Camping World Holdings Inc (CWH) 2017 Q2 法說會逐字稿

Good afternoon, and welcome to Camping World Holdings Conference Call to Discuss Financial Results for the Second Quarter of 2017. (Operator Instructions) 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 Retail. I will turn the call over to Mr. Moody to get started. Please go ahead, sir.

Thank you, and good afternoon, everyone. As you've probably seen, a press release covering the company's second quarter 2017 financial results was issued this afternoon and a copy of the press release can be found in the Investor Relations section on the company's website.

Our remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements regarding our business goals, plans and abilities, industry and customer trends, growth of customer base, retail location openings and acquisitions 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 Annual Report on Form 10-K filed on March 13, 2017 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 EBITDA and adjusted EBITDA margin, which we believe may be important to investors to assess our operating performance. Reconciliations to these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, which is available on our website.

With that, I'll turn the call over to Marcus.

Thank you, and good afternoon, everyone. On behalf of our nearly 9,000 employees, we are very proud to report exceptional quarter results across the board.

Our total revenue increased more than 20% to a record $1.28 billion. Net income increased over 26% to a record $105 million. And our adjusted EBITDA increased 36% to a record $142 million. Consumer demand for recreational vehicles remains very strong in the marketplace, and we continue to outperform the industry. Most importantly, we've been able to sustain our margins and leverage our revenue growth to deliver strong bottom line performance.

We intend to remain very focused on strong margins, profitable revenue growth and the growth of our proprietary customer database. By cross-selling a comprehensive portfolio of products and services to growing a database of outdoor enthusiasts over a long life cycle period, we are maximizing our return on what we consider our greatest asset.

We believe that the model works, and we feel like we've proven that. Our second quarter results are further evidence of this theory. We also believe that this model can be extended into a broader base of targeted consumers who share an affinity for the outdoor lifestyle, not just the RV lifestyle.

Our national network of 137 RV-centric retail locations, our proprietary customer database and our wide array of RV-centric and outdoor products and services have positioned us as the leader in the industry. While we intend to always remain focused on our core business, the RV lifestyle and our growth opportunities in that industry, we believe our existing base affords us a unique opportunity to make significant impact on the broader outdoor lifestyle category. We are extremely excited about the future and our many opportunities.

The RV business and the industry remains very strong, and we've seen no change in the underlying trends towards driving that business. We continue to see strong growth in smaller towable units and younger first-time buyers entering the market.

At the point of sale, we have worked very hard to better integrate the selling of our F&I process, and we continue to see strong results. Our F&I, finance penetration rates, are higher than they've ever been with the sale of our F&I products contributing to our very strong profit margins. We also had contributions to our improved gross margins from our Good Sam TravelAssist and roadside assistance programs.

In the second quarter, we added 10 new RV dealerships from acquisitions, opened 1 new greenfield location and acquired 2 Overton's location as part of the recent Gander Mountain Overton acquisition. Our growth pipeline remains full, and we continue to see many acquisitions and greenfield opportunities. Additionally, we continue to finalize our plans for the Gander Outdoor and Overton businesses. During the quarter, we changed the name from Gander Mountain to Gander Outdoors, and we revealed the new company logo.

We're in the final stages of negotiations with numerous landlords. And the final number of initial locations will largely be dependent on the results of those negotiations. As I've consistently stated, we will only open stores that have a historical level of profitability and also have a clear path to profitability in the future.

In line with that, we believe it to be a unique opportunity to expand into the broader outdoor lifestyle market and leverage our existing array of products and services. We are focused on locations that can offer all of our Gander, Overton's, Camping World and Good Sam products and services for the RV, boating and outdoor lifestyle. With the first of these locations targeted to open in November and our continued acquisition efforts and our new store opening strategy, we intend to increase our borrowings in the coming weeks.

Those are my prepared remarks, and I'm now going to turn the call over to Tom Wolfe, our CFO, to take you through the financial highlights of the second quarter.

Thank you, Marcus, and good afternoon, everyone. As Marcus stated, we had a very strong second quarter and are very pleased with our financial results. Let me touch on some of the key highlights. Please note that, unless stated otherwise, the comparisons are to the same period in 2016.

