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Camping World Holdings (NYSE:CWH)
Q2 2018 Earnings Conference Call
Aug. 7, 2018 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon and welcome to the Camping World Holdings conference call to discuss financial results for the second quarter of 2018. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. Please be advised that reproduction of this call in whole or in part is not permitted without written authorization from the company.

As a reminder, this call is being recorded.

On the call today from management are Marcus Lemonis, chairman and chief executive officer; Tom Wolfe, chief financial officer; Brent Moody, chief operating and legal officer; and Roger Nuttall, president of Camping World.

I will now turn the call over to Mr. Moody to get started. Please go ahead, sir.

Brent Moody -- Chief Operating and Legal Officer

Thank you and good afternoon, everyone. A press release covering the company's second-quarter 2018 financial results was issued this afternoon and a copy of that press release can be found in the investor relations section on the company's website. Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding our business goals, plans, abilities, and opportunities; industry and customer trends; growth and diversification of our customer base and increase in market share; retail location openings; acquisitions and related expenses; increases in our borrowings; and anticipated financial performance.

Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the Risk Factors section in our Form 10-K and the reports on file with the SEC. Any forward-looking statements represent our views only as of today and we undertake no obligation to update them.

Please also note that we will be referring to certain non-GAAP financial measures on today's call such as adjusted pro forma net income and adjusted EBITDA, which we believe may be important to investors to assess our operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release and on our website. All comparisons of our 2018 second-quarter results are made against the 2017 second-quarter results unless otherwise noted.

I will now turn the call over to Marcus.

Marcus Lemonis -- Chairman and Chief Executive Officer

Thank you and good morning, everyone. Our company had a very solid second quarter in the RV business and the industry growth prospects are equally good. The total revenue for our company was $1.45 billion, an increase of 13% and an all-time high. Our business is poised for growth in the near and long term through the expansion of our RV dealership footprint, additional RV dealership acquisitions, differentiated product offerings, and the integration of RV sales into our recently acquired outdoors business.

This growth will allow us to expand our RV service network, rapidly increase our customer file, dramatically grow the Good Sam Club, and grow our national RV market share.

Our RV business is on pace for another record year. In fact, in the second quarter we did over $1 billion in new and used RVs, a record 33,637 RVs sold -- a nice 8.5% increase. What's even more important is the all-time high 21,745 new towable units sold. Not only was that an increase of 14.1% in total but notably our travel trailer same-store sales units were up a strong 6.7%.

While the early part of the RV selling season was impacted by unseasonal weather, we saw really nice improvements as the quarter progressed. Roger and his team did an excellent job of balancing promotional activity to maintain strong profitability while driving sales growth and dramatically lowering our RV inventory levels. We achieved our stated goal of reducing RV inventory, with a reduction of more than $161 million in the quarter alone.

Consistent with our business plan of a lower average selling price that targets the widest part of the RV market funnel, we continue to focus on lower-priced towable, low- and mid-price fifth wheel, and entry-level-price motorhomes. As we talked about on the IPO roadshow and again in subsequent quarters, our strategic and deliberate de-emphasis on high-dollar, low-margin, low-churn motorhomes resulted in a modest decline in same-store revenue. However, our strategy resulted in a positive increase in unit sales and an improvement in inventory turns. Ultimately, this strategy has also led to a stronger finance and insurance performance, indicated by record F&I revenue and gross profit of $124.1 million, up 23.7%.

On the company's most important asset, the Good Sam Club, the file size grew to a record 1.90 million members, the highest since inception, an increase of 9.2% from a year ago. As a side note, we added over 85,000 members in the second quarter alone.

Look, it has taken us 15 years to build the RV business into where it stands today at the end of the quarter, with 132 dealership locations, and we believe the investments we are making in our people and our infrastructure have positioned us to double the number of RV dealership locations over the next five years. We will continue to efficiently invest in the aggressive growth of our RV dealership platform through opportunistic RV dealership acquisitions like we've always done, new store openings, and the addition of Gander RV Sales dealerships in our existing Gander locations.

The strategic launch of Gander RV Sales has provided the opportunity to rapidly expand our RV business in key states like Wisconsin, Minnesota, Texas, Michigan, Ohio, Pennsylvania, North Carolina, New York, and Illinois, which by the way represent nine of the top 16 RV states, according to Statistical Survey Inc., and accounted for nearly 35% of all registrations over the last 12 months.

Although the investment will be higher than anticipated this year due to our pacing of store openings and RV dealership integrations, we feel very confident in the return on our investment when the stores and dealerships are fully ramped and mature. In fact, while we will continue to make opportunistic RV dealership acquisitions, we think this is a very efficient and attractive way to expand our RV dealership business as compared to the cost of building new stores with high land and building costs or the payment of goodwill premiums to acquire new RV dealerships would subsequently require additional capital investments for facility upgrades and expansions. With the continued growth of the RV industry overall and the increase in the installed base of RV owners nationwide, we are making meaningful human and facility investments to increase our service capacity and to make sure that we have the best-trained technicians in the industry. For the quarter, we had a record $170.8 million in RV service, repair, maintenance, and parts revenue, clearly an important part of our business.

We are in the process of opening up our second technical school to train service technicians and we're looking at regional service centers to increase our service capacity into markets. In an effort to widen our RV prospecting funnel, we have made investments in the development and the acquisitions of web-based businesses centric to the outdoor lifestyle customer base. E-commerce revenue for the quarter was over $41 million. While that was an all-time high, we expect significant growth in the quarters to come.

We are now making additional investments both in technology and distribution to support the continued growth of this strategy. Later this year we will be starting the move to a single web platform that will allow us to consolidate all of our inventory and distribution capabilities across all of our brands and channels. This will allow us to streamline our process, dramatically improve scalability and allow us to ship anywhere in the U.S. in one day, thereby opening the door to becoming a direct and preferred seller on Amazon in addition to our own e-commerce business.

