Q2 2023 Camping World Holdings Inc Earnings Call
[music].
Good morning, and welcome to Temping Holdings conference call to discuss the.
She'll results for the second quarter of fiscal year.
93.
At this time, all participants only listen only mode.
They shall we will conduct a question and answer session.
And instructions will follow at that time.
Marcus Lemus.
And Chief Executive Officer.
Moody President current Bill Chief Financial Officer, Matthew <unk>, Chief operating Officer.
Christian.
Chief administrative and legal officer, Tim turn Chief.
Chief Accounting officer.
Grace Andrews Senior Vice President industry relations.
I will turn the call over to this Christian.
To get US started please go ahead.
Thank you and good morning, everyone. A press release covering the company a second quarter 2023 financial results with issued yesterday afternoon, and a copy of that press release can be found any investor relations section on the company's website Madam.
<unk> remarked on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Mark May include statements regarding.
Visit plans and go.
Screen customer trend.
<unk> impact of inflation interest rates and Margaret Henderson.
Acquisition pipeline and plan.
Peter dividend payments and capital allocation and anticipated financial performance.
Actual results may differ materially from those indicated by the statement <unk> various important factors, including those discussed in the risk factor section.
Form 10-K , a form thank you and other reports on file with the SEC.
<unk> looking statements represent our views only as of today and we undertake no obligation to update them.
He's also note that we will be referring to certain non-GAAP financial measures on today's call such as EBITDA adjusted EBITDA adjusted earnings per share diluted which we believe may be important to investors are.
Our operating performance.
Reconciliation of these non-GAAP financial measures for the most directly comparable GAAP financial statements.
Created in our earnings release and on our website <unk>.
Comparisons of our 2023 second quarter results are made against the 20th 22 second quarter results unless otherwise noted I'll now turn the call over its market.
Thanks, Lindsey and good morning, good morning, and thanks for joining us for camping Worlds 2023 second quarter earnings call.
15 months ago, we rang the alarm bell about our concerns with the trend lines, we saw around new unit sales for our industry. We were hyper focused on the RV manufacturers production levels in the face of what appeared to be major oncoming industry retail headwinds.
<unk> at the beginning of a cycle was here in the downturn was inevitable.
And our industry throughout history, we've been a Canary in the coal mine first in and first out but for me the best thing about a down cycle is the end.
Just like we just like we were the first to tell you about when we knew it was going to get tough will be the first to tell you that based on the trend lines. We are seeing we believe we may have seen the bottom and the pass up to a more stable and robust outlook seems to be around the corner.
We believe growth will be the headline for 2024.
Path to growth in 24 is focused on four things.
Grow through a continuing and robust dealership acquisition pace, we see more white space than ever with the most active acquisition pipeline, we have ever seen.
Number two we will continue to develop our used business with new technology, improving procurement methods and a revised and materially improves standardized use RV consignment process the.
The growth of consignments as a percentage of our used should improve turns and improve return on capital.
Third we remain steadfast in cleansing inventory for the balance of this year, we want a competitive advantage going into 2024.
At the exact time last year, we had 28000 2022 models in stock today, we have 18223 models in stock we intend to stay ahead and accelerate that twenty-three model to 24 March.
It'll swap.
We believe wholesale shipments will be at least 370000 to 400000 units in 2024 and.
And lastly, we anticipate that the wholesale cost of 2020 fours will be less than 2023. However, we have not determined to what extent.
Number four will continue to grow good Sam through financial and digital product development Ah New partnerships, we see the good Sam segment on pace to break $100 million of EBITDA. This year and experience further growth next year.
Earlier this year, we set a goal of increasing our store count by 50% in.
In the next five years, essentially adding over 90 locations.
On a year to date basis through today, we have successfully opened acquired or signed letters of intent on 30 locations essentially one third of the way to the five year goal, we set last quarter.
In an effort to further supercharged supercharged that growth of the company. We knew we needed to stay focused and disciplined to our game plan of growing our core RV business through dealership acquisitions. We also wanted to think outside the box, while staying true to our core and utilizing our existing strength and resource.