Total revenue increased 20.1% to $1.3 billion from a same-store sales increase of 10.6% and $177.1 million from new stores. Both segments contributed to the strong growth, with retail revenue up 20.7% to $1.2 billion, and Consumer Services and Plans revenue up 5.9% to $48.1 million.

As we've said in the past, the continued trend towards towable units and younger buyers continues to be a net positive for the overall business. We believe this creates continued expansion of the RV customer base and allows us to cross-sell a greater number of other higher-margin and recurring revenue products and services -- most notable are our roadside assistance and retail finance and insurance programs, which experienced healthy increases in the second quarter from an increase in the number of dealerships and higher penetration.

The biggest standout, again, was finance and insurance revenue, which increased 44.5% to 101 million and to 10.5% of total vehicle sales, up from 8.8% in the prior year period. Gross margin increased 102 basis points to 29.1% of total revenue. Retail gross margin increased 124 basis points to 28% of segment revenue, while Consumer Services and Plans gross margin decreased 40 basis points to 57.3% of segment revenue. Increased penetration of the finance and insurance products, along with a 593 basis point increase in used vehicle gross margin, were the primary reasons for the gross margin increase.

Operating expenses increased 20.4% to $236.1 million, with the majority of this change coming from a 20% increase in SG&A expenses to $228.4 million. The increase in SG&A expenses was primarily driven by increased variable wage-related and selling expenses associated with same-store sales revenue and 17 new dealerships operated during the quarter, along with $2.1 million of transaction expenses and $1.4 million of pre-opening and payroll costs associated with the Gander Mountain acquisition.

As a percentage of gross profit, SG&A expenses decreased 227 basis points to 61.3%, which includes the impact of $2.1 million of transaction expenses and the $1.4 million of pre-opening and payroll costs associated with the Gander transaction.

Floor plan interest expense increased $1.2 million to $6.6 million from $5.4 million, primarily due to higher average inventory, which was impacted by new dealerships compared to the prior-year period, partially offset by a 6 basis point decrease in the average borrowing rates.

Other interest expense decreased 16.1% to $10.6 million from $12.6 million in the second quarter last year, primarily related to a decrease in average debt outstanding and a 91 basis point decrease in the average interest rate.

Adjusted EBITDA, which includes floor plan interest expense, increased 36% to $142.1 million, and the adjusted EBITDA margin increased 130 basis points to 11.1% from 9.8% in the prior-year quarter. Please refer to the tables in the earnings release for a reconciliation of net income to adjusted EBITDA and net income margin to adjusted EBITDA margin.

Turning to the June 30 balance sheet, working capital and cash balances were $393.6 million and $252.2 million, respectively. Inventory increased 21.6% to $1.1 billion from December 31, 2016, primarily from the 17 new stores operated in 2017, and the ramp up for our peak selling season.

During the quarter ended June 30, the company received proceeds net of underwriter discounts and commissions of $122.5 million from the sale of $4.6 million Class A shares in a public offering. As of June 30, 2017, we had no borrowings under our $35 million revolving credit facility, $736.3 million of term loans outstanding under our senior secured credit facilities and $780.9 million of floor plan notes payable under the floor plan facility. And now, I will turn it back to Marcus to discuss our outlook for the full year 2017. Marcus, are you on mute?

Based on our strong performance for the first 6 months of the year, we are raising our 2007 (sic -- 2017) adjusted EBITDA outlook to a range of $365 million to $370 million before anticipated one-time acquisition and pre-opening expenses for Gander.

The revised revenue target is $4.05 billion for the full year 2017 for the base Camping World RV business, which excludes the impact of the Gander acquisition. Contingent on our final lease negotiations, our current plan is to open the initial 15 to 20 Gander stores by the end of 2017, another 15 to 20 stores in the first few months of 2018, and an additional 10 to 30 stores during the balance of 2018, with measured growth anticipated thereafter. As a result, we expect to incur meaningful incremental expenses without the benefit of the full revenue for some time as we begin to ramp the Gander Mountain business to open stores.

As we did in the second quarter, we continue to break out the acquisition and preopening costs associated with the new business so you can better evaluate the results of our core business.

While we are not prepared to guide you with separate revenue or adjusted EBITDA levels for the new businesses, we can tell you that they are expected to be accretive to adjusted EBITDA in the first full year of operation.

