Q3 2023 Camping World Holdings Inc Earnings Call
Good morning.
I'll come to camping or holding countries cool.
Cause my natural results for the third quarter of fiscal yet.
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We will conduct a question and answer session and instructions.
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Turning on the call today are.
Chairman and Chief Executive Officer.
Liddy President.
<unk> Chief Financial Officer.
Matthew Workman Chief operating officer.
The Christian Chief administrative and legal officer Tom.
<unk> <unk>, Chief Accounting officer will calling.
President.
<unk> <unk> senior Vice President.
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I would tend to cool too much Christian to get us started.
Thank you and good morning, everyone. A press release covering the company's third quarter, 20th 23 Financial result was issued yesterday afternoon, and a copy of that press release can be found any investor relations section on the company's website.
Management remarks 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 our business plans and goals.
Industry and customer trend.
Inventory expectation.
The expected impact of inflation interest rates and market conditions.
<unk> pipeline and plan.
Dividend payments and capital allocation and anticipated financial performance.
Actual results may differ materially from those indicated by these remark as.
As a result of various important factor.
Those discussed and the risk factor section in our Form 10-K R form of 10 Hughes and other reports on file with the S. E C.
Forward looking statements represent our views only as of today and we undertake no obligation to update them. Please.
Please also note that we will be referring to certain non-GAAP financial measures on today's call such as EBITDA adjusted EBITDA and adjusted earnings per share diluted which we believe may be important to investors to assess our operating performance.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial statements are included in our earnings release and on our website.
All comparison of our 20th twenty-three third quarter results are made against the 20th 22 third quarter results unless otherwise noted I'll now turn the call over to market. Good morning, and thanks for joining us for camping worlds twenties twenty-three third quarter earnings call I'm joined the the room today by members of.
Our senior management team, but participating on today's call is Matthew Wagner can't be worlds, Chief operating officer, and Lindsey Christian camping worlds Chief administrative officer.
The last 48 months was the fastest and most profitable growth period, our company had ever experienced during that period, we generated over $2.4 billion of adjusted EBITDA.
While we recognize the cyclicality of our business, we also stand strong and recognizing how the business performs.
Distantly overtime.
Early last year, we boldly forecasted the industry slowdown we saw coming we immediately canceled over $900 million of new RV orders and further accelerated our shift towards the use business to help bolster revenue and gross profit.
To start this year out our company had over 16000 model year 2020 twos in stock.
Today, we have less than 100.
So they were also sitting with less than 11700, new model year 20, threes and we're on track to be around 9000 by the end of December a significant improvement year over year.
And with the new model year 2020 fours quickly arriving the cost of those units in our core segments are coming in more than 12% less and we must remain steadfast in this model year elimination strategy.
The execution of rigorous inventory management. However, it comes at a short term cost.
Fire wages to maintain the stability of our top performers higher digital marketing costs to generate the activity and compressed front end margins.
This management mandated strategy will likely result in fourthquarter, historically, our industries tapas quarter with an EBITDA in the neighborhood of breakeven to slightly negative or investment in that our team feels is absolutely necessary. We believe it's prudent approached him.
Managing our inventory sets us up for market share and earnings growth in 2024.
As a management team we are adamant that this strategy will set us up for the next 48 months, we want a materially outpaced our competitors and gain market share.
We want to build strong alliances with manufacturers around the proper inventory levels and forecasting for them and us we want to maximize the return of working capital to continue our supercharged acquisition plan we were.
Want to increase the velocity of our turns in this higher floorplan interest environment.
And lastly, we want to continue to build our active buyer file to bolster good sams unprecedented growth.
Speaking of good Sam our high margin recurring revenue business. It said records in many categories. It would be the first time in its companies history that it exceeds $100 million in contribution to the overall business driven by our roadside assistance product extended warranties.
[noise] vehicle insurance.
Our leader will calling has done an outstanding job over the last three years of streamlining the operation launching the company's first loyalty program and re negotiating agreements with partners. We feel strongly that the good same products and programs are both undervalued and under appreciated for its <unk>.
Contribution and consistency to our company.
When I think about our company's most greatest achievements I land on one in particular.
Tenure and strength of our team and.
In order for our company to achieve the growth I expect we must continued to build train and promote our leaders going forward, you'll be hearing from more of them.
New and innovative ideas fresh perspectives and a bench that is built for several decades.
Truth be told it's the most exciting part of my assignment here.
Most of you know Matthew Wachner, our Chief operating officer for a little color before I hand, the call over to Matt Matt has been with our company. Since 2007, he began as an intern and over the last five years in particular has been one of the most instrumental members of our team and I could not be more proud to turn the call over to him.
To cover the financial results as well as his perspective on the future of the business.
Matthew Thank.
Thank you Marcus.
Within the quarter, we sold over 32300 units and increase year over year, including 17000 used unit a record for the third quarter, our sales team absolutely crushed it.
They use business continues to thrive and while we were focused on growing our market share of the use business by adjusting our procurement every marketing efforts. We believe that we are positioning ourselves to substantially grow our market share of new units in 2024.
As a reminder, we pivoted hard into the used business. A couple years back. This was a direct response to the significant price increases of new <unk> 22, and 23 units.
During that time, we informed our manufacturing partners that are the consumer demand is highly influenced by price changes both up and down.
