good morning. This is Ethan Huntley on for Brad Thanks for taking our questions.
Could you maybe just talk about some of the trends or maybe the cadence you are seeing in our service segment.
You mentioned things were trending pretty positively with a greater installed base, but sort of any any color on the cadence of that business.
Yeah, you know one of the Achilles heels of our industry.
And I guess Furthermore, our own company is when that installed base grows at the rate that it has and people don't leave the space. They stay they stay they say we have.
Of real.
I would call it a problem in our industry and I know that I shouldnt use words like problem, but we have more consumers, who love the lifestyle and want to use their product because it's so affordable to do compared to everything else out there that we don't have enough bays.
Sure enough technicians to meet that demand.
Our demand for repair service collision renovation, new couches, new floors, new roofs, new awning reconditioning warranty work customer pay work, new tires, and I'm, sorry to keep rambling about all the new things is so significant that we can't even swallow it ourselves.
And what has started to happen more recently that is positive in <unk> and giving us a greater focus on where we deploy our capital in another sense is that other dealers don't seem willing to service the customers that they're selling.
A good chunk of the customers that show up on our doorstep didn't even buy from us and thats, probably because of the strength of the camping world name or the confidence they have in good Sam but it is creating a real bottleneck for our own customers and so as we look at our capital allocation over the next several years part of what's driving us to put 40 <unk>.
Stores on the map is a disproportionate amount of service base compared to retail square footage those base those new stores will take on historically, we build the store with 10000 square feet and 12 base. We're now building them with 6000 square feet of retail and 18 and 24 base.
Because the demand that we're seeing is more than we can even swallow. So if anybody has a concern about where the health of the industry has come visit one of our service departments and see.
<unk> and thousands and thousands of units waiting for repair.
What we're hopeful is that the manufacturers continue to learn about the importance of investing in repair parts and the.
Excess production of those repair parts, we're going to try a few strategies here in the short term to actually hedge and take a chance on some of those so we can improve the number of days that it takes for a customer to get their unit into the shop and out of the shop unacceptable today, we need to reduce that by at least four or five days.
If not even more so the service demand is unbelievable, we had one month and we don't report this but we had one month, where our service labor and parts was in excess of $50 million in the first quarter, we had never crossed $50 million before and we get right up against it in April again.
And so we know where our capital needs to be allocated and we know where that return is particularly when you look at the margins associated with that business.
That's very helpful. Thank you and then maybe just as a follow up here I think the current RBI a forecast for 'twenty two shipments is about 590000 or so.
Do you think that's still about where things shake out.
Do you think that's maybe a little bit on the high side.
You better hope not we think that number better be at least 50000 to 60000 less than that at least 50 to 60000 less than that but again, we know that we're dealing with.
We know that we're dealing with sophisticated and very smart management teams at those respective manufacturers starting from lippert on the supply side and Patrick all the way up to the finished.
Manufacturer with Thor and Winnebago and Forest River. We are confident we are dealing with smarter people than even us and predicting those models. We just hope that they they are putting those things into practice.
Great. Thank you very much for taking my questions.
Yeah.
Thank you.
Last question is from Garrett Johnson of BMO. Please go ahead.
Great. Good morning, sorry, I was disconnected for a moment. So if you've answered this just say pass.
Curious on the unit ASP.
The increase you saw there the proportion that was mix versus price increase and a part b to that.
Oh I'm sorry, just to clarify you were asking you about the asp's.
That's correct.
On units.
And we've continued to see a little bit of an increase here sequentially from last quarter to this quarter, but given that our mix around this time of year in April may timeframe, we start to sell a heavier density of total units you'll start to see that average sale price start to level off a little bit more and Furthermore, as we continue.
To put that emphasis on used units, which the ASP on used is going to be lower than a new unit.
We think that's relatively sustainable here for the next quarter, we don't see much of a material change from quarter to quarter, Yes, one thing for clarifying point on the new side, Okay on the new side, Matt has laid down a mandate with his team that he wants to see a mix to lower priced units, particularly.
In light of what's happening in the macro environment right. We want to continue to make sure that we made camping more affordable for people than anybody else on the used side. However, we are playing a little bit different game that we've played in the last 24 months, because we're not heavy on the new motorized business.
In fact, we really don't play much in the diesel business. We are going after because there are still some supply constraints on the new motorized side. We are playing in that use motorized business and that is what has contributed not necessarily to the gross profit margin of our used business.