We believe the completion of this strategy allows our company to become the most comprehensive retailer of outdoor products anywhere. In an effort to enhance our product and service offerings to the installed RV base, which we believe is approximately 10 million, and grow our active buyer file size, which is currently over 4.2 million as compared to 3.3 million two years ago, we plan to offer a full assortment of RV parts and accessories in all Gander locations by the end of this year. This would allow RV owners to access Camping World's and Good Sam's full product offering and service offering at over 200 locations nationwide.

In closing, I want to thank all of our dedicated team members and associates for their hard work and dedication. It is a very exciting time for our company and I'm proud of our team's work and the work they are doing.

Those are my prepared remarks. I'll now turn it over to Tom to take you through our financial results in more detail.

Tom Wolfe -- Chief Financial Officer

Thanks, Marcus, and good afternoon, everyone. We had a solid second quarter and are pleased with our financial results of the business. Let me touch on some of the key highlights. Total revenue increased 13% to $1.45 billion.

Both segments contributed to the increase with retail up 13.1% to $1.39 billion and consumer services and plans up 9.7% to $52.7 million. In the retail segment, new unit sales increased 11.5% to $24,442 units on a total basis and up 2.4% on a same-store basis.

Other highlights included a 43.6% increase in parts, service, and other revenue and a 23.7% increase in finance and insurance revenue. Included in parts, services, and other revenue were $79.5 million in sales from the outdoor and active sports retail businesses. Consolidated gross margin decreased 33 basis points to 28.8% of total revenue with gross margin in the consumer services and plans segment up 325 basis points to 60.5% and gross margin in the retail segment down 44 basis points to 27.6%.

Operating expenses increased 25.4% to $295.9 million. SG&A expenses increased 24.4% to $284.3 million and included $15.4 million of pre-opening expenses related to Gander Outdoors. The increase in SG&A expenses was primarily driven by increased variable wage-related selling expenses associated with the opening of the 54 Gander Outdoors locations and acquired and Greenfield RV locations opened over the last 18 months.

Floorplan interest expense increased $10.2 million, primarily from increased inventory due to new dealership locations along with a 106-basis-point increase in the average floorplan borrowing rate. And other interest expense increased $16.1 million, primarily from higher average borrowings.

Net income, adjusted pro forma net income, and adjusted EBITDA were $81.8 million, $85.6 million and $140.2 million respectively in the quarter. Please refer to the tables in the earnings release for a reconciliation of net income to adjusted pro forma net income and adjusted EBITDA.

Turning to the June 30 balance sheet, working capital and cash balances were $593.2 million and $212.4 million respectively. Total inventory increased 5% to $1.49 billion versus year-end levels, primarily from new stores acquired or opened. Inventory of new vehicles decreased 12.7% in total and decreased 18% on a per-dealership basis from December 31 levels. Inventory related to our outdoor and active sports businesses was $292.8 million at quarter-end.

At June 30, 2018, we had $1.16 billion in term loans outstanding under the senior credit facilities, $854.6 million on the floorplan notes payable under our floorplan facility and $24.4 million of revolving line credit borrowings under our floorplan facility.

Those are my prepared remarks on the second-quarter financial results and I now will turn it back over to Marcus.

Marcus Lemonis -- Chairman and Chief Executive Officer

Thanks, Tom. I want to reiterate that our RV business and results are strong and we continue to be excited about the strength of not only the industry but the strength and growth of our company, whether through RV dealership acquisitions, new store openings or the integration of RV business into our existing Gander assets.

Our revenue remained strong as we come off the record quarter. We are raising our revenue guidance from $4.9 billion to $5.05 billion based on the continued strength of our RV business and the RV market. As mentioned above, we have increased the investment in our newly acquired outdoor businesses, including the expansion and integration of our RV business. And as a result of the increased expenses associated with this expansion, we are revising our 2018 consolidated adjusted EBITDA outlook to the $370 million to $380 million range.

This lowered range is not reflective of any significant change in the profitability of our RV business but rather the result of our increased investments and attractive return on invested capital expansion opportunities that positioned the company for accelerated growth.

With that said, we'd like to turn the call back over to the operator to start the Q&A.

Questions and Answers:

Operator

Thank you. [Operator instructions]. And we'll take our first question from Craig Kennison of Baird. Please go ahead.

Analyst -- Robert W. Baird & Company -- Analyst

Good afternoon, gentlemen. This is Alice on for Craig. I guess just starting off there has been a lot of noise about retail sales in the industry through the summer. Is there anything you can share on the trends in July and August relative to what we saw in Q2?

Marcus Lemonis -- Chairman and Chief Executive Officer

No, we're seeing the same sort of strength that we saw in the second quarter continue into the third-quarter months. So we're not seeing any drop at all.

Analyst -- Robert W. Baird & Company -- Analyst

Great. And then I know we're comparing imperfect metrics but if we look at the data for the industry in Q2 and consider kind of typical adjustments, your same-store sales growth suggests you may have underperformed in the industry in the quarter. What do you think are some of the factors driving your performance relative to the rest of the market?

Marcus Lemonis -- Chairman and Chief Executive Officer

We actually outperformed the data and we looked at the Stat Survey information about a half hour prior to the call. We actually outperformed on the travel trailer towable side and we underperformed slowly on the motorhome side, which is a strategic initiative on our company's part but our same-store sales numbers for our towable business, which is the core part of our business, actually outperformed the Stat Survey information that came out about a half-hour ago.

Analyst -- Robert W. Baird & Company -- Analyst

Great. That's helpful. And then it seems like you've done a lot of work to reduce dealer inventory, a lot of success so far through the year. How long will it take for you to get to where you want or perhaps are you already there?

Marcus Lemonis -- Chairman and Chief Executive Officer

As we stated at the end of the first-quarter call, it was our goal to be where we wanted to be at about the second to the third week of June. We believe that our inventory is very healthy and very well-positioned to take advantage of opportunistic buys in the back half of the year and to get us back onto a cycle that has a normalized replenishment model.

