Camping World Holdings is a prominent provider of recreational vehicles (RVs) and camping-related gear. The company has pursued an accretive RV dealership roll-up strategy and increased reliance on the less cyclical used RV market.
Despite challenges in the RV industry, such as softer demand post-pandemic, the company’s latest quarters have shown lower EBITDA as it navigates cyclical headwinds.
This presents an opportunity for Camping World, given low investor sentiment and a potential trough in consumer demand for RVs.
Company Overview
Camping World specializes in selling RVs, camping gear, and related outdoor products. It operates as both a retailer and a service provider for RV enthusiasts across the United States.
Founded by Marcus Lemonis, Camping World has become one of the largest RV dealerships in the country, offering a wide range of RVs, from motorhomes to travel trailers, as well as accessories and camping supplies.
The company also provides maintenance and repair services for RVs, making it a comprehensive resource for both new and experienced RV owners.
Camping World operates over 100 dealership locations, making it the largest player in the market for RV sales and supplies. In a fragmented industry, the company benefits from its scale, which provides it with a wider assortment of inventory, better gross margins, and more favorable terms with lenders.
Background
Shares of Camping World have been trading close to 52-week lows, providing a disappointing return of 29% year-to-date. Over the last ten years, shares have essentially been flat, delivering a total return of 191%, primarily driven by the company’s 2.7% dividend.
Compared to the S&P 500’s return over the same period, Camping World’s shares have significantly underperformed.
When looking at the financial performance of Camping World over time, the company has grown revenues and EBITDA at CAGRs of 10.2% and 6.7%, respectively. In the last five years, the company has exhibited a decelerating growth rate, with revenues and EBITDA growing at 5.4% and 3.2%, respectively.
This shows that Camping World hasn’t been able to extract margin expansion consistently over time.
One of the biggest challenges is that the camping industry is highly cyclical. After a strong demand pull-forward during the pandemic era, the RV market has seen a decline. In 2023, new RV sales fell roughly 20%, making it a buyer’s market for RVs.
Higher interest rates and the cost of borrowing have made consumers more sensitive to the overall price tag of recreational vehicles.
Recent Results
In its latest Q1 results, Camping World reported revenue of $1.36 billion, down 8.3% year-over-year, missing estimates by $62.5 million. Earnings per share were -$0.38, missing estimates by a penny.
Management noted that new RV units delivered rose 21.35% year-over-year. Despite the revenue miss due to softer pricing on new RVs, the increase in new RV units sold indicates that much of the inventory is being sold through.
Approximately 90% of Camping World’s new RV inventory is from the 2024 model year, suggesting that inventory has been right-sized to correspond to revenue. The combination of volume increases and moderated pricing could lead to better EBITDA growth in the coming quarters.
Adjusted EBITDA came in at $8.2 million, primarily due to pressure on used vehicle gross profit. Management has a goal of 30% adjusted EBITDA growth for the year, most of which is expected to be realized in the second half.
Additionally, the company announced the divestiture of its RV furniture manufacturing business, expected to close in Q2. This move, along with strategic alternatives for the Good Sam business, could improve the company’s margin profile.
Valuation and Wrap Up
Camping World trades at 11.1x EV/EBITDA. On a forward basis, it trades at 14.3x FY’24 EBITDA and 10.9x FY’25 EBITDA. Compared to the historical ten-year average EV/EBITDA of 6.9x, Camping World appears to be trading above its historical multiple.
However, the company’s valuation may be skewed by over-earning during 2021-22.
Despite appearing expensive, the current valuation reflects low investor expectations amid potentially bottoming RV volumes industry-wide. While pricing remains soft, Camping World is managing to grow volumes, signaling a potential turnaround.
With the potential for rapid EBITDA improvement, Camping World presents an interesting investment opportunity for those considering initiating a position.
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