<unk>.
During the second quarter, we established a new dealership growth engine called manufacturer exclusive stores.
We have completed agreements with Keystone Jacob Forest River, Airstream, Coachman Alliance and Grand design to start.
These locations widen the final for acquisitions, even more and further accelerate our growth.
These dealerships will offer one single manufacturer knew RV lineup and will continue to offer used service parts and financed like a traditional dealership.
These locations will bear the name of each manufacturer in the various markets. For example, Grand design of Green Bay, Keystone, Northern Michigan Forest River Little Rock J co, Oklahoma City and many more.
It is our goal to have more than 40 exclusive stores in the next five years, we have 11 open about to be open or pending acquisitions. In this format. We believe these exclusive locations will range from $12 million in revenue to close to $40 million each once mature.
Given the unprecedented influx of opportunities are recent pace of dealership acquisitions and the white space now opened up by our manufacturer exclusive concept, we're revising our store growth projection plant up from the previously mentioned 50%.
The original growth forecast of acquisitions and ground up store openings plus the exclusive manufacturer locations would take us to over 320 dealerships at the end of 2028.
As a data point our current average store revenue is just under $31 million. We plan on that revenue average growing up in a more normalised revenue environment.
The increase in dealership store count anchored by our growing use business and all contributing to the growth of our good Sam business has set a five year revenue goal of roughly $11 billion.
With pride, we set a new record selling 17774 use units compared to 15555 a year ago.
You sales made up just under 50% of our total sales for the quarter.
On a year to date basis, we have sold 30260 <unk> up nearly 3700 units for the same time period last year.
In order to achieve the dealership growth the management team and the board have determined the highest and best use of capital at this time is continuing acquisitions.
Last night, we announced the board of directors declared the third quarter dividend of 12, and a half cents freeing up available cash for additional acquisitions couple.
A couple of points of clarity.
Based on our current corporate structure, we don't see any reason for the dividend to be reduced any further Furthermore management and the board of directors will review the dividend each quarter as well as the ability to issue a special dividend.
Light of the current acquisition influx.
Lastly for the quarter as expected new RV unit sales were down however, new RV margins were better than expected.
As of today.
Remaining 2022 inventory is down to roughly 4.9% for around 1200 units <unk>.
Compared to year and 22, we have reduced our inventory by close to $300 million, even after adding new locations.
As of today, we are stocking 140, new units per location down significantly compared to the pre pandemic period of 2016 to 2019, where the historical average was around 197 units.
It should be expected that the new inventory total and the inventory by location will increase from this 0.2 the year end in preparation for a better 24.
As I mentioned earlier, our continued discipline or new inventory requires us to be just as consistent with ourselves through of 20 threes and.
Inventory in the back half of this year as we were with our motto year 20, twos and the front half of this year.
Onto the financials for the second quarter.
We recorded revenue of $1.9 billion down 12% from last year, driven primarily by soft new RV sales.
Our RV sales team again sold 17774 used units.
Good Sam are most stable and predictable business asset had $51 million of revenues for the quarter and $33.4 million of gross profit.
Our adjusted EBITDA for the second quarter was $139.3 million.
We ended the quarter with roughly $187 million of cash broken up by $133 million of cash in the floor plan offset account and an additional $54 million of cash on our balance sheet. We.
We also have about $512 million of used inventory net of flooring and 200 219 million of parts inventory.
Lastly, we also have $156 million of real estate without an associated mortgage.
In closing financial capital is finite.
But so is human capital and as we March toward materially increasing our store count we must continue to invest in and grow our most important asset are people.
These efforts have paid off with an 11% increase in the last 12 months for a retention we've made key hires and key growth areas in our business.
And this moment our company is laser focused on making the necessary investments to intelligently and profitably continued to outperform the market and positioned camping world. The increase the historic count many many times over in the next five years.
Now turn the call over for the questions and answers.
Thank you, Sir ladies <unk> <unk> and then one on each has been keypad.
Confirmation and will indicate that <unk>.
He may I, please stop choose to lead to Christian Q.