As I wrap up, let me -- as I wrap up, I want to thank, most importantly, our close to 9,000 team members. Together, we'll continue to accomplish great things, and I could personally not be more proud of what's ahead of us. With that said, I'd like to open up the call to the operator for the start of our Q&A session.

(Operator Instructions) And we will take our first question from David Tamberrino with Goldman Sachs.

Maybe just start with the Gander Mountains stores that you just outlined there, Marcus. I think, if I add that up quickly, it's a range of maybe 40 to 70 stores. And 70 was kind of the mark, I don't know, maybe 1.5 months, 2 months ago, but then it was revised down based on negotiations to about 57 locations. So I want to understand what could get us to the lower end of that range, that 40 locations in total, just based on what you've been seeing from negotiations and what happened to maybe the other 17 stores that were at 57 during the last press release?

I think at the end of the day, regardless of what number we end up at in that range, it really comes down to the rent factor's got to work for us. And in today's environment, we believe that we have the leverage with our landlords to enter into both short- and long-term leases that have very favorable terms in light of current retail box market conditions. And we internally have decided that we will not be taking any chances that put the net EBITDA margin that we currently operate into question. And over time, we believe that once we have the asset opened, we can open up new stores as we build new stores. There was never a race to get to a number. There was a race to drive profitability and, more importantly, deploy the shareholders' assets in a way that yields the highest return.

Understood. So in your mind, do you think that, that 40 store count location at the bottom end is realistic, or you could potentially be shaking out there in the next 12 to 18 months?

I think, it's very hard. We had a couple stores fall out today because they didn't like the terms. Again, our goal is to open up the number of stores that we -- in the right markets that we believe are going to be accretive to our EBITDA. And whether that number ends up being 40 or 52, we just are not going to sign up with things that we don't think makes sense to us.

Okay. Understood. That's helpful. And you recently announced the acquisition of TheHouse.com. This follows after Gander, you've got Overton's. Should this be the new norm for Camping World? Turn the clock back a year, story was RVs, there's a possibility of some adjacent markets. But we've now moved a little bit further along and you're starting to pick up a little bit of steam with acquisitions outside of pure RV locations. I just want to understand where you think the endpoint is here, or if there's any potential slowdown of that adjacency acquisition as you integrate and ramp up the Gander stores?

We really believe that we have the foundation to be an outdoor juggernaut. And people that live in the outdoor lifestyle have similar traits to them. They have similar demographic traits, similar socioeconomic traits. And we believe that we have the foundation, along with the Good Sam Club, to capitalize on that. If you noticed, the last couple of acquisitions that we've announced have also been very e-commerce-based. And we believe that we need to continue to grow our database acquisition strategy and our ability to sell our other products and services, both box -- from a box retail standpoint and from an omni-channel standpoint by having a strong presence in e-commerce. It's my expectation that we will continue to look to make acquisitions that we believe enhance our dominance or our intended dominance in the outdoor lifestyle. But to be very clear, we are still looking for things that have significant earnings behind them, that have significant principles in terms of EBITDA margin contribution consistent with our existing business. This is not a goal to just add revenue to add revenue. When we look at the transaction, the letter of intent with The House, that was because we believe that we lack a particular technical knowledge of a space that we felt would round out the Gander offering. And we also believe that the proprietary knowledge and skill that people from Overtons.com possess and the TheHouse.com possess were lacking in our business. And we felt like not only could they run that business, but they could enhance our existing businesses and make those accretive as well. So anytime we can find anything inside of the outdoor space that we think is going to add value to our database and to our basic skill set, we are going to make those acquisitions. But we will also continue to make RV acquisitions at a rapid pace, like we have been in the previous 12 months.

Got it. And then, just the last one for me. Operating leverage, very strong in the quarter. EBITDA margins adjusted 11%. I think, your outlook implies somewhere around the 9% range, 9.25%. Versus maybe a year ago, you were talking maybe 8% EBITDA margins for the entire business. What's fundamentally changed? What have you been able to restrain yourself on from a cost standpoint from SG&A in order to obtain that pretty significant margin expansion year-over-year that we've been seeing?