Over the last few months, we have worked extensively with our key manufacturing partners such as store for server and Winnebago to identify segment and price points that will yield a greater volume of new RV sale, while maintaining healthy margins.
Three months ago, we inform the marks that we started to see an improvement in the year over year trend line of same store sales.
At that time, we saw the affordability curb beginning to bend as we pushed that curved further into the quarter, we established greater evidence of the favorable impact of these price modifications.
Throughout the fourth quarter will be focused on one thing our inventory refining are used procurement and setting the stage to grow our overall market share in 2024.
Our performance for the third quarter is as follows.
We recorded record revenue of $1.7 billion, a 7% decline from last year drew Empire, primarily by lower New unit volume and more importantly, lower asp's.
Good Sam what we believe is our most stable and predictable business unit posted record revenue and gross for the third quarter with $50 million in revenue and $40 million of gross profit.
A portion of that improved gross profit resulted from a successful negotiations with vendors of a roadside assistance business.
Total adjusted EBITDA for the quarter was $95 million.
While we experienced compress margins on vehicle sales for the quarter, we were able to offset some of that gross profit through the recognition of additional finance income through improved performance on finance product cancellations.
We ended the quarter with roughly $260 million of cash broken up by 207 million of cash and the floor played all set and additionally, 53 million of cash on our balance sheet.
We also have about $388 million abused inventory net of flooring.
And $203 million a parked inventory.
Finally, we earn about $160 million of real estate without an associated mortgage.
I'd like to turn the call over to Lindsey Kristen, our chief administrative officer Lindsay.
Lindsay has been with our company since 2008 and started on the legal team under our President rent Moody today Lindsay overseas, our entire human capital efforts are training organization real estate group are M&A process, and our legal Department Lindsay Thanks, Matt.
We've been adamant over the last 15 months that we would be thoughtful and forward looking when you're reviewing SG&A options that impact our work for it.
We're planning for leaner operations that are manufacturer explicit location as well as at a number of our planned acquisition, which have smaller footprint.
We also believe we can run our existing store is more profitably in the current economic climate with a realistic view of the impact of gross profit redaction.
As a result, we made the difficult decision at the end of the third quarter to reduce headcount by over 1000 people around 7% of our work for it and right size variable pay plan, resulting in about $60 million in annual SG&A savings.
We will continue to balance investment in our workforce and growth.
Have and will continue to invest in our employee experience and aim for best in class training wages and benefits we.
We have and will continue to close locations that haven't perform as expected.
During the third quarter close to retail locations and the distribution center.
We also identified up to seven locations that were underperforming and will be closed in the fourth quarter.
We have a corresponding plan to eliminate the real estate applications for these closed locations.
Fail sublease or at least termination.
We've also been on a robust acquisition passed over.
Over the past year, we've added 16 locations and continue to add to our pipeline, including 12 store chain, we announced last week.
Wow 70, I'll fall out of our pipeline during the diligence process. The overall influx of potential deals remained very active.
All in we hope to end in 2024 calendar year with no less than 220 plus location Marquez.
Willingness to take decisive action then mobilized quickly to execute is what makes our management team and our company and the unique nimble decisive and effective with the last 48 months, having generated over $2.4 billion in the Jested EBITDA, we are up for the challenge for the next 48.
It is our expectation that in 2024 total company revenue and same store unit sales will be positive and that good Sam will continue to improve top line <unk>.
Additionally, we expect over all company gross margins will be flat to slightly positive with our disciplined approach to managing inventory productions and expenses elimination of underperforming assets. It is our expectation to improve our SG&A as a percentage of gross by no less than 2%.
These items, coupled with our store count growth could result in an earnings increase in excess of 30% in 2024.
Now turn the call over to the operator to lead Q&A.
Thank you we will not be contacting my question and answer session.
If you would like to ask a question. Please raise style and then one on your telephone keypad.
The confirmation Sir let me indicate your line he said in a Christian Q.
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To remove your Christian from the kids.
Full participants you think speak equipment, it may be necessary to pick up your <unk> before facing this tall Keith.
One moment, please lollipop for questions.
The first question we have is from <unk> of Raymond James. Please go ahead.
Hey, guys. Good morning, Mark and she mentioned pricey elasticity earlier, how long are you thinking about pricing over the next few quarters as you're well aware the indication from manufacturers Ah is that total pricing Bollywood 20 fours could be down mid to high singles and maybe even load doubles is that how you see that or what do you think we need.
C. A steeper decline in order to drive demand growth in 24.
Good morning, Joe This is Matt Wagner I'll feel that one if you don't mind.
Great question, and it's been a topic that we've heavily discussed on these calls as well as the number of posts are earnings call to walk through our general mindset related to price elasticity within this marketplace and I can tell you that we've been super proactive as a management team monitoring every price modification, we're making.
And the resulting demand impact where you could look at our used margins, even this past quarter and recognize that we did face some compressed margins. However, it of course resulted in positive same store sales. Conversely on the news side, while we were down we continue to see that same store trendline continued to improve that same sort of trend line.
<unk> is really a byproduct of that second derivatives that change of right of the change of rain, where we saw our new same store sales continued to improve as we started a toggle the prices beginning in July which is when we first started to speak to the group when we had our earnings call in August about the results. We are seeing in July and.