Office <unk> <unk> <unk> <unk>.
Three main chains.
I guess a couple of questions on on the new side first Isps, we're down about $4000 from Q1, you mentioned earlier markets margins and Gpus were up sequentially, what's wrote that margin improvement a second quarter.
Well, let's address the asp's because there's been a lot of inbound questions about why asp's are dropping and I want to remind the market that are declining a S. P means that where we coming more affordable to the consumer and every time that a S. P comes down by a thousand dollars, we believe that a funnel.
All of buyers is wider than when it's higher <unk>.
We can control that aspie number to some degree by continuing to modify the mix and ensure that we have lower priced items not only at the entry level price point, but in each segment subsequently as it relates to the margin I'm Gonna have Matt Wagner take that.
When you look at the margin we are a super disciplined, especially looking at the 2022 model. Your units and are focused on trying to cleanse ourselves of those 2020 twos understanding that were really playing right now looking at 2024, and we understand the opportunity it lays before us and making sure that we have the right inventory balance.
However, we never want to push it too far we have a sales team that obviously has commissioned base and we want to ensure that we have give them an opportunity to make a fair living. So we were very disciplined about focusing on 2020 twos blending those the best of our ability while at the same time augmenting the sales with an opportunity to make a little bit better.
Sergeant on 2020, threes and even as we started to bring in some 2020 fours in the motorized side, we saw opportunity to keep that margin profile relatively stable and healthy and even is where you're looking at a context of pre COVID-19 era and 2016 through 2019 those margins withstood the test of Q2 historically.
As in excess of 15% margins, where we felt very good about how we balance the overall inventory position and we feel really good heading into Q3 of having an opportunity to take advantage of perhaps discounts for manufacturers or at least reduced pricing on 2024, Molly your units while at the same time, making certain that we get out of 2022.
<unk> and we rebalanced the portfolio of 2023, Molly or units.
That's very helpful and that I appreciate that and maybe secondly in terms of new RV demand you, obviously sound a little bit more optimistic today than three months ago, how did that progress throughout the quarter and into the summer did you see any sort of inflection throughout the quarter was improvement largely promotion driven.
No oddly enough, we've been pretty promotional for the year as the industry has been <unk>.
And while we may become more promotional in Q3, we started to see a change in trend lines. As we started to work through the beginning of July and we always use how many units were starting the month with and what happens on a week by week basis and this total same store sales number just started to get.
Better every single week and while we don't think we're at a level, where where comping on a year over year basis or down less than we are seeing that materially get better every week and we anticipate that that is going to continue to happen here over the next several months borrowing something happening outside of our control.
Got it okay. Thank you.
The next question comes from Daniel <unk> Stephens, Inc.
Yeah. Good morning, everybody essentially all our questions.
Mmm.
Oh I'm in front of the youth out of the business, obviously, it keeps growing as a per cent of the <unk>.
Mentioned investing in technology, and better consignment I guess, if there any capital investments needed to support the future growth if you need to talk about the trajectory.
Vision to use business, taking as you embark on this kind of 11 billion revenue journey.
A step function change their how should we think about that growth relative to the rest of the business.
Yeah, I think one of the challenges historically, we have told people that were agnostic to whether the consumer buys new reuse and while it's more profitable overall for us to sell a used transaction, we wanted to make sure the customers getting what they want.
In terms of investment, we don't see any materially investment in the technology, the real investment and growing to use business is the investment and the used inventory itself and as everybody can tell where hovering around that 700 million dollar mark of inventory and we believe that we can continue to tightened add up which is why you heard me may.
Less cash so we can get that turned on that are a lie right.
As we marched towards 2024, we expect a new business to return.
At a fairly decent rate, but we also know that when the new business returns it could put pressure on our use business that doesn't mean that we expect that business to go backwards, but we think that we may be trading dollars a little bit as consumers tend to go for a potentially a more attractively priced twenty-four in <unk>.
A used unit they use business wasn't just a fad for us it's a foundational pillar in our company now are salespeople make more money doing it and our customers enjoy the opportunity to have better value for a lower price from the company's standpoint. The return on investment is clear, it's better for us to sell the use the net.