Analyst -- Robert W. Baird & Company -- Analyst

Great, thanks. That's all from me.

Operator

We'll take our next question from David Tamberrino with Goldman Sachs. Please go ahead.

David Tamberrino -- Goldman Sachs -- Analyst

Hi. Good afternoon. I might have missed it in your prepared remarks, Marcus, but I think you updated the EBITDA guidance range. Can you just say that one more time?

Marcus Lemonis -- Chairman and Chief Executive Officer

So, David, would you like me just to repeat the paragraph?

David Tamberrino -- Goldman Sachs -- Analyst

Well, no, I couldn't hear what you said and I'm trying to figure out how much of a downward revision you made in the puts and takes [Inaudible]?

Marcus Lemonis -- Chairman and Chief Executive Officer

Yes. So, the lowered range is not reflective of any significant change in the profitability of our RV business but rather as a result of the increased investments to really expand fast. We're trying to dramatically increase our footprint. And so those expenses associated with that rapid expansion are running through our P&L as opposed to running through goodwill and we're adjusting our guidance down to 370 to 380 but adjusting our revenue up.

David Tamberrino -- Goldman Sachs -- Analyst

OK. So essentially there's an incremental $40 million to $50 million of costs with the acceleration of your strategy update.

Marcus Lemonis -- Chairman and Chief Executive Officer

Yeah, and when we look at the cost associated with either paying the premium to buy dealerships or securing land and building dealerships when you look at the analysis, cash for the company is fungible, right? It either goes out in the form of a premium or it goes out through the P&L. In this particular instance, when we look at the return on capital for this strategy as we've modeled out the historical maturity of our dealerships, the return on capital actually is exceeding any historical investment we've made, which has really motivated us to supercharge it. We want to double the size of our footprint and we're starting with that process right now.

David Tamberrino -- Goldman Sachs -- Analyst

OK, understood. And then from a new-versus-used perspective, are you seeing any incremental pickup in new supply coming onto the market? And if so, is the buyer that's walking out on the lot contemplating any of that used vehicles versus new or is there still a pretty healthy demand for that new unit and used is still somewhat supply constrained?

Marcus Lemonis -- Chairman and Chief Executive Officer

I'm going to let Roger answer that.

Roger Nuttall -- President

Hey, David, thank you. I think, David, what we're seeing is that our used inventory is performing very similar to what it has done in the last year is that we don't do a lot of purchasing at auctions. We rely principally on consignments. We rely on trades to be able to build that.

Our used inventory is up but our stores are up also and what we're seeing is that even though we have a little better supply of used inventory at this point in time that, the new market is strong particularly in that entry level and we also see a very good market in the used inventory. I would actually welcome more used inventory without believing that it was going to be detrimental to our new sales.

David Tamberrino -- Goldman Sachs -- Analyst

Understood. And then maybe just lastly, because it is an interesting point for [Inaudible] out there, do you think the industry now still has too much new RV inventory out on dealer lots, not necessarily yours but third-party, other smaller mom and pops? And do you expect that to be essentially corrected by the time we get out of this peak selling season?

Marcus Lemonis -- Chairman and Chief Executive Officer

Look, I can't speak to what's happening with other dealers. I know that our inventory is in great shape but what I can tell you is in the acquisitions that we're looking at today, we're seeing normalized inventory levels in the two handfuls of acquisitions that we're looking to make. And is there an exception to that? Maybe but from what we're hearing in the marketplace, inventories have really right-sized from what we can tell.

David Tamberrino -- Goldman Sachs -- Analyst

I appreciate the insight. Thank you.

Operator

And we'll hear next from Rick Nelson with Stephens. Go ahead.

Rick Nelson -- Stephens -- Analyst

Thanks. Good afternoon. Is it [Inaudible] possible to separate the EBITDA performance in the quarter and as well as your guidance between the Gander Outdoors and the RV business?

Marcus Lemonis -- Chairman and Chief Executive Officer

Sure. I'll have Tom give you some indication on the quarter. Just to be clear, before we give you those particular numbers, the way we think about these additional locations as if they are physical plants for the company and we will be integrating and selling all of our assets through those. And so while Gander Outdoors, Gander Mountain historically was a big box retailer, when you see it next week in Kenosha, you will recognize that it is really the single point that our company is actually selling every single asset that it has, even more than some of our historical businesses.

Our RV business is in line with expectations and we feel very good about that, but Tom may be able to address it in more detail.

Tom Wolfe -- Chief Financial Officer

What I can tell you is our legacy, the RV business, is essentially flat to the guidance that we provided. So the shortfall is the outdoor business, the ramp-up of the outdoor business and the investment we're making thereon.

Rick Nelson -- Stephens -- Analyst

Thanks for that. So, the investment that you're making this year, how much of that EBITDA do you think you'll get back next year or is this some type of multiyear investment program?

Marcus Lemonis -- Chairman and Chief Executive Officer

No, we don't want to forecast 2019 but what I will tell you is that we have over the last several months built multiple models that show us the investment into this rapid expansion, which happens to include in large part these additional locations in those key states, when we look at the investment which includes the purchase price of the original IP and the leases associated with them, the capital expenditures associated with it, and whatever operating losses exist to ramp it up to sort of get moving that when these locations are fully mature, we believe that the revenue of these locations will be somewhere right under $1.4 billion and $100 million of EBITDA.

If you do that cash analysis on the items that I mentioned – purchase price, capex, operating losses, things we can't get back – It's a 43% return. If you include inventory deployed – and even though it's fungible – if you include inventory deployed, then the capital return would be 23%. And anything north of 20% for return on capital for us, quite frankly, exceeds mostly everything we've historically done. That doesn't mean we're not going to make acquisitions but we really like not only the return on this capital but we like the key states that it puts us in that we otherwise have not been able to successfully enter.

Rick Nelson -- Stephens -- Analyst

Fair enough. Thanks a lot and good luck.