Continue to transition through August September October so really Joe we've been working steadfastly was the manufacturing partners to ensure that we're starting to target. These right price points and it's getting very based upon the segment I can tell you that in certain entry level price points, especially travel trailers worse.
Seeing some price concessions to the tune of 15 plus percent in some cases yeah.
And there's other cases, where we're at the current moment, just being say high single digits give or take.
So we're we're being as particular as we can to target those certain segments, where we know it's going to yield an improvement in demand as we head into next year, and that's really where we're continuing to place our focus on driving Asp's down Yeah. Joe you know, it's one what's interesting about it is that we have always been consistent that the lower.
The price is on are in stock units wider the funnel as to the addressable market and I think when we look at growing our file to bolster good Sam we know that every single $1000 that we drive down ASP the funnel of available buyers equally gets wider.
And so as we look to gain market share turned our inventory faster because Tom and Karen require us to and then realize that we can address some of the other issues that are affecting consumers like higher rates or whatever it may be that that's really our path to success, we do not believe that demand for this lifestyle.
Customers enthusiasm from staying in their lifestyle has changed at all but what do we look at interest rates and we look at rising costs that have existed over the last 24 months on units well, that's the suppressor itself and so we want to unlock that as fast as we can use clearly accomplish that but Matt and his team have been.
Instrumental in understanding that in working with these manufacturers lower price unit means more volume in order for us to get there, though we have a little bit of work to do in the next 345 months to ensure that going from $43000 as an average JSP in the last couple of months, we need to get down to like 30.
39000, we are driving towards that target keep in mind that a lot of people are not going to forecast. This properly when you drive down Asp's, you will ratchet up volume, but you will have less revenue.
Okay for us we're looking for transaction count because transaction count leads to more service more F&I more good Sam more parts et cetera. So we want to tell everybody upfront. This is going to be a a S. P Y as in the final volume game and that we will make up the revenue drop.
From declining Isps with incremental accretive acquisitions.
Very helpful. In just one one point of clarification I think markets you mentioned that you could see earnings growth.
North of 30% next year are you thinking EBITDA were you thinking.
Claire.
I'm Gonna go ahead, and not try to get pinned down at anything specifically I'm thinking adjusted EBITDA and obviously, if adjusted EBITDA is growing so are all the other numbers and you know with our AMB shares it gets a little wonky around how we look at EPS, but I guess, a simple answer as we expect growth in all of it.
And we said no less than 30%.
Alright, Thank you got it.
The next question. We have is from just Thomas Martin of being he's gonna hit.
Good morning, just right off the bat can we talk about your expectations for calendar 24, I think last quarter. You said 370 to 400 industry shipments does that still the case.
Are you asking about just wholesale our wholesale matching with retail because we think there is a very interesting dynamic that story needs to be told.
Honestly whatever store you on it though I'd like to hear however, you are looking at great Great Monetarist and this is Matt again, you are correct that last quarter. We did speak with I think Alice had asked that question and we were suggesting that retail could end up anywhere in that 370 to 400 range in particular I would maintain that.
That still holds true on the wholesale side I think that wholesale could honestly end up anywhere from 370 to 400 and so much is there has been such a rapid destocking on dealers loss or I believe the manufacturers are very well positioned to actually yield the opportunity to replenish the lots of deals.
<unk> and certain segments and price points in terms of retail activity. However, I could see retail, perhaps mirroring that 370, I do not ask Z retail going up beyond that I think it can be in a range, though perhaps of like 363 70 over 2024, which were taking this each moment by moment, but what we are taught.
<unk> is our ability to yield more market share heading into next year and when we look at the overall market, we're staying new and used which I know often times. These questions are just focused on the new market within the used space I don't know that I knew was really reporting on the fact that our market share has grown so considerably where we're at all time Mark.
<unk> sure levels between new and used combine were nearly touching 10% of the overall, new and used marketplace, which we are laser focused on growing that in combination with our efforts on us and continue to enhance the new side.
Okay. Thank you and just one more called out 9000 model ear twenty-three or that your target at the end of the universe 16020 twos, how does the 9000 compare to model your 20 or 21.
That's an excellent question, obviously model year 20 was a little wonky, because we were in the middle of the Covid process and with the manufacturers shut down the 20th 20 one's exited at a much faster rate because production had been hampered so dramatically what were using as a benchmark for us and we clearly know we have.
Have a greater opportunity to improve is how do we start out the beginning of 2023 and we had over 16000, it's our goal to be under 9000, as we end the year hopefully starting out at almost half of the aged inventory we have a year ago. The good news is is that the numb.
<unk> of 20 fours that will be on our a lot as a percentage of the total will be materially higher than the number of twenty-three as we started last year. That's what gives us confidence to quite frankly have a slightly higher overall gross margin I think the peace that we really want to focus on is while match forecasting.
<unk> 70, and overall wholesale shipments and we tell in the same neighborhood. It is predicated on driving down those asp's.
Think the manufacturers and working with them have finally realized through the data that we've provided over the last 90 days that that's how you're going to drive replenishment.
Increasing turns et cetera, well, that's why we are so adamant and we're asking the market in our holders to really understand and trust us in this process over the next 60 90 days to continue to accelerate the exit of those old model years, because we're replacing a brand new unit with the same make me.