Anything else, but we want to get back into the new game, but we want to do it intelligently, which is why you're seeing the number of new units on our lot today at probably gosh other than the dark sort of empty periods of Covid, where we couldn't get inventory, we haven't been that low in anytime that I can remember it probably <unk>.
Cost us a little bit of business, but we believe that all of the work and discipline in managing our new inventory right now and for the next four months is gonna set us up for a much better 24.
Maybe if I could follow up on the news side.
To hear you you know kind of call more of a true bottom.
Think about.
Thing for you just mentioned strong growth next year.
Maybe over production or how do you think if it is the bottom on demand that you're calling for you know.
Do we stay in as rational backdrop going forward or how do you foresee that balance of inventory to sales moving forward to the next year.
Everybody remembers I was hyper critical last spring about the manufacturers over producing and they unfortunately continued to produce through the summer of 2002, which is what we believe cause the oversupply of 22 is that the industry overall had to deal with but as the counter argument to that I believe.
Cause they were unbelievably disciplined in the 2023 calendar year, and we worked closer with them than ever to ensure that the right forecasting was done that they had the right data available to them that they can see retail trend lines on a more real time basis and while it was painful to the manufacturers and painful to all of us were.
There had to be sub shutdowns for extended periods of times I believe that that discipline has helped dealers cleanser inventory. It helped manufacturers right side some of the cost of their units and it has helped manufacturers prepare for what looks like a more robust twenty-four which is why we were also the first one is to.
Tell you that we think that the shipments in 2004 will be better than twenty-three.
Alright for general color and best of luck.
Thank you the next <unk> off key bank capital markets.
Hi, Thanks for taking my question just one from me on the M&A front. It sounds like you're ahead of where you thought you'd be in terms of the opportunities that that's materialized. So just any color on the timing cadence and impact of acquisitions to the P&L in the back half and moving through 2024 would be helpful. Thanks.
Yep, So when we announced acquisitions there is usually anywhere from a 92 120 day and there may be exceptions to that but 90 to 120 day time between we announce and we close and so that four months gap, sometimes throws people off if you go back and look at what has opened or closed.
Rose thus far we should see some positive revenue results in the third quarter.
See in the fourth quarter, when things were a little softer that contributes as well, but when we get into 2024, we would encourage people to use a 25 million dollar average per acquisition as a foundational base case for looking at revenue going forward on each single transaction.
As we look at getting the 320 transact a 320 rooftops by the end of 28, we want people to use somewhere between 31 and $33 billion a top line revenue and the reason I bumped that number up from 31, which is where we are today is that we expect those same store sales numbers to improve.
Move, which would allow that revenue to go out. So that's how we're really arriving at how we see that happening and if you model doubt when the acquisitions happen when they close and when they're dropping in you should be able to use $25 million in your forecast and give you a pretty good revenue projection off of our base.
Thank you very helpful.
The next <unk> comes from John Healey of note.
Research.
Thank you for taking my question just wanted to kind of stick on the acquisition topic.
You know, obviously, you're talking about more revenue in growing the business, but when you look at kind of the other side of it from an internal operations standpoint, any color you can give us a where the synergy would be kind of internally from an efficiency standpoint, we've seen this in other areas of automotive with consolidators being able to come more self sufficient and do more.
Things within an ecosystem. So I just wanted to get your thoughts about.
The margin or back and synergies that this this incremental scale it could bring in to you guys.
When we started this so-called Rollup strategy. Many many years ago, we were very clear to tell people that there is no benefit in buying toilet paper when you grow your business, but what there is a benefit of and what we believe we have proved as a thesis is that we are better operators of locations than a lot of independents are.
We have a different level of technology in a different level of training and a different level of resources, but more than that we have a playbook of best practices that were able to develop and really mature in our existing stores and when we make an acquisition, we see the increased efficiency or the increase profitability of those.
Locations really coming from three or four different functions, we tend to do much better in the finance and insurance Department, we tend to do much better when we deploy our strategy on us because most traditional dealers are not heavily invested in the us business and we tend to do much better on the fixed operation side the parts and.