Operator

And we'll take our next question from Seth Sigman from Credit Suisse. Go ahead.

Seth Sigman -- Credit Suisse -- Analyst

Thanks for taking the question. A couple of follow-ups here on the Gander strategy. So first, as you think about the execution issues that you faced in the first quarter, I guess can you just update us on the progress and how that's trended throughout the second quarter? And then a second follow-up question to Rick's question. Thinking about the investments for next year, I realize you're not going to guide to that right now, but is it fair to think about the investments being more frontend loaded and so you're really going to bear the brunt of it this year and it should be less bad, I guess, as you go into 2019? Thank you.

Marcus Lemonis -- Chairman and Chief Executive Officer

Yes. I'm going to answer the second question first. The investment clearly from a capital standpoint is very heavily front-loaded and that in our analysis, much like we have over the last 15 years, where we've opened up stores, we have noticed that it takes 12 to 18 months to get to that level where we feel good about the returns. In this particular case, we believe the bulk of the money has been spent and we're looking forward toward reversing that trend and meeting these return thresholds that we internally and shareholders have set for us.

In terms of where we are, 60 stores are now open. The experience that we believe the consumer is recognizing when they show up in our stores is healthy and solid. We are now starting in the month of August to market the business as now open. We waited until we got all the kinks out of the way.

The distribution center is very fluid now. We've received all the inventory and we're now in a position where we're making sure that the inventory that we're repurchasing or the inventory that we have is best put to use. So I would say the heavy lifting to get open is over and now we are excited about the heavy lifting to crank this up into the type of revenue that we're used to.

Seth Sigman -- Credit Suisse -- Analyst

And then just a follow-up question on the strategy. The Gander stores that you're going to have dealerships in, I guess, how many are going to have full blown dealerships? And if you could help us bridge to the $1.4 billion that you spoke to, I think, that would be helpful. Thanks.

Marcus Lemonis -- Chairman and Chief Executive Officer

So there are 60 locations today and even if they don't sell RVs, they will be co-branded with Camping World on the building. So if you went to Peoria, Illinois, its Gander Outdoors and Camping World and that really came from our members asking for more outlets. So that's No. 1.

No. 2, when we look at the Gander Outdoors and RV consolidation, what we did is we took the forecasts from both businesses and we essentially put them together. And so when we talk about $1.4 billion of revenue and $100 million of EBITDA, that includes all of the Gander locations in total, whether they have a Camping World accessory store or a dealership, and all the dealership operations and service operations and F&I operations inside of them. What it does not include is the revenue and profitability generated from the sale of Good Sam memberships, from the applications and take rate on the credit cards, and from the warranties associated with the products that we sell there, which we have never included in our dealership business.

We expect that to be hundreds of thousands of members to year, obviously giving us new customers and a wider funnel for our entire business but the numbers that I gave you are purely from a fully loaded box of all of them combined but does not include that return on capital that Good Sam enjoys.

Seth Sigman -- Credit Suisse -- Analyst

That's very helpful. And did give us a time frame when you could achieve that?

Marcus Lemonis -- Chairman and Chief Executive Officer

Look, historically, it takes us 12 to 18 months to get to what we consider fully ramped and mature. We believe that that clock has started to tick. In our opinion, in my opinion, we're probably eight or nine months inside of that window. A couple of dealerships have opened already.

For those who attend next week, you'll see one of the first ones in Kenosha and we'll be able to talk to you about the shocking results that have come out early on but 12 to 18 months is our historical model and we know that we are deep into that. The difference is that the bulk of the capital, if not most of it, has already been invested. So, as these dealerships open, we do not expect anything more than a de minimis amount of capital that has to go in to put some desks in or to add a sign for compliance but for the most part, the heavy lifting and the heavy lifting of the expense is in this number.

Seth Sigman -- Credit Suisse -- Analyst

Thank you.

Operator

We'll take our next question from Brett Andress with KeyBanc Capital Markets. Please go ahead.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Hey, good afternoon. If we could go back to the EBITDA guidance and maybe unpack that $60 million revision a little bit more, I mean, how is that going to flow through your P&L? Are these increased investments going to show up in SG&A or does it show up in the form of maybe inefficiencies on the gross margin line in that PS&A segment? I'm just trying to figure out how all this kind of manifests itself in the back half of the year?

Marcus Lemonis -- Chairman and Chief Executive Officer

So we have nothing in our core business, both our RV business, our service business, our parts business, our Good Sam business that has any margin compression of any significance and we're expecting to continue that revenue to go. I think for the most part, and Tom may clarify it, the bulk of it are personnel, occupancy, and marketing costs associated with the ramp-up of the expansion of these locations which include RV dealerships. So I guess the short answer is through the SG&A line.

Tom Wolfe -- Chief Financial Officer

That's correct.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Got it. OK. And then going forward, when you sell an RV through Gander, is that going to show up in your retail segment? And also what does the gross margin profile look like when you sell a unit through Gander versus when you do it through a traditional Camping World?

Marcus Lemonis -- Chairman and Chief Executive Officer

That's a really great question. We want the investment community and our shareholders and our consumers to look at Gander Outdoors no differently than they look at a Camping World location. Today, when you go on to a full-fledged dealership, the parts and accessories business is actually a separate legal entity from the sale of RVs. Now, while we manage that location holistically both in compensation and supervision, they are bifurcated.

When you go to a Gander Outdoors location, it is the same exact concept. There is a subset of that location that has products and services and it goes into the retail segment and then there is a portion of revenue associated with the sale of the RV, the finance of the RV, warranties, and products associated with the RV and the service repair and maintenance of that RV that fits in our Freedom Roads legal entity which is our dealership business. It's no different from how we report it today and we thought it was very important that everybody on this call understands that when we talk about these additional locations, we have not allocated any of the occupancy costs, any of the overhead, any of the labor. We have not allocated any of it to our dealership business so that everybody can see it eyes wide open.

