The popularity of recreational vehicles has been rising, and Camping World Holdings (NYSE:CWH) has been maneuvering itself toward the front of the pack to take advantage of the trend. Although competition in the RV business is fierce, the space is quite segmented, and Camping World has a golden opportunity to build out its national presence, and begin to unify its retail face under a single corporate roof -- even as it branches out in new directions in an attempt to become an even broader, all-outdoors giant.
Ahead of Tuesday's first-quarter financial report, company watchers believed that the RV specialist would keep growing strongly. Yet the results revealed a somewhat surprising factor that could hold the retailer back from delivering on its full potential. And while it was a threat that many would view as inherently temporary, that didn't stop some investors from panicking.
Camping World needs a warm-up
There was plenty of good news to be found in the Q1 results. Total revenue was up by 20% year over year, coming in at a record $1.06 billion -- just above the consensus forecast for $1.05 billion. Adjusted net income rose a more modest 16% to $36.9 million, which left adjusted earnings of $0.41 per share falling $0.01 per share short of what most of those following the stock had expected to see.
The results also revealed some mixed trends for Camping World's underlying business. Total RV sales rose 21% to more than 24,500 units -- another Q1 record -- with 27% growth in used RV unit volume outpacing the 18% gains in new RV unit sales. Yet same-store sales growth decelerated from Q4, rising just 3.9% in Q1.
The big culprit there was falling sales prices. On average, new RV prices dipped more than 4% to $30,619, almost $1,400 less than in Q1 2017. Even worse trends appeared in the used RV segment, where average sale prices were down 7% to $20,857.
Camping World's parts and services business, by contrast, delivered a particularly strong quarter, with greater than 40% sales gains; so did its finance and insurance unit, where revenue growth landed just short of 40%. Mixed in with the parts and services numbers were the sales from the company's catchall "other revenue" category, where you'll find its outdoor and active sports retail operations. Its consumer services and plans segment was the weakest, posting sales gains of just 7% from year-ago levels.
CEO Marcus Lemonis was succinct in his assessment. "We had a very strong first quarter," he said, "and are pleased with the continued performance of our business." Most key metrics were in line with expectations, he said.
Could Mother Nature derail Camping World?
Overall, Camping World's management seems optimistic about the future, but they did identify what could become an issue for the company. As Lemonis put it, "While the unseasonably cold weather throughout a good portion of the country has likely impacted the early part of the peak selling season, we believe the backdrop across the RV industry remains strong."
Expansion remains a key element of Camping World's strategy. Although the company projects mid-single digit percentage same-store sales gains for 2018, it also sees plenty of acquisition opportunities -- and it has been taking advantage of them. During Q1, Camping World announced acquisitions of six retail locations in five different states, and it expects to open eight new retail supercenters in Q4 and early next year. Those supercenters will combine multiple Camping World RV and outdoors brands under a single roof, which fits with the company's long-term strategic vision of building out a much larger category for its business.
Investors didn't like Camping World's minor earnings shortfall, nor the cool start to spring, and the stock fell nearly 6% in pre-market trading following the Q1 release. Yet Mother Nature is hardly a constant enemy for Camping World, and investors should look beyond a single season, and instead focus on the longer-term retail opportunity that this RV and outdoor specialist has tapped into successfully.