Service side of our business and so when we make these acquisitions then we talk about the multiples that we're paying keep in mind that the multiples that we have disclosed historically are based on that dealers historical performance. We don't go in and pro forma any things that we're going to do to the business and then arrive at that multiple so.
Published multiple that we've discussed over the years is before we get in and lay in our best practices simply stated the efficiency of our business and the benefit of US making acquisitions is that we believe that history has proven that were better operators that an independent <unk> and all of the areas.
Are there some benefits in terms of how we borrow our floor plan or what the types of volume discounts that we get sure. But we also believe that that's a little added bonus the best practices implementation well, that's really the true efficiency that we put in place.
Great and then just one question on the parts and service is it it seems like that would be area in our model that might've been off a little bit this quarter and we just wanted to get some thoughts on kind of if there are any nuances to the performance of that business in Q2 and and maybe.
You can add their thank you yeah. So there are two very specific nuances and thank you for asking the question one as we exited active sports business that had a considerable amount of revenue in it for the quarter. We were out of that business. The second thing is as as we grow our used inventory that used inventory comes into.
Dealerships either through a purchase or a trade and we reconditioned that unit, meaning that we put it through our shop and put parts and service and labor into that unit. So that we're delivering a quality use unit to the market gap rules require us to suspend that revenue until that unit is actually sold.
And because we had such a dramatic increase in our use business and in our used inventory levels, we suspended more revenue in the quarter. We eliminated it so that until that unit is sold that revenue isn't recognized so that throws a bit of a nuance because we follow those GAAP rules, so that we're not recognizing <unk>.
<unk> profitability.
Inappropriate Lee.
Got it so it's it's more about the reconditioning to retail.
Aspect than any sort of kind of changing the tax rates are are penetration.
It's the it's the setup of the reserve of their revenue that was generated from the reconditioning that we're not able to recognize that revenue while the inventory is continuing to grow and is still in stock.
Understood. It makes sense. Thank you guys.
The next question comes from Brendan <unk> DNA Davidson.
Good morning. Thank you for taking my questions just quickly on a new vehicle gross profit margins could you talk about your expectations for those margins moving forward. Obviously, two Q was stronger than I think a lot of people expected does that continue or is there anything we should be aware of both for the back half of the year.
Yeah, that's a great question and thank you so right now as a management team and an inventory modeling team, we are getting ready for 2024 and as I mentioned earlier in the call last year at the same time, there were 28000 202002 models in stock today. We are 10000 units ahead.
That same curve with 18000, but Matt myself and the rest of the team have made a concerted decision to even accelerate that drop even more because what we don't want to be doing is having 20 threes rule. The headline for 2024, So I would expect that in.
The third quarter and potentially in the fourth we could see 1.21 and a half points of margin compression in the new segment, because we're going to accelerate the disposition of the 20 threes in favor of 20 fours largely because we also believe that the 20 fours could come in.
At a lower cost than the 20 threes and we don't want to be left holding the twenty-three that's more expensive than the 24, we believe our competition is behind that eight ball still dealing with in some cases 10, 15 20, 30% of their inventory and 20 twos, even though our 20 twos are down to 5% we saw.
To work through that and we want to continue to work through our twenty-three. So I would predict for the balance of this year a slight reduction in margin with a return in 2004 to something that could potentially be even a quarter of a point to a half a point higher than what you saw in Q2 of 23 so.
Dip slight slight dip and then a return that could even be above the 22nd.
Second quarter twenty-three number.
Great and then just on new retail trends could you talk about the cadence or the year of the year over year trends throughout the quarter and maybe what you are saying in July .
I'll try to make it as simple as possible. We just continue to see an improvement throughout Q2 and two in terms of new Same-store declines year over year, So became slightly better with each month. The past and then even through July we felt very good that we started to see this uptick now whereas.
The reduction year over year in the same store sales had declined so greatly from June to July where we start to see light now where we can actually expect growth heading into.