When we consolidate the revenue, we will consolidate the revenue, the gross profit, the margin, the expenses to provide a consolidated P&L.

Brett Andress -- KeyBanc Capital Markets -- Analyst

Understood. Thank you.

Operator

And moving on, we'll take our next question from Seth Woolf with Northcoast Research. Please go ahead.

Seth Woolf -- Northcoast Research -- Analyst

Hi, everybody. Thanks for taking my questions. I guess, I just wanted to start off with first, Marcus, you said that the sales performance that you saw at the end of the month has continued thus far through the first week of August. Because when we were on the first-quarter call, obviously April was a lot weaker than you had anticipated.

I think maybe it would be helpful if you could provide any context as to what the back end of 2Q looked like and maybe with the run rate that we're running at now?

Marcus Lemonis -- Chairman and Chief Executive Officer

I don't want to provide any specific guidance for what we think the third quarter or the fourth quarter will be up or down in units but what I can tell you is that as you can see the results for the second quarter in our primary RV units were positive both overall and on a same-store basis. It is true that April when we saw you and we saw other analysts, that April was a rough month. We got beat up in the Northeast and in the Midwest because of weather and we were able to rebound very nicely in the following two months that obviously made up for any trends that we were fearful of coming out of April. I will tell you that the trend that we're seeing in July and in August is consistent with the quarterly trend and for clarity's sake, we feel very good that we are managing promotional activity, managing inventory, and managing market share at the same time.

We don't want to be in a model where we have this race to the bottom where we can go out and buy business. That's not our business model. We want to maintain our margins to maximize profitability and we want to make sure that we're not the beat by our competition but if somebody is going to sell something at a $1000 loss because they have whatever issue they have, we're not in that game but if somebody walks in our front door, as long as it's cash flow positive, we obviously want to make as many transactions as we can but we're not generating revenue because we're undercutting everybody on price. You can see that in our margins.

Seth Woolf -- Northcoast Research -- Analyst

OK, perfect. And then, I guess, sticking with the margins for a second, Marcus, Tom, you made it very clear that there's been no change to the RV business. It's a function of the Gander which has been at times it's been a lot of moving targets with Gander as you guys ultimately decide how you want to operate that business. So you were originally planning the margin to decline.

Is that a fair way to interrupt those comments or was that maybe a little bit related to working the inventory down? How should we think about margins in the back half of the year?

Marcus Lemonis -- Chairman and Chief Executive Officer

Sorry, Seth, when are we talking about the margins going down?

Seth Woolf -- Northcoast Research -- Analyst

I was asking if you were because is it looks like margin sequentially got worse, the gross margin performance in new and used, there's more pressure sequentially.

Marcus Lemonis -- Chairman and Chief Executive Officer

Well, I know that there was a minor amount of pressure but as we've said, historically, we look at the gross profit on the transaction holistically. We take the front end and the back end combined and at the end of the day, our teams are compensated for their performance on a transaction. And in some cases, we have a very healthy front end because there is scarcity in the product itself. In other cases, we have a very healthy back end because we sell the value of our products and services.

And so, as Roger thinks about managing his team and as we think about that, when we look at our margins on the transaction as a whole any adjustment up or down is de minimis. We expect our margins for the balance of the year to be consistent with what you have seen in the second quarter, which we feel very good about because we felt like we balanced the promotional activity and we were able to drop our inventory by $161 million without just fire-selling everything. We felt like we've threaded that needle very well.

Seth Woolf -- Northcoast Research -- Analyst

OK, excellent. I guess the last one if I could sneak one in, and you guys have never been shy about the fact that Gander was a work in progress. You did provide the guidance at the end of the fourth quarter so that everybody could better understand the seasonality, but if I think back, I seem to remember you guys saying that it would be a drag on adjusted EBITDA in 2018 as you had the ramp-up period, the lower sales volumes, but as we got into 2019, it would be a modest tailwind. So given the changes that have occurred to your go-to-market strategy, is that still possible or do you think that next year Gander will be EBITDA neutral or will be a slight drag?

Marcus Lemonis -- Chairman and Chief Executive Officer

If I may, I'm going to address it in two parts. First I want to address a comment that you made earlier that we were sort of finding our sea legs on our Gander strategy. We have our legs and they are firmly planted. Our stores are open.

We believe our assortment is right and our customers are showing up. On a Saturday we're doing 12,000 to 15,000 transactions. As we integrate these dealerships and/or our Camping World parts and accessories stores and/or our full Overton's, we look at these company plans as real estate locations that have below-market rents with the opportunity to sell everything in our lineup largely led by the sale of RVs, largely led by the sale of RVs. While I don't want to give a forecast for 2019, I'm not prepared for that, as I stated earlier, we believe the bulk of the investment has been made and we believe that when these are fully mature and ramped up, this will generate around $1.4 billion worth of revenue or about $100 million worth of EBITDA.

And as we have demonstrated in the past, it does take us 12 to 18 months to get through that maturation process. We believe we are into that process not at the beginning of that process.

Seth Woolf -- Northcoast Research -- Analyst

OK, thanks.

Marcus Lemonis -- Chairman and Chief Executive Officer

Part of the reason that we raised our revenue a little bit for the balance of the year because those units are starting to come online and we obviously want to give full transparency about the timing of those and how they happen.

Seth Woolf -- Northcoast Research -- Analyst

That's great. Thanks, guys.

Operator

We'll take our next question from Rafe Jadrosich with Bank of America Merrill Lynch. Please go ahead.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

Hi, it's Rafe. Good afternoon. Thanks for taking my questions. Marcus, when you spoke about the improvement in inventory, I think you said you were able to balance promotions.

Can you just talk about where you were promotionally in the second quarter compared to the first quarter, and then how do you think about that going forward?

Marcus Lemonis -- Chairman and Chief Executive Officer

Look, I think Roger and I have come to the conclusion that we want to grow and we want to grow both organically and through acquisitions in new store openings but what we have to remember is that the people in our frontlines and our management team are all paid on the results of their transactions. And when we talk about increasing promotional activity, that means ramping up digital advertising, ramping up event marketing. It doesn't mean that all of a sudden we're undercutting or cutting prices.