Model floor plan at a significantly lower cost that's really what's driving this we believe that the investment.
In liquidating. These 20 threes over the next 90 120 days is going to pay massive dividends in 2004.
And first and if I could even back up to your initial question to to clarify one thing there's kind of a false corollary of ever trying to compare 2020, <unk> and 21 Monnier to 2022, and 2023 model year as such the manufacturers changed their Caden Somali your switches in 2021.
So they used to change the model year in April and May However, when they introduced the <unk> 2022, they actually had introduced that in July.
Ergo you missed a solid three months in selling season. So really this is kind of a totally new set of norms that we're establishing where we feel really good give that we really just have to model years to compare with the progress that we continue to make on this front.
Awesome <unk> all the info.
The next question, we have <unk> of Keybanc capital markets These kind of hate.
Hi, Thanks for taking my question just maybe one for me and you mentioned expecting gross margins to be flat to slightly positive next year. So in terms of vehicles, particularly given the asp's coming down if you could provide some color on your thoughts around vehicle gross margins and kind of how that dynamic.
Will impact your ability to kind of hold margins there. Thanks.
Sure I think what this is Tom current Chief Accounting Officer, just piggy backing up a with Matt stated earlier I think moving out of those 2020 Three's as quickly as we can is really gonna help bolster our margin position on new heading into next year, where we should be able to maintain somewhere in the neighborhood of where we have.
Lee on those new margins I think we feel very we feel very strongly about that on the US side, you know I went to Matt and the quarter and we were going through ageing. We were looking at some of the stuff that was sitting on the wide for one reason or another and we said we looked at each other and said look we have to get the truth is actually not how it happened you enter Madden said you better clean up your.
Inventory.
So many words, yes, so that said.
While we do see some of that margin compression on the news or on the US side in Q3, and we may see some of that in the short term or we are confident in our ability to start procuring add these new price points as we kind of work through work through updates to our evaluation tools and are used for.
Policy is heading into 2024.
Ah very helpful. Maybe just just one more I think you'd you'd mentioned that seven per cent headcount reduction at the end of Q3 did I hear you right that that was that should be viewed as a 60 million dollar kind of annualized SG&A benefit.
Yeah, Hey, this is <unk>.
We are looking at that savings to be combined with total headcount reductions as well as the modifications. We made two variable compensation plan it was either.
A difficult difficult decision, but the the right thing to do for the overall health of the business.
Thank you.
The next question, we have some bending well, let's see I Davidson. Please go ahead.
Good morning. Thank you for taking my questions, just first or used inventory what percentage of your used inventories still needs to be adjusted to the new <unk>, the new new versus used pricing spread that you guys are looking to achieve.
I think the way that I'm thinking about it and Karen and Tom had been instrumental in providing the roadmap is that they are not satisfied with where our turns are we have historically been in that four range and when we made the decision to go for it to really try to grow that overall business. They dropped down below three and a half a level that Karen.
Tom said look I'm comfortable with three and a half 375, but I want to see a quarter turn better improvement, so mad and I with the rest of the sales organization have some wood did shop, we probably have about 700 to 800 units that we need to have flushed out of the system and and a lot of cases, it's not about the fact that we own them wrong.
It's about the fact that the accounting team wants to cash brought back into the system and then allow that cash to be redeployed in the first quarter by bringing in those units from consumers at a lower cost. So they're looking for a quick 60 90 days swap as we add more stores I would expect that our overall used inventory.
We'll get back up to the same total number right on our same store basis will have brought that down by probably six or 7% to get that turned back up to where they really want it which is north of three and a half actually mad you would probably say closer to pours, what they've been telling us right ideally, yes, but we're also in such an environment, where we're going to just all of the.
<unk>.
We understand that we can get a better yield on some of these use segments compared to some new segments, depending upon what's happening in the new marketplace, we're relatively agnostics whatever needs to happen Brandon to fulfill that demand that exist out there. So there might be these moments, which I know keratin, Tom put me under a lot of pressure to actually make certain that we clearly kpis.
But in certain environments, three and a half stars is pretty damn good at least I am that's our sales.
Failed a grade through the accounting team, it's pretty damn good they haven't necessarily bought it yet so we're trying to find that middle ground. While we have acknowledged is that we have some improvement to be made the good news is the the gamble that we took the very calculated strategy that we took to grow their use business really paid off in the last 24 months and if you look at the overall barge.
And profile of the business is really benefited from the total gross dollars. If you look at the gross margins on used in Q3, you can see that they are lower but that's a decision to inflict a little bit of paint on ourselves to accelerate that flywheel to get that thing turning I would expect that suppressed margin profile.
You saw in Q3 to linger for probably another 90 days and quite frankly, it could dip another 1% because we're making the decision to bring our cash back in by year end and then to redeploy that we know that whatever margin we give up in the next 90 days, we will more than make that up in the following 100.
80 to 270 days.
Great and then industry fulfilled.
What gives you confidence that dealers will want to take an inventory above retail levels in 2024, given current for plan rates I understand there's been some destocking, but it seems like above a one to one ratio.
It is a little tough in this environment.
I think when you look at overall inventory across the entire channel will probably slightly under stock from where we need to be but the key to that $370000 number in our opinion and the manufacturers have already started to address this and I include Thor Winnebago in Forest River in that equation is understanding.
