Camping World Stock: For Now, Fulfilling Past Expectations (NYSE:CWH) – Seeking Alpha | Gmx Pharm

Marc Dufresne

In an unexpected move camping world (NYSE:CWH) exceeded expectations even as the US reopened. The RV-focused company has seen its business slow down, but Camping World hasn’t seen a drop in demand, like some other companies benefited from COVID lockdowns. my investment thesis remains neutral after rallying over 15% following the stock solid Q2’22 results.

Hard comps

Camping World reported a solid quarter, overcoming stiff competition from 2021 when revenue grew 28.2% in the second quarter. The leisure retailer reported that its June quarter revenue rose 5.2% from already elevated 2021 levels as follows:

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Source: Search for Alpha

The headline number is impressive, but Camping World was hit by higher costs that hurt the bottom line. Gross profit fell 5.7% to $716.8 million, while Adjusted EBITDA fell 16.7% to $55.6 million. The company reported strong adjusted earnings per share of $2.16, but the number was down from the $2.33 reported last year.

Camping World is constantly adding new stores through acquisitions, so quarterly sales will always increase over time. As with any retailer that operates stores, it is important to keep track of the same store earnings.

The leisure retailer reported roughly flat comp sales of $1.87 million per store, despite selling 3,315 fewer units overall. Camping World now operates 168 identical store locations, with service bays up 5.2% year over year to 2,613 to match sales growth.

As the chart below highlights, Camping World saw a sudden jump in sales starting in 2020, with a flattening phase expected in the next year. Analysts are forecasting sales of approximately $6.9 billion over the next few years, which seems aggressive.

diagram
CWH Sales Data (Quarterly) from YCharts

Amid high inflation, the lack of same-store sales growth was behind the decline in earnings and Adjusted EBITDA. The biggest hit came from a 380 basis point reduction in gross margins to 33.1%, while SG&A expenses were somewhat constrained with growth of just $8.9 million.

Camping World has overcome a supposedly difficult motorhome market with declining sales. According to Baird, May saw a 31% drop in retail RV sales. The market forecast called for a drop of 450,000 units in 2022, followed by another drop of 420 units in 2023.

Camping World increased average selling prices by more than 10% for the quarter, with key new vehicle sales up 13.8% to $46,000. Increased selling prices helped offset the 8.5% decline in vehicles sold.

In most scenarios where unit numbers drop, prices eventually reverse. One might expect these vehicle prices to fall as inflation falls and RV sales struggle.

The company has new vehicle units per location down to 175 units. According to CEO Marcus Lemonis, Camping World has historically had the following holdings in the Q2’22 earnings call:

To date, our average number of new units per site is approximately 175, totaling approximately $6.4 million. That number is down from pre-pandemic levels, which averaged around 197 new units between 2016 and 2019 around the same time of the year. I will refer to this benchmark. The highest level in the last six years was in 2017 with an average of 207 new units per location and 2018 with 214. Look, we’re very confident that with our current consumer demand coupled with our backlog with the manufacturers we’re in a very solid position.

As always, Camping World is an exceptional RV operator, cheaply buying up dealership locations and expanding into new products while reallocating inventory between new and used based on demand.

Normalized rating

While hoping for a lower entry point into Camping World, the stock has already surged above $30. The stock market appears to have bottomed and Camping World is over 15% higher than big Q2 22 gains.

The stock continues to face a difficult environment, with earnings at risk. Most retailers and tech stocks benefiting from the COVID pull-forward have seen absolutely crushed results.

Ahead of the second quarter 2022 earnings report, consensus analysts’ EPS target was $4.42 for 2023. Management continues to suggest a solid 2023, although market data presents a vastly different position.

If Camping World can report EPS above $4 next year, the stock is definitely still cheap at $30. The big question is if that will actually happen when new car sales are expected to fall and prices will eventually have to be reduced as inventory levels in the industry improve while demand slacks.

Over the long term, investors at these levels will do well to buy Camping World. The company has the business plan and product expansion to deliver shareholder returns at such a low stock valuation.

In the near term, investors can likely get better value, or buy an already battered stock that will see the deal fully reset from the 2021 pull forwards. The stock may never fall from these levels, but the odds appear mixed, making it not a particularly compelling entry here.

Bring away

The key takeaway for investors is that Camping World squarely beat expectations for a major slump in revenue and earnings. The RV market still seems set for a very weak year, suggesting the stock will likely offer a better entry point during the winter.

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