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As many baby boomers contemplate retirement, quite a few are opting out of an overseas excursion and buying a recreational vehicle instead. With pent-up demand for replacement campers, as well as a flood of new buyers entering the market, sales of motor homes have jumped 30% from the previous year, making 2013 a year of record RV ownership.
More and more families are purchasing RVs for a variety of reasons. Travel trailers save an average of 23% to 59% on typical vacation expenses, and young buyers are discovering the convenience of owning a vacation home on wheels. Overseas travel has become expensive as rising fuel costs have led to airfare hikes, and rising political tension abroad has scared some travelers away from vacationing abroad as well.
Although many people still prefer the common camping experience -- mosquitoes, mud, and meals cooked over a fire -- camping in luxury with a TV, air conditioning, and most importantly a bed is turning the traditional camping excursion into a luxury experience.
Backlog and inventory
Thor Industries (NYSE: THO ) is the market leader in RV sales and distribution, with 31% of market share. Thor produces and distributes RVs, towable RVs, and fifth-wheel trailers. Revenue increased 35% from 40.9 million in the prior-year fourth quarter due to increased demand in all segments. RV retailers are seeing high demand from young families who are buying recreational vehicles for leisure and a fast, easy way to travel for a getaway weekend.
Inventory management is the key to Thor's success. Like any motor vehicle dealership, inventory of recreational vehicles cannot build up or the excess will be sold at a discount on the showroom floor. Such sales hurt revenues and reduce profit margins. Thor's sales growth proportionally matches that of its inventory increase, insuring that there is no excess buildup.
With improved housing prices and an upswing in the stock market, many consumers are returning to the SUV market. Winnebago (NYSE: WGO ) is a manufacturer of Class A and Class C motor homes. Revenues for the third quarter were $218.2 million, an increase of 40.1%, versus $155.7 million for the third quarter of fiscal 2012. Share prices were up by 97% on average for the year.
Younger buyers fueled the growing market for Winnebago's RV sales. Shipments increased 55% to 1,978 units and backlog, a future indicator of sales, leaped 130% to 2,846 units. Shares of Winnebago stock have soared 79.97% in the last year, fueled by stronger demand and "right-sizing" RVs using a mix of amenities and prices that consumers want.
Along with younger buyers fueling the market, the demand for smaller, more affordable towable RV's are also creating an industry trend for increased sales growth. With 80% of Thor's revenue deriving from towable trailers, more families are opting for smaller trailers for travel weekends with better fuel mileage.
The bottom line
More than nine million Americans own an recreational vehicle, a 16% increase since 2001 and a 64% gain since 1980. The RV industry is on a booming growth track as the retiree industry continues to explode.
With baby boomers owning 9.3% of the RV market and 8.5% of total U.S. households now owning an RV, there is room for this market to grow in the coming years. Both Winnebago and Thor have strong macroeconomic fundamentals that could help drive their future growth.
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