<unk> needs to be driven down in the way you drive Asp's down as you drive actual cost of production down there's been a lot of discussion around that and I want to be clear that both the dealers and the manufacturers aren't going to just drive asp's down by contacting the customer the consumer cannot be the loser.
That equation efficiency proper forecasting proper ordering both on the raw materials side and the dealers taking them is the key to that.
We also feel confident that our company sets the pace.
And that's really really important and we believe that we may be necessarily contributed to the slowed down by saying everybody look we see these trend lines moving Matt runs regression analysis is all the time and we can see where the things are going we want to continue to be a bit of a bellwether for the overall industry were telling everybody now yes right Sir.
A little bit higher yes, it's true that the consumer is more sluggish, but we also know that buying an R V and financing it anywhere from 180 to 240 months is still the most affordable alternative for families to take a vacation over any other activity. They could provide we just have to make it more affordable for them.
That's on us to do that.
Alright, and just last week no. You said you wanted to take down pricing about 10 per cent from where it is right now I know you've had conversations with Oems what are they telling you about their conversations with suppliers and who ultimately do you feel like needs to give back a little margin here to help out the industry. Thank you.
I feel like that's the setup question, where it's a leading question I should say I think that the manufacturers have been exceedingly effective at telling that fine line of knowing that they need to protect their margins and they need to maintain a healthy margins because they need to continue to innovate and grow while at the same time D content Ing Prada.
However, not to the extent whereby consumers are going to be turned off by it but finally and most importantly, where I saw your question going they need to put a tremendous amount of pressure on suppliers to ensure that we're cleansing ourselves a product that could still be lingering from some suppliers well over a year and a half two years ago, which I think that's.
Something that we need to work together between the suppliers the manufacturers O M and the dealers and we have to understand that the dealers were the first to feel the pain and pressure us in particular, the OEM started to feel the pain and pressure after us about last year and now frankly just continues to go up this vertical supply chain. So I.
The quicker that we reconcile whatever sort of lingering overpriced supplies exists out there and all of these bundles I think the better off we'll all day, let's let's say, even dissected a little bit more when you look at the overall manufacturing processes segmented into toll Bolton motor homes, and we know that on the motor home side.
It's a bit of a tough road for motor home manufacturers, because they are dealing with Oems, who are providing chassis, who could potentially continued to drive up prices having to deal with labor issues that you a W. All of those things the core meat of the market for our company. While we still are a big part of the motor home businesses on the toe.
Oval side, and if you start to break it down and dissect how that product is made it starts with the frame.
And whether it's the frame whether it's furniture, whether it's slides, whether it's appliances those things that I just mentioned make up the bulk of the unit I think this industry needs to continue to diversify its sources of those products to ensure that there is diversity and options for those manufacturers of whether manufacturers are <unk>.
Starting up their own frame business or there's other entries into the market we have to figure out as an industry how to have a more healthy environment. So that competition drives innovation. So that competition drives down prices. So that competition drives down options. Those are things that we believe we have to see as an overall.
Industry, the part that we play in that well, we believe that as the largest provider of products to the consumer we have to have a little bit of a heavier hand, which is why we're in the furniture business, which is why we play a big part in the appliance business, which is why we wanted to work with manufacturers on how to reengineer and re innovate these products to make them more.
More affordable for consumers for one simple reason, we know that more consumers will enter this lifestyle. The more affordable we make the product rates are going to come back down at some point.
For sure, but the product itself has to be more affordable. If you go back and look at what it was 36 months ago, we may not get back to that even out of a normal inflationary environment, but we gotta come off where we were and the suppliers are a big contributor to that.
Great. Thank you.
The next question, we have <unk> <unk> <unk> <unk> <unk>.
Hey, good morning for taking my question, Matt You mentioned your affordability curve I know you have good insight into.
Consumer behavior, and I'm curious, where the sweet spot is today in terms of a monthly payment and how that compares to it.
Last year 2019.
That's a great question, Craig that is exactly what we've been preying upon because we recognize that consumers aren't necessarily turned away from the RV industry right now rather it's quite the opposite we continue to see relatively stable leads actually being submitted in general interest maintaining.
A certain level or the entirety of this year, which we were kind of flummox to start out there, saying, okay. Why aren't these consumers actually converting once they arrive and we realized it's simply just initially when the consumers are seeing different payments. There ultimately just not having a willingness to put that down payment to buy so are you lead can.
[noise] version this year has been down considerably as a result of these consumers not necessarily having a willingness to put the money down historically, we try to target that 200 to 200 2025 dollar monthly payment and frankly that monthly payment has gone up based upon our overall product mix.
We've been working diligently to get that back down to where it once was which is going to be an assortment of products that we're gonna be able to retail for 20, K and under and that's where we're going to continue to focus more and more of our efforts because we've seen those consumers they used to be able to afford that on the news side just transition over to use that but for.
Frankly, some customers still would prefer new overuse, yeah, we have to find the balance, though Craig of making sure that we don't ever abandon any one segment right. There are other segments and so whether that's the destination trailer that the housing alternative for people or whether that's an entry level fifth wheel or an entry level C class as we look at the various segments, we think that there needs to be.