Now, granted, if we have a particular floor plan or a unit that maybe isn't moving the way we want it to or we feel like we have one too many of something, the individual store managers, and their markets have the latitude to do what they need to do in their local markets to be competitive, manage their inventory, and maximize their profitability. We don't believe that there's any change that will happen in the third quarter from the second quarter because we want to be aggressive, but aggressive doesn't mean heavy discounting. Aggressive means a strong strategy, a very laser-focused digital marketing strategy, and improving our sales process at every turn. We know that manufacturers are well-poised and well-positioned to sell us inventory in the back half of the year and really we feel we're at a position to really take advantage of those opportunities, maybe even before some of our competitors.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

Just to follow-up on that, when you look at the OEM inventory levels and the capacity, how do you feel about your negotiating position?

Marcus Lemonis -- Chairman and Chief Executive Officer

Look our relationship exists largely with three primary companies – Thor, Winnebago, and Forest River. And we believe that each one of those companies has managed with a lot of temperances and a lot of intelligence and a lot of, I think, smarts and we don't believe that any of them are in any dire inventory position where they have to have a fire sale. Now, as I remind everybody, we are the largest buyer of RVs in America and we're the largest seller of RVs in America and this is an unregulated industry. And so, through our normal course of business, we do enjoy normal rebate programs and the aging assistance because of the sheer volume but that doesn't mean that there may not be some opportunities to pick up a point or two here or there in the back half of the year.

Obviously, we want to make sure that our partners make money and we make money but at least with the vendors, we deal with, we don't see any reason why they are distressed or panicked to do anything out of the norm.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

And one final question. Can you talk about the early trends of Good Sam membership sign-ups that you're seeing at your Gander stores?

Marcus Lemonis -- Chairman and Chief Executive Officer

The primary goal behind Gander Outdoors was to find additional locations in key markets where we could sell more RVs and do it more capital efficient then we could do building or making acquisitions. The secondary benefit is that we are finding new customers for our funnel and as that funnel gets wider and we start prospecting with people who have an affinity for the outdoors, they may be at a different level of the funnel, maybe higher in the funnel but, as we've seen in Kenosha and in Roanoke and in Fayetteville, those are our early Gander RV relocations, we have seen shocking success and being able to attract those consumers to the RV lifestyle who maybe never knew about it before.

I think the biggest thing for us is we believe that this strategy, while expensive still with a good return, puts us in front of customers that we otherwise would have never seen and that is part of growing it. When we look at the growth of the Good Sam file, we believe that in the next 30 to 45 five days we will have broken the 2 million-member mark, which is a big milestone for our company and we're growing now at a pace that is double, maybe even triple than the club has ever grown and we've seen a modest increase in our retention of about 0.5% as well. So that story is starting to become clear that we are an outdoor company and whether you hunt, fish, camp, do whatever you do, you do it in an RV. You drive there in an RV, you stay in an RV, you do your activity and you drive back and that's really how the story has jelled for us internally as well – new people who didn't know, who now are taking advantage of it as well.

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

OK, thank you.

Operator

And moving on we'll take our next question from Tim Conder with Wells Fargo Securities. Please go ahead.

Tim Conder -- Wells Fargo Securities -- Analyst

Thank you. Just a couple clarifications. First, if I may, the comment about the RV site inventories year over year, they were down a $161 million. Is that correct?

Marcus Lemonis -- Chairman and Chief Executive Officer

Yes sir, quarter to quarter.

Tim Conder -- Wells Fargo Securities -- Analyst

Sequentially. OK. From Q1. OK.

And then, Marcus, still looking by year-end, I think you made a comment along the way that your non-RV unit related inventory, so PG&A and all the retail side, that that collectively could be down 15% by year-end. I just want to make sure I had that right, that portion first. And then if that's right, how is that still tracking?

Marcus Lemonis -- Chairman and Chief Executive Officer

I think that ultimately what we want to do for the balance of this year ... And I want to keep in mind that any money invested in inventory is fungible. It's not like capex. It's not like losses that can be recovered and put back in the bank and that obviously is our plan. We have tried two strategies and tested them and we've seen significant results.

No. 1, we took three historical Camping World stores and we integrated a mild assortment of products that are typically existent solely in Gander and we have seen in a very short period of time, we look at like the quarter, for example, we saw a modest double-digit increase in those stores and it did tell us something that if we can be more efficient and more selective at our existing 140 Camping World stores that there is an opportunity for growth over the next two years in that business as well.

Conversely, when we look at our Gander locations, we now are putting full Camping World parts and accessories assortments in those stores. And so Camping World will now have essentially for the true Camping World consumer, by combining all these assets, we will have 200 locations in a matter of six months to shop from as opposed to 140. Once those stores are set and we see what products are doing well and what products are not, it is Tom's, Roger's, Brent's, and my expectation that we will then sell down in those categories that did not perform like we had hoped and pull that inventory back into the cash register, back into the bank. And if we have any location of the Ganders that for some reasons don't pan out, so if for some reason one or two of them don't work out, we will not let that linger.

We do not have a pride of authorship. We will make a move if we have to, to pull that inventory back in and get out of that lease. And so there is no pride of authorship in this process but there is pride in making sure that we utilize our combined assets to maximize the return for the shareholders.

Tim Conder -- Wells Fargo Securities -- Analyst

So would it be fair to say, and just to make sure we're not interrupting this wrongly, would it be fair to say that by the end of 2020 there would be very little distinguishment as to whether these were original Camping World stores or Gander Outdoors stores? Is that what we should be kind of thinking about as to where this is going say in a couple years?