Q4 year over year on the same store basis Q3, I would anticipate new same store sales would probably be about flat slightly down slightly up but by Q4 I can see us up seeing the other side of this and understanding the opportunity that could exist in 2024 and the same store sales that were saying flat to slightly down is up slightly up is new and used.
Combined with US being ahead in new still being a little behind but not as exaggerated as it has been in the first six months of 23.
Okay, Great and just lastly, you know it was encouraging to see Grand design, having are you guys, having a store just with Grand design products would you talk about your relationship with one of <unk> that could evolve over the coming years. Thanks. So we have a relationship with Winnebago industries today, we proudly sell them and.
A number of locations, but the Grand design relationship is something that we're very happy that we started and we should have them and actually several locations here in very short order, but we were also really happy to accelerate our relationship with coachman, which we haven't done business with for years with Tiffin with new Mar and with a.
Clients and so as we look to grow our footprint across the country as we look to develop more manufacturer exclusive stores and as we look to grow our new new sales in 2004, we knew we needed to expand our relationships with certain manufacturers.
And so this is a really in our opinion really spectacular way to do it.
Great. Thank you.
Oh.
The next question comes from Tristan Tamas <unk> capital markets.
Good morning.
Warning you.
Talk a lot about clearing the 23 is to be Queen too, whereas 20 fours how're you can approach order an open house and the end of the year and into next year.
So we don't ever manage our inventory based on some moments in time like open house, we work with the manufacturers to help them and to help companies like Lippert forecast their inventory planning six to eight months in advance as we sit here today and Matt can speak to it more specifically we have a bulk.
Of our inventory planned out through the end of the year that you wanted to jump in.
We see opportunities within very specific segments, specifically on the total side and more inexpensively priced travel trailers and fifth wheels, where we believe that we are under stopped and we've been working very diligently with manufacturers to make certain that we're hitting certain price points that it had been vacated in large part over the past few years.
Years, and it's the remains of either D. Contacting some trailers with manufacturers, giving some price concessions, but not too much and now she's getting a little bit more creative with hitting price points that we know consumers are seeking especially given our improvement and use fails. This whole used initiative is really just shed further light that consumers.
Agnostic and a lot of ways to new or used that are looking for a floor plan and a price point and I used to push back on that notion to suggest you know if you're a new customer or a new one or use vice versa, largely don't crossover, but I think what we began to seen is that there is an opportunity for new to improve and for us to remain relatively stable.
As opposed to seeing the growth that we've seen from 2019 unused to today. So we will continue to work the manufacturers to ensure that we're hitting the right price points right segments heading into next year in particular, and then it's really to be determine exactly what other manufacturers, we want to work with its scale, especially in the class D segment in motorized.
As we're working more disciplined with Winnebago in a variety of other manufacturers to satisfy whatever the market demands. Let me address something that we haven't talked about so far uhm mad and I feel very strongly that driving down that aspie for the consumer is priority number one and when you look.
The consumer having experienced rate hike after rate hike after rate hike, creating an affordable option for them is our absolute charter as we get into 2024, and we believe that are used business was driven by understanding that whole principle of driving down average selling price providing value in the face.
Of a rising interest rate environment.
As we look at 2024, we wanted to be very clear that you should expect us to try to push down asp's as much as we can and we have created this visual before of an inverted funnel, where we know at the bottom of the funnel where the prices are lower the widest swathes of the market exists and as you climb that price.
Ladder, you get into a smaller subset of buyers and so when you see ASP starting to come down pay attention to the gross margin percentage. If you drive Aspie asp's down in theory volume should go up but it is true that the the raw gross dollars of margin.
<unk> will also reduce if the selling price is reduced and so people sometimes talk to us about the GPU per unit and we would encourage people to focus on the GPU margin look at the margins on the unit because if you drop the average selling price by $3000 in your margin stays constant by death.
Phoenician you would have lower gross profit in dollars on that unit and so we would ask people not to react to that and understand that we are making a conscious decision to drive down that ASB in the hopes that it drives up volume, which <unk>, which leads to better F&I more used more parts more good <unk>.
<unk> products et cetera.
