Q3 2024 Earnings Summary
- Aggressive M&A Strategy and Market Share Expansion: The company’s disciplined approach to dealership acquisitions—targeting 12 to 15 stores (and sometimes more) annually with historically strong returns (over 20% annualized cash-on-cash)—supports future volume growth and enhanced market share, offering an attractive growth pathway.
- Robust Used Segment Rebound: The management expects low to mid double-digit growth in the used unit volume with margin improvements targeting a rebound from 19–19.5% to near 20% as the year advances. This turnaround, bolstered by enhanced auction performance and market-making initiatives, provides a bullish catalyst for earnings.
- Improving New RV Margins and Pricing Stability: With new vehicle gross margins expected to near a steady 14% to 14.5% range and management focused on effective inventory management and slight ASP enhancements, the company is poised to translate modest new unit sales growth into solid gross profit improvements.
- Margin Pressure from New Motorized Sales: Management noted that while aggressive new motorized RV sales helped volume, they came with lower margins compared to traditional segments, potentially pressuring overall profitability if market mix shifts unfavorably.
- Volatility in Used Inventory Margins: Uncertainty remains around used inventory procurement and margin recovery—management’s reliance on seasonal procurement cycles and cautious margin targets could lead to continued volatility and weaker earnings performance.
- Execution and Store Count Risks in M&A Strategy: The discussion on net dealership declines and the heavy reliance on acquisitions to drive market share highlights risks; any slowdown in quality M&A opportunities or unfavorable market conditions could hinder growth and operational execution.
-
New RV Margins
Q: Why were new margins pressured?
A: Management explained that while new unit sales surged—particularly in the motorized segment—the margin percentage was lower due to a heavier mix of higher-priced units. However, the overall gross dollars increased, and they expect margins to stabilize in Q4. -
SG&A/EBITDA Outlook
Q: What are Q4 SG&A and EBITDA expectations?
A: They noted that Q4 remains seasonally challenging with higher SG&A, but for 2025 they’re targeting a 600-700 basis point improvement, aiming ultimately for SG&A levels in the low 70% range of gross profit. -
New Unit Growth
Q: Does modest growth assume share gains/acquisitions?
A: Management anticipates modest new unit growth driven by an improved market alongside incremental share gains from organic efforts and strategic acquisitions. -
Store Count/Acquisitions
Q: What is your outlook for store counts to 2025?
A: They plan to pursue roughly 12-15 acquisitions annually—and sometimes more—while disposing of underperforming dealers, steadily progressing toward a path of 320 locations. -
Industry Sensitivity
Q: How sensitive is the outlook to industry changes?
A: The team remains cautious about industry fluctuations, projecting retail unit ranges of 350,000-360,000 units and emphasizing disciplined M&A to navigate potential upsides and downsides. -
Used Market Maker
Q: How will the used market maker strategy evolve?
A: They plan to enhance market liquidity by actively buying and reselling used units, leveraging tools such as the Good Sam Valuator to validate prices and capitalize on arbitrage opportunities. -
Margin Cadence
Q: What margin range are you forecasting going forward?
A: Management is targeting normalized new RV margins in the 14%-14.5% range during robust mid-cycle periods, expecting seasonal improvements as inventory pressures ease. -
Inventory Positioning
Q: How has your inventory strategy adjusted?
A: The approach now features a strong mix, with over half of the new inventory already for model year 2025, supporting stable pricing and easing margin concerns. -
F&I Attachment
Q: Any difference in F&I rates for new vs. used units?
A: They observed that F&I attachment tends to be slightly lower for used vehicles—around 12.5% compared to the higher rates on new units—though higher ASPs help keep overall dollar contributions steady. -
Private Label Strategy
Q: How will private label drive growth?
A: The evolved contract manufacturing model now spans 36 exclusive brands, enabling the company to differentiate its products and widen its market penetration across varied segments. -
Inventory Competition
Q: How do competitor inventory practices affect you?
A: Management highlighted that disciplined inventory management gives them a competitive edge; while some dealers struggle with aging stock—especially in the diesel segment—this reinforces their strategic positioning. -
Storm Impact
Q: How did recent storms affect operations?
A: Severe weather caused 25-30 store closures in a region, resulting in a temporary loss of 300-400 new units, though overall performance remained robust despite the setback. -
Used Procurement
Q: How are you sourcing used inventory?
A: They are following a seasonal strategy targeting a 3.5 turn rate, ensuring that the used inventory levels align with forecasted market demand while remaining flexible. -
Service Performance
Q: How did parts and service perform?
A: Customer pay in the service segment increased on a single-digit percentage basis year-over-year, reflecting steady performance in this crucial area. -
Class C Strategy
Q: Are you adjusting your Class C mix amid rate cuts?
A: They aim to lower monthly payments by engaging in smarter procurement without decontenting the product, thereby enhancing affordability and maintaining high value within the Class C segment.