Marcus Lemonis -- Chairman and Chief Executive Officer

Our company goal, not in a couple years but in short order, is to be brand-agnostic to what's on the front of the building. Obviously, if a customer went there and they saw everything, he would act like a duck, smell like a duck, and walk like a duck. There are some categories that we do not have at Camping World, that we probably won't that are unique to that business and that are unique to those specific markets where we need that traffic but when you walk into Kenosha, it will look a lot like an RV dealership and you'll see it next week. When you go to Roanoke or you go to Fayetteville, we really look at how many brands can our company own either nationwide or in the same market.

Camping World, Gander, we have RV world, we own some today and we operate them, we're opening a few more and we have independent RV dealer names like Nelson's or whatever it may be, John's RV. And so we're not married to one brand. We're married to growing our file size, growing our database, and growing our market share and doing it with the most efficient use of capital.

Tim Conder -- Wells Fargo Securities -- Analyst

OK. Two last questions a little bit more broadly. Just maybe expand on your comment you said about aggressive in part of your preamble. And then also just your take as you see it now for the industry unit retail sales for 2018? Thank you.

Marcus Lemonis -- Chairman and Chief Executive Officer

Fifteen years ago we decided to start this business and Roger and I in the first five years were trying to figure out how to build the model that is scalable and we were testing a lot of things. And then the next five years we had a huge growth spurt and then we had a slight downturn in 2008 and 2009 where we supercharged coming out of the downturn. We believe that we are well-positioned both from a human-capital standpoint, a balance-sheet standpoint, and a real-estate standpoint to double the number of RV dealerships we have today or at the end of the quarter, 130-something, in the next five years. And so when I talk about aggressive, we're saying we're going to do everything in the next five years that we did in the first 15 years.

And while that may seem bold, it's not as bold as it sounds predominantly because of the way our business is structured. It's structured in regions. We have an operating system. We have the controls in place.

We have the inventory buying process in place. And we have the ability to make acquisitions in 75 or 90 days. We have the ability to build stores with our construction team and we have the ability to integrate into these existing locations of which the shareholders are paying for in 2018. When you see the returns of 23 with inventory and 43 without, you'll see why we wanted to be aggressive because we need to double the size of this business.

What we don't want to do is give any color around the rest of the industry. Right now we are laser-focused on every single one of our locations and hitting the metrics that we're talking about which is getting this great return off this investment. We feel the industry is strong, the manufacturers are telling us the industry is strong, and we feel like we're a good bellwether because we have stores coast to coast, north to south. We feel we're a good bellwether for the health of the industry.

That survey shows you that in our core business travel trailers we outperformed. We hope to always outperform but we want to manage that with margin and profitability.

Operator

We'll take our next question from Gerrick Johnson with BMO Capital Markets. Please go ahead.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Thank you. Hey, good afternoon. I understand you want to look at the margin holistically but I'd like to take a closer look at margin on new RV sales, down 150 basis points. Were you impacted by mix, cost pressure, pricing, etc.?

Marcus Lemonis -- Chairman and Chief Executive Officer

I don't know that we were impacted by anything that was abnormal. I mean, when you get into the heat of the summer selling season, everybody gets a little more competitive and I'm sure there were certain markets like Dallas, for example, where we were trying to really grow explosively and we may have decided to be slightly more aggressive in a vacuum. As you could imagine, when you have men and women on the frontlines in the Midwest and the Northeast that were coming out of a terrible winter and a terrible April, they're trying to recapture their earnings for their own personal pocketbook. We give them the latitude to be aggressive in those markets to either get that business back, claw it back, and make up some ground.

In no way, shape, or form did Roger and I, because a point and a half isn't material enough to do that. In no way did we say let's just lower our prices and go for it but I know that there were markets that we strategically needed to do that because we were playing catch-up or we wanted to chase somebody else because we were new in the market. I don't think it's anything to be alarmed about. We are happy that we were able to lower our inventory even more than we thought we were going to.

I guess it's a positive byproduct. We believe that as we buy that inventory back over the next six, eight, 12 months, we'll be able to replace it at a cost that will give us that margin back. Will it give us all back? We don't want to set that expectation but we don't see any trend that anybody should be alarmed about on specifically a very small erosion in new margins because we had a very big explosion on the F&I side and that's how we look at it.

So, quite frankly, it's hard to tell a guy, "Hey, I know you cut the deal because of XYZ but you made it up by doing XYZ and in total you're ahead." That's how our people are compensated and we don't want to change their thinking or methodology. We are managing it to make sure it doesn't become a deeper trend than that.

Gerrick Johnson -- BMO Capital Markets -- Analyst

OK, I appreciate your response and that leads me to two follow-ups here. One, you've talked about new RV inventory on a per-dealership basis but I don't think I've heard where it was year over year. Can you talk about what it looked like compared to 2Q '17?

Marcus Lemonis -- Chairman and Chief Executive Officer

So we believe that our inventory at the end of Q2 '18 and the end of Q2 '17 on a same-store basis is relatively flat.

Gerrick Johnson -- BMO Capital Markets -- Analyst

OK. And then lastly, some of those regions where we did see the bad weather, do you think that the weather improved early enough to recapture those sales or would some of those consumers perhaps say "Ah, forget about it. I'll do it next year?"

Marcus Lemonis -- Chairman and Chief Executive Officer

We have never seen an RV consumer say "Forget about it. I'll do it next year." We hope to get some of that back. It's not in our forecast. We would have to really change our pricing model to claw that back and we don't want to change our philosophy of how we're operating the business.

When we're talking about 50, 60, 70 units in certain markets, we don't want to change our overall strategy to find 50 units because we think the margin compression and the profit compression would far exceed whatever we picked up in that revenue.

Gerrick Johnson -- BMO Capital Markets -- Analyst

Thank you very much.

Operator

We'll take our final question from Jim Charter with [Inaudible]. Please go ahead.

Jim Charter -- Analyst

Good afternoon. Thanks for taking my question. I just wanted to understand the kind of the EBITDA opportunity within Gander. So, just looking at the revision to guidance today, it looks like Gander will be on the order of a $60 million EBITDA loss this year.