ASP declines and all the segments, starting with diesel to gas to seize to fit with this isn't just going to turn into an industry that just sells inexpensive trailers, but as we want to bring new entrants into the market as we want to attract new people into the flywheel of this great lifestyle, we have to do it in the most affordable way I don't know if any.
Anybody knows what the word Flummox days I think I learned that Craig do you know what it is matches use that word I'm, hoping that's something that's gonna make us money.
I don't know what that is yeah, I'll I'll, Google it but [laughter], that's the problem with having that on these calls I always feel stupid.
Oh, that's great very helpful. I appreciate that and maybe just to follow up as you sort of run the marathon model year 24, given lower prices, but higher rates do you think you'll come out with a lower monthly payment next year versus this year is that a factor in your retail outlook.
It is the goal I have always been and if you look at our advertising across all the different mediums. We are a payment retailer we are not a price retailer we do not want to have a race to the bottom to started all of a sudden have compressed margins for us or any other dealer everybody needs to make money in this process and so when we look at it we look at 182.
10, and 240 and the payment strata and really try to work towards a 510 15 $20 a month excuse me a day payment option for people going from the entry level Tovel all the way up to the motor home. It is an absolute goal of ours as we build the matrix that we think about where the prices need to be and we connect that.
Into the Formula where the interest rates are and know we have to hit that number that's how a consumer buys they buy on monthly payment. They don't know of $17950 is a great deal, but they do know if they can afford $189 or $239. We start bumping up over 350 $400. It becomes.
A bit of a head scratcher for people, we need to take the head scratching away from the funds that they are going to have and being in the R V lifestyle.
Head scratching.
Thank you, Okay head scratching is easier than flummox.
Okay.
The next question, we have is from Daniel in the off season Tink, It seems kind of hate.
Yeah. Good morning, everybody, thanks for taking our questions.
Mark is I wanted to follow up or maybe the real estate charge. It when they talked about you mentioned that you consolidated a few locations you you've found some more across the portfolio can you provide any more color or what those are those maybe recent acquisition the that weren't as strong as you thought with those legacy stores that just could be optimized and then it can you marry that with the M&A strategy you know.
Paces slowed but you're still doing big deals can you just talk about the portfolio optimization and they'd be how you see that evolving in the next like three to six months as you work through these industry dangerous.
Yeah first Ah, maybe I'd like to say I think the pace really hasn't slowed at that I think we've been pretty aggressive acquisition March and then opportunistic about those deals that we focus on it is true that some of those deals are falling out of the pipeline for various reasons during the diligence processes pretty pretty.
<unk>.
When you left finances culture leadership Ah for various reasons.
When we looked at the stores and how they are performing however.
In our own net we looked at really consolidating and tightening up certain market.
We are making sure that our operating structure and costs.
Right and that we were able to serve the RV consumer out really well.
In that market.
On.
Digging back to your consolidation question on and store closures and how he kind of analyze those it's not always about.
The specific kind of underperforming those stores, we look in a market taken as a whole where we might have a few stores and a general area and his neighborhoods change as population centres shift over time, where we've invested in a community for a number of years things change and we take a look at what the market looks like and where we want to concentrate our efforts and our research.
<unk> and and if it makes sense from an SG&A perspective, it from a cost perspective do it will do it yeah I want to be clear about one one thing we set a target to get to 320 and then over the next four or five years 320 locations and that is an absolute mandate to march towards but we will not do deals just to <unk>.
Get to 320, and the way we've balances is that Matt and I sort of set on one side of the table looking at the opportunities because we're aggressive growers and we want to see the company grow and where grow grow grow and then Lindsay and Tom are the balance of that where they get in the car a different car than us on a different day and they visit the same acquisition and more often than not they call them.
Matt and I like Hey, no. We're not doing this deal we think that that dynamic inside of our company is the key to us doing the right deals while maintaining a very aggressive growth strategy and a lot of cases right. It's a different lens that we look at it and Matt and I look at the market share opportunity the brands that they carry the <unk>.
<unk> that they have common Lindsay go in and look at what are the underlying financials. What are the risks associated with it what's the culture look like Lindsey does a deep dive with the people what's the overall environment and if both parties don't feel comfortable that all the boxes have been checked we fought we fall off.
Think also we realize as as we went through the year the deals got better.
And so we have to be smart Unfortunately to some of the potential sellers the deals got better and if they were unwilling to adjust to whatever was happening in the overall market. Then we had the necessarily so we had to take a pass and we had to go pick up other things at 12 store chain, that's going to generate in our opinion over a mature period of time.
Could be $150 million to $200 million of revenue, but when those stores are a little bit smaller with a lower fixed cost. We think those things will perform at a higher EBITDA margin, which means for our shareholders. We're delivering a better return on capital, which has the mandate that they expect from us.
God that's helpful and maybe if I'd just couple that with.
The.
The cost outlook I'm, telling me the SG&A here you came in in the high seventies as a percent of gross profit I'm, assuming you're closing maybe less profitable stores and I think you mentioned and 60 million of lower compensation. If we see a return to unit growth. We see gross profit dollars. You know go in the right direction and you have $60 million lower carb could we see.
Oh, a low to mid seventies as a per cent of gross profit again.
Goal since we went public and even prior to us going public if if the optimum level is for us to be in the 70 273 per cent range of SG&A as a percentage of growth and our EBITDA margin goal has always been 8% overtime. We've achieved those things over time, we're struggling right now between the balance of holding onto.