Okay. Thank you very helpful and just one more.
Can you maybe remind everyone that the economics behind buying a dealership cost any than what you have to put into it and then how was it different than some of these manufacturers grocery stores.
So typically varies a range anywhere between two and four times on the multiple side and there are exceptions outside of both of them, sometimes we pay five times, sometimes we pay less than one time, but on average it's between two and four times. When we go into these locations historically, we have given the option of either.
They're buying the real estate and putting it on putting using our cash or putting a mortgage on it or flipping it to a third party or having the selling dealer stay the landlord in a long term lease for us.
The other things that go into it or the working capital associated with it typically there's around 5 million dollar number that goes with each transaction on average associated with goodwill.
But as a result of that you picked up about a 25 million dollar revenues store on average and once those stores are mature they generate anywhere between a six and a half and an 8% EBITDA margin on that revenue. So from a cash on cash standpoint, we feel really good about it that really leads me to.
This one clear point that I want to make when we look at the acquisitions and deploying $5 million on average is picking up $25 million of revenue on average and having it once mature b, a 6.5% to 8% EBITDA margin on that $25 million that is the reason why we had a modification in our <unk>.
Capital allocation because the return on that capital is clearly better for our shareholders doing it that way.
In in reflection in reflection as we move forward. It's important to note that when we think about our capital allocation. This isn't something that we think about once a year. We think about it every single day, we look into cash that's being generated we look at the opportunities that are in front of us and we look at the mandate.
Give our shareholders. The best return on capital if acquisitions dried up which we don't expect that to ever happen or if they slowed down and we had excess cash the board and the management team was look at that excess cash and make a decision to either modify or increase the dividend or issue a special dividend.
We take very seriously what we do with the shareholders' cash but at this moment in time, we feel very confident that growing the company and investing it with those kinds of returns is the best use of the capital.
And then the manufacturers exclusive stories about still $5 million yeah.
Yeah. So the manufacturer exclusive source tend to have a lower cost to all of it.
They're usually smaller footprints four to five acres they have less inventory so they require less working capital and typically the cost to buy them or less as well. We also see the ability to open those dinovo ground up to be pretty easy as well. So the cash on cash returns should be at a minimum equal to.
Maybe even slightly better than what we see in a traditional acquisition.
Awesome. Thank you.
The next question comes from and a second <unk>.
Yeah. Thanks, Good morning Guy just.
Just wanted to ask an S and eyesight at the Nyquil unit came down to just over $4500. So what are the drivers have been coming down.
Sequentially and year over year, and how should we think about that going forward.
Good morning, Alice really what I attribute that to in particular is our emphasis on use sales over the past couple of quarters.
Traditionally we do not sell as many use finance products, nor do we attach as many actual financing deals to the sale of a used asset and we've been working very diligently internally to make certain that we stabilize that and head that off and we've seen a lot of success within regions, where even with cash deals were still able to add value by.
Selling a number of finance products within the finance office. These consumers that are buying used still need to protect their asset with tire wheel protection roadside assistance in a variety of other finance products, and that's where I believe you've seen a stabilization of it but really over the past couple of quarters. It's just based upon historic norms of selling used and traditionally.
The actual right about associated with US is also going to contribute to overall consumer is not necessarily taking that opportunity to finance their assets. So if the right environment stable here, we don't see anything changing whatsoever, however rates even continue to drop in the broader economy I can see this actual P.
Finance per vehicle increasing over the ensuing year. So we continue to monitor that every day, but I'd attribute that to us.
Great. That's helpful and then in 2024 I think.
And your account Miss you note in an expectation for I think industry shipments of three.
370080 400000.
What's the retail assumption that underpins at outlook or how should we think about kind of consumer demand in that context.
And typically when the market is in down spiral the shipments right out of the gates look much higher than retail and then when you get into the middle of the cycle. The retails look higher than the shipments because people are destocking. So we think that there is some restocking that may.
[noise] happen here at the end of 23 and the beginning part of 24, but we think the gap between what the shipments will be and what the retailers will be will be a lot tighter Matt.