So the expectation of that goes to $100 million EBITDA profit in 12 to 18 months. So it's a $160 million swing? Is that the correct way to think about it?

Marcus Lemonis -- Chairman and Chief Executive Officer

Yes, sir.

Jim Charter -- Analyst

Great. And then, Marcus, earlier you mentioned something...

Marcus Lemonis -- Chairman and Chief Executive Officer

Can I provide a little color around that so that the context is more clear?

Jim Charter -- Analyst

Sure.

Marcus Lemonis -- Chairman and Chief Executive Officer

So, obviously, in any business that's starting up there's a certain amount of labor that isn't add-backable when you open the doors and you start training and you're trying to get the customer back and you are marketing. And so some of those, while they're not add-backable, they're not repeatable because you get a certain amount of momentum and traction that start to build some tailwind, right? What we were overcoming was a company that shut down and heavily liquidated. And so we have to climb back out to tell people a) were open, b) we're different, c) look at our new shiny objects that are here. It does sound like a big leap but when you start integrating RV sales into RV service and you start to get some tailwind behind those numbers, it moves pretty quickly because the fixed cost structure is fixed.

And so, as we add RV sales or RV service or Camping World products to these locations, it doesn't require incremental labor, it doesn't require incremental rent or electricity or taxes or any of those things. And so, it really is like going from a dead stop to a full healthy marathon. And I know that seems extreme. We don't want it to seem that extreme but it is from starting from scratch to just getting normalized.

We experienced, by the way – and this is a very important point – In the history of our company we have on several occasions bought a piece of land, built a store, put a Camping World there and added a dealership – Omaha, Nebraska; Springfield, Missouri; Council Bluffs, Iowa. We've done it at Roanoke. We've done it over and over again. And when we do that, we experience a burn for 12 to 18 months.

The difference is we're doing this in a club and we feel good about that because we're getting scale and we're getting economies out of it. And while the investment is all up front, we feel like it will accelerate this growth and accelerate the volume of the company pretty quickly.

Jim Charter -- Analyst

Great. That's very helpful. And just to follow-up, you mentioned earlier some investments in the digital capabilities. Can you just talk about what percentage of RV sales are done online today and how that's been growing and where you think that can be? Thanks.

Marcus Lemonis -- Chairman and Chief Executive Officer

So we report and record zero revenue from the sale of RVs. We use the internet and our web strategy to generate leads for a warm transfer to a qualified sales professional that's going to talk to our customers and then obviously convert them into a sale. The revenue that we're talking about on the website which we think has a ton of wide space and we're very excited about is CampingWorld.com where RV parts and accessories are sold; Overtons.com which is where all of our fishing, marine, and boating products are sold; Gander, The House, Uncle Dan's and Erehwon. And the moves that we're making is to consolidate the disparate systems that they've historically operated on and the disparate distribution centers that they've historically operated on and consolidate them into, to start with, one single DC in Greenville, North Carolina, a DC that has historically excelled at online fulfillment.

We have made some human capital investments and changes and some technology investments that will allow a new system called Demandware to be installed. When Demandware is installed, every brand that I mentioned plus any additional brands that we launch will be able to do with a click of a mouse pull any bit of inventory or assortment out of the centralized warehouse and have it live within 24 hours. Never have we had anything like that. So Camping World will be able to offer seasonally whatever's in the vault.

Gander, the same thing. And so, whether we have master brands or whether we start creating microsites like Cheer World or Grow World, a Cooler World, it changes the landscape of our online presence.I want to add one more layer. When you look at the way folks search online using strategic keywords to find a product they're looking for, we believe that with this strategy and Demandware we will be able to rank multiple brands in the higher ranking of any organic or paid search in the categories that we dominate. It's difficult to do that with one brand like Camping World but when you show up with five or six brands with a different presentation and a different marketing and they all rank high in that strategy, you start to capture them through one of your webs.

That ultimately was our strategy. And the way that we wanted to do that is to throw them into our funnel, the outdoor prospecting funnel, and then sell them an RV or sell them some related product. We had to come up with an affordable and efficient way to widen our funnel and widen the breadth of our offering and differentiate ourselves.

Jim Charter -- Analyst

Right. And then did you mention that you could also be selling through Amazon as well be it Camping World and other products as well?

Marcus Lemonis -- Chairman and Chief Executive Officer

So all these changes that we're making are giving us a leg up against a lot of people and one of the requirements that Amazon has to be preferred not just a reseller is that you have to be able to ship within 24 hours and we're making the technology and human capital adjustments that by fall we will have met that metric and will be competing not only through our own web businesses but capturing people through Amazon as well.

Jim Charter -- Analyst

Great. Thanks and best of luck.

Operator

Once again, that does conclude today's question and answer session. I'd like to turn the call back over to Mr. Lemonis for any additional or closing remarks.

Marcus Lemonis -- Chairman and Chief Executive Officer

Thank you for your continued interest and support of Camping World as we look to double the size of our business over the next five years. We look forward to speaking to you again on our third-quarter earnings call in November. Thank you.

Operator

[Operator signoff]

Duration: 67 minutes

Call Participants:

Brent Moody -- Chief Operating and Legal Officer

Marcus Lemonis -- Chairman and Chief Executive Officer

Tom Wolfe -- Chief Financial Officer

Analyst -- Robert W. Baird & Company -- Analyst

David Tamberrino -- Goldman Sachs -- Analyst

Roger Nuttall -- President

Rick Nelson -- Stephens -- Analyst

Seth Sigman -- Credit Suisse -- Analyst

Brett Andress -- KeyBanc Capital Markets -- Analyst

Seth Woolf -- Northcoast Research -- Analyst

Rafe Jadrosich -- Bank of America Merrill Lynch -- Analyst

Tim Conder -- Wells Fargo Securities -- Analyst

Gerrick Johnson -- BMO Capital Markets -- Analyst

Jim Charter -- Analyst

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