But the gross profit dollars of our us business and so we want to bifurcate those two and look at the Asps of new one way and used another way and we will continue to provide color, but the way I've thought about it for my entire life is that the more you can drive down asps.
More youre widening the funnel to the addressable market and the more you can make financing affordable and available to consumers you are widening the market I do not believe that a consumer makes a decision to not buy an RV for $159 a month to take vacations.
Enjoy the outdoors with their family.
As something that it feels so discretionary I don't think they look at it as a luxury good when you look at the cost of airlines the cost of hotels the cost of theme parks the cost of doing a lot of other things $159, a month or essentially $5. A day is still cheaper than a gallon of gas and the primary product that we.
We sell totals don't take any gas the tow vehicle does but when you look at the distance that people drive to go camping 25, 50, 75 miles Max this isn't the days where people are just full timing and traveling all over the country people have.
Households have mostly to working incomes and they're camping on the weekends, which means they can't go that far so we see consumer credit.
Tightening as a potential impediment interest rates as a head scratcher, but if we drive down asps.
And we have a good used offering we're providing enough of an alternative so that's how we think about asps new separately from us.
Alright. Thank you for all that detail, but you know I was kind of thinking year over year, not sequential and just for reference you know whenever we as a sell side ask questions were usually asking year over year, but year over year Europe , 15% in new ISP and 30% to news so I'm wondering there.
You see your mix shifting to more tolerable such a bring your ASP down on mix. So are we seeing that.
On a consolidated basis, you put it together as fees are up 17% year over year. So is.
Is pricing.
8% in mixed bringing it down a couple of points or how should we think about mix versus well I brought up the sequential element of it because that was far more relevant compared to year over year given that just about every industry has seen price increases across the board. So you're in that range of that 20% suggestion of invoice price increases year over year.
Which we've seen that quarter to quarter that ASP.
As well as if you start to back into the same store new unit versus some of the other factors in the supplemental data youll see the average rough Cogs associated with these assets is also continue to go up that same amount. So yes, we were able to yield a greater gross margin as well our GPU, but that ASP has come up year over year.
We don't see that though can changing much here from quarter to quarter now we feel like the biggest price increase has transpired over the past couple of quarters, especially.
Okay, Great and then you know cadence of retail during the quarter you know, Matt you mentioned adjustments in February I guess that coincides with the innovation. So how did you see things starting off year over year.
And then how do you how are they how.
How are they transitioning through the quarter and if they did downshift in February did they pick back up again in March.
February started out actually relatively well where it was around that time about second third week in February we started to see a bit of a slowdown year over year and then heading into March we saw a little bit a bigger difference in terms of the decline year over year heading into April it's been roughly about the same compared to March and.
Then as we're heading into May we actually feel very good about current sales volume year over year. So we will continue to monitor this and make modifications to our strategy is to ensure that we are capturing demand that exists out there and by the end of the sales season, we are confident that our inventory levels will be in a very good position based upon whatever retail sales volume.
Will transpire here over the next three or four months.
Okay, great and since I'm last I think I'll throw one more in there for the benefit of the group here.
Now that you have.
About $10 million per per location RV inventory, that's about double from last year's five and a half.
Adjusted for U K, maybe 55% higher so big increase in understanding its normal spread like peanut butter.
Where might you still have holes in your inventory where might you be a little bit heavy.
I don't think we have any holes in our inventory today.
And where we believe that we are heavier than we would like to be but it was strategic in terms of bringing that forward was on the entry level travel trailers side.
That's from my perspective, I don't know, Matt if you want to add some color to that yeah. I think you are right information. However, within the motorized segment in particular, there is still a little bit of opportunity for us to be able to supplement some of our inventory there to capture a little bit more of the market, but we also know that motorized only going to account for about 12% of the total amount of units sold.
Annually. So we feel like we've covered the mass production of the marketplace in the mass retail volume and used helps us fill that void correct.
Okay. Thank you for that and to keep it and Mark has turned so I'd probably want to know what motorized would be as a percent of gross profit dollars, but we can talk about that later, thank you very much.
Okay.
Okay guys. Thank you very much for joining us on this call.
We look forward to give.
Getting back to you on our second quarter results. Thank you so much.
Ladies and gentlemen that concludes today's conference. Thank you for joining US you may now disconnect your lines.