As of this moment Alice I'm estimating a trailing 12 month retail industry is probably about 400 ish thousand a little north of that maybe like 44405, and trailing 12 months wholesale shipments are about 330000. So there is a disconnect that exist in the industry right now where there's been a destocking in excess of 70 plus thousand units over.
The past 12 months, there needs to be a reconnection of those points and we're projecting out for retail next year I think it's gonna be roughly in the range of where wholesale could shake out at a minimum because I'd anticipate that retail through the balance of July August and the broader industry will still probably decline and.
And I think that will still continue to level off here in Q4, or so so by the end of twenty-three retail will decline below 400000, and then by 24 it anticipated start to actually increase again, so much tighter band and we've seen in the last call at 15 18 months.
Great. Thanks for that contacts that's it for me.
Thank you. The next question comes from children to phrase.
Hey, good morning, guys.
Could you talk about the used consignment model impact on the economics I assume you know books of revenues just a consignment fee. So what would you see that doing to average.
Rooftop sales and I guess, what would the unit economics being consignment.
Yeah. So the misnomer around our consignment program is that the only thing that's different about the revenue is that we don't buy the unit from the consumer end use or cash and hold that on our balance sheet when that unit cells to a customer at that moment in time right prior to the new customer buying the unit we buy.
I've a unit from the consignor and we sell it so from a revenue margin et cetera. There is no modification. What we're trying to do is can we decreased our inventory cash allocated by 40 50 $60 million and get the same revenue out of it improving our turns and improving.
Our return on capital So simply stated the only differences we just we want to have less of our cash in our used inventory, but it doesn't change the revenue the margin profile or any of the economics of any rooftop.
Great and then a question on new I think in your earlier remarks, you talked about a one to one and a half point of margin compression on new units and 24. Then said you are also focusing on driving down a sp.
No no no no.
No no no we're projecting <unk> excuse me margin compression on the new side in Q3 of of of this year and a little bit in Q4 of this year and then in 2000 for a return to something that would be even better than what we performed at in Q2 of 23.
So it is kind of dip a little as we make the choice to cleanse ourselves even more to get a competitive advantage for twenty-four so that in 24, we can see an improvement of margin even over Q2 of 23, Okay. Alright, and then one question on the parts and service do what's the customer pays service.
Growth number I guess I guess, they're used reefer revenues are being booked.
And the exit of the active sports business. So what what we used to refer to comparable on up and down the Street service demand.
Karen.
We don't we don't break it out we don't break it out that way.
Alright, thank you.
Thank you we have a follow up question from <unk> skin Keybanc capital markets.
Hi, Thanks for thanks for taking my follow up just curious between the color you gave on hitting certain price points, along with lower Asp's, how does that play into your private brand strategy, whereas mixed now and where do you see it going maybe said another way is that something important to the calculus of 2024 ordering and beyond.
Thanks.
That's a great question and very insightful and so much of that will be a key component of hitting those price points, because we understand we need scale.
Received price concessions that would allow us to be competitive in these private brands do provide us that scale I mean, as we have stated publicly our private label sales account for almost 40% of all of our new sales I don't know that that percent changes too much and so much as I see it growing the overall portfolio and that person.
Sent remaining relatively consistent if not even may be declining because I've also recognized and this is lessons learned over doing this a number of years. Realizing that you knew he'd need OEM brands to bolster the value of private label brands. So while we will have that investment and private label brands to a greater extent will also.
Increase our investment in OEM brands that come close to hitting that certain price point I'm a firm believer in having a good better best pricing strategy in those entry level travel trailers and fifth wheel segments in which case, you probably need three floor plans model from different manufacturers to compete and a lot of our bigger loss on a small lot maybe it's just a good and better.
Type of strategy.
Thank you.
<unk> reached the end <unk> physician.
<unk> <unk> <unk> <unk> <unk> remarks.
Thank you so much for joining today's call and we look forward to reporting our information on the next quarter and about 90 days take care.
<unk>, ladies and gentlemen that concludes today's <unk>. Thank you for attending and even now disconnect your lines.
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