What we believe is the best talent in America, and compress margins and as a management team and we understand that we may get beat up a little bit for this we believe more in investing in our people and holding onto our people and providing better wages for our technicians and better wages for our management as we are also a growth company.
We will end the year, probably somewhere around 81% to 81.5% driven largely by compressed margins normalize the margins, we would be probably in the 76% to 77% range because revenues down.
As we look forward, we know we have to take no less than 2% of those costs up it all cannot come on the backs of our people and it will not we've renegotiated leases Tom and breath has been very successful in that we have eliminated locations. We all collectively have been successful in that we've unfortunately had to terminate.
Marketing relationships that were big sticky fixed cost that contributes to it but we don't want anybody to leave this call thinking that we're going to make more money on the backs of our people were gonna make more money by driving revenue and then adding costs back in on the People's side in a more variable way that's always been our model I think COVID-19 is explosive.
Growth, probably made us a little sloppier than we should be we held onto people longer than we should be and we always wanted to be that employer of choice I tend to be a bit of a softie for things like that this group basically said to me in September Okay, Softy parties over we gotta make some changes so that's why we went through.
A significant reduction in head count, we always do it seasonally around this time I think the total headcount reduction was north of 1600, the reason that Lindsey and Tom outlined the thousand it's because some of those folks are gonna come back as the spring selling season returns. So we did not want to have people pro forma a number that was anything other than that.
Understood. So just 80 to 81 per cent and then a couple of hundred basis points down to your years. That's how you think about the next 18 months planning out Marcus.
Yeah, I mean, when I, when we say no less than 2% like our goal is to get 277, because we know margins are still not going to be as good as we want them to be next year, but how you laid it out is a good call.
Understood I appreciate the color.
Yes. Thank you.
The next question, we have these from James Ottoman off Citigroup, She's gonna hit.
Okay. This is Shaun Wagner for James you've talked about kind of your breakdown of of the aged inventory age new inventory do you have an estimate of where the rest of the industry is as far as a model you 22, and 23 inventory as a percentage of total.
It's tough to gauge the entirety of the industry, but I can tell you based upon a number of the deals that we are taking a look at right now most of our competitors and are far less advantageous position compared to us and that's really the only insight that I could share at this point, but we feel really good about where we're trending right now where we continue.
The trend, especially in the landscape that we saw last year and based upon our conversations that we're having with manufacturers we head into this upcoming year I'm going to be a little more transparent than that we know that inventory aging is our path to accretive an opportunistic acquisitions period end of story and if we look at some of the ones that you've done recently it unfortunate.
<unk> is because of mismanagement of inventory. The only reason we have 120 twos on the ground is because we bought dealerships that had 20 twos on the ground that inventory is largely not anything that we purchased ourselves we purchase it through acquisitions and that was a factor in the goodwill analysis of that transaction as.
We look to make more acquisitions. Please understand that that 22 number could potentially grow again, but they are coming in at the appropriate values are transactions today are anywhere from 65% to 70% of the original invoice value as how we're approaching those.
Transactions, where the acquisition is going to be made so if you scrape our data and you'll see that the number went from 100 to 400. Please know that that's because we made a massive accretive acquisition and we factored in the goodwill associated with that transaction and writing down or valuing that inventory at 30% to 35% off.
That number will be able to move through those units quickly and we will fully disclose the nature and the Genesis of those 2020 twos as they come back on.
The reality of it is is that other dealers around the country, probably didn't do a good enough job saving acorns during the COVID-19 process and when you get back into a tougher environment like we're in today when that aging happens manufacturers and banks alike. One curtailments, that's a pay down on the inventory on their line when.
You don't have sufficient working capital to do that and your margins are compressed and the business is slow it lead you to a situation where you may need to be acquired that is really how we see the acquisition pass over the next four or five months and we have also made the decision to lower some of our used inventory levels knowing.
That there may be an opportunity to pick up some of that inventory from dealers, who unfortunately.
Not to our happiness may not make the cut and may end up putting.
Product back in the marketplace, which we will have the cash the available floor lamps floor light and the opportunity to absorb but at the right value.
Okay. Thank you for that color and just I guess, another one coke one you've talked about sort of your your full year calendar year wholesale and retail expectations for the industry.
I guess, what sort of cadence are you expecting for the year is there a point, where you upset and slept positively and is that is that demand driven demand improving gradually or is that just maybe comps get easier at one point in time.
Yeah, Shaun that's a tough question I mean cause you were talking about two separate subset of information and the cube of wholesale is of course can I have some sort of impact based upon retail activity, but ultimately I think the manufacturers are gonna have to weigh in on that based on their production schedule is heading into next year, where it seems to me that many of them are building.
Pretty healthy backlogs based on what we're receiving from them as of this moment, what they're planning out beyond that really time will only tell from a retail perspective, I can see new perhaps for the industry starting to continue to slow down through the end of Q1, probably even bleeding a little bit into Q T. Before it starts to take off again in the back half of next year.
Yeah, but but the gaps are still better they're still on a year over year back later still better it's slowing down in the sense that it's the season of peace, but when we look at the gaps right. The same store performance on new for for example in the month of September or the month of October and September we were nearly well we showed the best improvement we have.
