3 Key Takeaways from Camping World’s Hard-Charging Q2 Results – The Motley Fool | Gmx Pharm

Stay financially in the fast lane Camping World Holdings (CWH -1.05%) on Aug. 2 reported consensus-shattering second-quarter 2021 results. This marks the fourth straight quarter the company has beaten Wall Street earnings per share forecasts. Unlike previous quarters, when investors remained cautious due to the notorious volatility of the recreational vehicle sector, this time around the market reacted positively to Camping World’s success, with the stock up 7.16% at the end of the day.

With the new information available, there are at least three key findings that support a cop case for Camping World.

1. Record results continue

Camping World’s second quarter set a series of new records, with revenue rising 28.3% year over year to an all-time high of $2.06 billion. In this regard, it is worth recalling that the RV sales bull run triggered by the COVID-19 lockdowns was already in full swing in Q2 2020, meaning the improved results compared to an already positive situation for the company last year are cheap. Bottom line, adjusted earnings per share (EPS) rose 54.9% year over year to $2.51 per share from $1.62. Adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA, set a third record by rising 51% to $333.3 million.

Image source: Getty Images.

The company also added nine locations to its SuperCenter dealer network. As a result, the company now has or will soon have a presence in 46 of the 48 contiguous US states, bringing it closer to its strategic goal of establishing a physical presence in each state.

Camping World’s gross and net margins improved significantly. Gross margin increased 644 basis points to 36.9%, while net margin increased to 11.9% from 10.2% year over year. From this it can be deduced that the company’s profitability growth is not only due to more sales, but also to higher efficiencies and better margins on individual sales.

Striving for better margins is a strategic goal for Camping World, which the RV seller appears to be executing with notable success. During the second-quarter earnings call, CEO Marcus Lemonis highlighted this growth factor when he said “maximizing margin” is “a golden ticket that we’ve been given and it’s our commitment to take advantage of that.”

2. It improves the quality of its shares and its balance sheet

Not content with higher sales, Camping World appears to be turning at least some of its record profits back into internal improvements and investments. It continued its share buyback program, reducing dilution and increasing future earnings per share of outstanding shares still held by investors. During the second quarter, $45.5 million of common stock was repurchased, representing approximately 1.15 million shares.

Most recently, in early August, the company provided additional funds for share buybacks, adding $125 million to the buyback program. This sum is in addition to the $33 million remaining from a previous approval. Lemonis noted, “The enhanced share buyback program reflects the confidence our senior management team has in the Company’s future performance and ability to generate strong cash flow.” Actual buybacks occur on an opportunistic basis and not on a set schedule.

Camping World has also improved its balance sheet in terms of debt. According to Lemonis, its current leverage is about 1.14 times adjusted EBITDA, and it continues to pay off its long-term debt. It also refinanced its credit facilities, cutting the margin rate by 25 basis points and gaining more time to repay with a renegotiated maturity of 2028. It ended the quarter with about 15% more cash than at the end of Q2 2020. Overall, the company appears to have a lean balance sheet with good cash flow and reserves to complement its share buyback program to bring more value to its investors to offer.

3. Rising RV trends continue, guidance improves

The market continues to be very favorable for Camping World and the motorhome sector in general. Outdoor lifestyle stocks are thriving as people seek out the wide open spaces of the North American continent. As many countries continue to restrict air travel and the previously very popular cruise ships are still largely off-limits, vacationing seems almost to be returning to pre-jetliner patterns, with people finding relaxation mainly in regional campgrounds or national parks.

But even beyond the pandemic, the RV trend may have gained momentum as more people, and many from younger generations, invest in the lifestyle. Data from the RV Industry Association shows all-time highs for RV deliveries in June (the most recent month with available data). Deliveries topped the previous record high of June 2017 by 7% and last June by 23.5% with 50,706 units shipped. The second quarter overall has the most shipments for any quarter since records began decades ago.

Camping World raised its guidance against this backdrop of record sales. It now forecasts adjusted EBITDA of $810 million for full fiscal 2021, up 5.2% from its May guidance. Lemonis declined to provide guidance during the 2022 earnings call, but said Camping World executives are “excited” about the future.

He also teased that, regarding electric RVs, on the “morning of September 15th we will unveil a product offering the outdoor and recreational space has never seen before, all in one place”. With a potential new offering that addresses the upcoming electrification craze, strong momentum, a supportive market, and balance sheet improvements, it looks like Camping World will be a good investment among consumer discretionary stocks this year and likely longer-term.

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