<unk> in September as we have an 16 months actually so is the best Same-store new comp that we've seen in 16 months and where I feel good about our trend line Yep I can't necessarily speak to the broader industry and we know that's largely being.
Being driven by our identification of where the pricing needs to be to generate that activity. That's what that's alternately what's given us the confidence as we went into Q3 almost looking at it in the Petri dish and said, if we stratified pricing and move certain segments down can we actually generate more leads and generate more.
For a conversion that's what's given us the confidence as a management team to be as aggressive as we were in the back half of two three and in the full quarter of Q4 and in the early part of Q1 to bring in that twenty-four inventory that's lower knowing that we're going to beat everybody else to the punch that's the key.
For us.
Okay. Thanks, a lot guys.
Mhm.
The next question, we have some great Jordan of Jeffrey He's gonna hit.
Hey, good morning guidance as patch <expletive> me off of breath, thanks for taking our questions.
Uhm, Yeah F&I side, how are you guys thinking about new normal gpu's heading into 24 is that just structurally higher compared to pre COVID-19 or should we expect lower asp's tougher consumer backdrop to start to way more on things there.
We we typically don't look at F and I as the company on a GPU basis, we really try to look at it as a percentage of our new and used revenue and so over time, thank you've seen that kind of historical average hovering around the 12% Mark 11 to 12 11.
12% and I think that's that's a good target that we always try to try to hit moving forward I mean, one of the things that's for sure and putting a little pressure on that is the current rate of environment and you know it.
It isn't we have not had a hard time, creating the interest and the demand for the product, but if you listen to our thousands of salespeople in sales managers, the folks that actually around the front lines, you'll save you. It's a lot harder to convert somebody from I'm Super excited to RV too. Please sign this piece of paper and interest rate.
<unk> have definitely cause people to you know to.
Maybe take a little bit more time to make that decision what hasn't really been affected terribly by that is our ability for our finance team in the field, who are good Sam business centers to actually confirm and to sell other products and services are penetration of our good Sam warranty roadside hasn't really been a.
Affected much we've made a little less on the finance reserved portion of our business because obviously the rates are a little bit higher but even as early as yesterday, we started to see some banks, even lower their rates for consumers and I'm sure. They are looking ahead at the yield curve and they're trying to be ahead of what's actually happening in the market we had some.
Banks issue at a quarter to a half a point rate reduction yesterday I do want to address one other thing on this topic, we have not seen any modification at this point in the availability of credit we have not seen that at all we have seen consumers pause a little bit more.
When they look at the rate, particularly on a more expensive asset as we've lowered the prices and as we brought a new lower Isps that has relieved itself a little but we're not naive to the challenge that's out there as a consumer looking at a much higher rate than they did three years ago, maybe they're accepting it a little bit more but we're not.
Taking it lightly and having to work a little harder to be in that 11% to 12% range from my perspective, I would expect that over the next six to eight months will probably be closer to 11 to 11 and a half and we will 12, we've made a lot of that up with some of the SG&A reductions and we expect that to return to some level of normalcy as the rates.
Come back down hopefully at the middle.
Middle of next year, but we're planning on it being a little longer than that.
Great. That's helpful. Thank you and then could you talk a bit more about demand and capacity is trying to down the parts and service side, where does bay expansion rank within your M&A strategy and how it's technician availability turn it as of late.
Expansion is one of the key components to key pillars in making that acquisition decision as we look at the acquisition sure the market share that business has how good or bad they're used as how good or bad their F&I as the brands that they carry those are all factors, but if we find a dealer that sells a lot of product but doesn't.
Have service, we tend to not want to buy that business, that's not our business model. We're sitting today with 2800 days up from recent recent reports and we're sitting around 2300 technicians, we continued to invest millions of dollars in multiple training universities for tech.
Conditions on our own dime inside of our own company to supplement what the industry is trying to do it just wasn't doing it at the pace and the rate that we wanted it too. So we took on that water on our own we have to continue to attract skilled labor in this country for this lifestyle to continue to bolt.
Look you've got $11 million, plus or minus reported our views in the marketplace and maybe the total Bay Universe is maybe 10000 days I mean, there's never going to be a universe, where there is ever going to be enough bays or enough technicians. The beauty of that it's like the white space will go on in perpetuity for us.
That is part of our acquisition strategy, because when you're adding just on the labor side alone, 70% plus margins in at a combined basis with parts in the mid to high sixties margins without a lot of inventory involved I mean, those are those are really attractive margins, which is why historically our company has.
Overall company gross margins in the 30% plus neighborhood you take good Sam you'd take the service business like that's our differentiator.
Got it really helpful. Thanks, guys.
Then as further questions at this time I would like to tend to pull back over to Marcus limits flip kitchen coming.
Thank you again for joining our call we want to reiterate our outlook for 24 with positive revenue positive same store unit sales and improvement in our overall gross profit and improvement in our SG&A as a percentage and lastly, and most importantly.
Better return on investment for shareholders with our adjusted EBITDA growing in excess of 30% as a management team we're committed to delivering those results. We obviously know that there are factors outside of our control that could affect those who are going to work like hell to ensure that we beat that we beat that beat those numbers. So thanks again, we look forward to seeing.
You in February.
Okay. Today's call. Thank you for training US you may now disconnect your lines.