I still feel like 8% is the right number for our business. And there's a balance between having the right EBITDA margin and investing in the future. And we have not hesitated or restrained in one bit in investing in technology, investing in our people, investing in our database. We believe that results from the quarter came from improving our share in certain markets and our continued focus on gross margins, particularly in products that yield us a higher margin -- like TravelAssist, like the credit card, like roadside assistance, like service, like finance and insurance. And obviously, the volume of our transactions on the towable side, that volume gives us the ability to sell those products and services that yield a higher margin. But my target is still 8%. I'm not moving that number as an internal goal for us because I don't ever want anybody to think that we're running the business on percentages. We still return value to shareholders with real dollars, not percentages.

We will take our next call from Rick Nelson with Stephens.

F&I was clearly a standout this quarter. Penetration, 10.5% of sales, up from 8.8% last year. What is the driver there, to F&I and what's the opportunity as we look forward?

I'm going to have Roger Nuttall, who runs our entire Retail business, speak to that.

Thank you. I think, kudos to our operations team and our salespeople in the F&I department. So we have developed some very high standards in regards to performance in the F&I business. And we have simply gotten better performance. We have changed a little bit of our process just to be able to put more emphasis on F&I on the front end of the sales process, which has resulted in significant growth and opportunity for us in those markets. Other than just continued training and continued performance, that's what's driving that particular segment of the market. There's nothing else that has changed in the market, in my opinion, that has enhanced that particular segment of our business. And we don't know exactly where the high is on that, but we continue to get better and better in our -- in what we do.

I want to put a little color on that. I think that the team has done a great job in really executing a training strategy that is largely based on consistent delivering to the customer, consistent process. And F&I is a process-oriented result, doing the same thing over and over again with repetition and precision and full disclosure to the customer. I do believe there's a ceiling on the number. And the reason that number has continued to grow is because we also continue to drive down our average selling price of our units. But I want to be clear that no one should have the expectation that, that percentage is going to continue to grow on a year-over-year basis. Our earnings will, but the penetration number does have a limit. And I regulate that, as Roger does, to ensure that our team is not selling customers products and services that they do not need, and so we look at the chargebacks or the cancellations and we often spot check things with customers to ensure that they're getting the value that they want through a survey process. So could the number be higher? I mean, it probably could, but we're not in the business of selling people products and services that they don't need.

Got it. Also, demand has been very strong for RVs. Can you comment on what you're seeing third quarter to date? Is that demand continuing? And any side post out there, maybe commentary on the financing environment that you see?

Here's the only thing that I can speak to now that, unfortunately, we're a public company: We are seeing no signs of any headwind in the marketplace. And obviously, it's up to us to execute all the things that create the results. But from a traffic standpoint, demand standpoint, we're not seeing any headwinds or anything that would indicate that the curve is turning in any way.

And we will take our next question from Rafe Jadrosich with Bank of America Merrill Lynch.

Marcus, last quarter, you spoke about maybe some inventory build that might have been happening at a few of your competitors in the market? Can you just give us an update. Now that we're kind of through at least a piece of the peak season here, do you still feel like there's too much inventory out there? Or do you think that got cleared out during the peak season?

No, I don't, actually. I actually feel really good about where inventory is. And in speaking with our top manufacturers, I think, they feel very comfortable where the inventory is. I would tell you, in some cases, we're struggling to get product. And our largest partnership is with Thor manufacturer, which has been an amazing partner and the lion's share of their business and our business are tied together. And there are times where, unfortunately, we're missing some deals based on the -- our ability to get product. There is a lot of pent-up demand and a lot of backlog, and I feel like we've reached the point where, quite frankly, I wish Thor could make more.

Okay. That's really helpful. And then, just on the used vehicle part of the business, it's been down over the last, I guess, over a year. If you strip out AutoMatch, would that still have been down? And then, the gross profit dollars are actually up overall, and then, obviously, up a lot per vehicle. Can you talk about the dynamic that's driving that there? And then, maybe when we should expect that to maybe inflect positive again? When would you expect the used inventory turns to come back down to more normalized levels?

Thank you. This is Roger. We've continued to stabilize. As I mentioned before in some other mediums, is that our used inventory has stabilized and is actually coming up at this point in time. As far as year-over-year comp numbers, I would anticipate, by the fourth quarter, we're going to be able to see comp numbers year-over-year. But what you have seen based on that supply and demand is that our gross profit margins and our gross profit that is generated from -- even though we've had a decrease in sales, we are currently comping on all stores. But on same-store, we're still running about 10% lower than where we were a year ago on used revenue. But our gross profit margins are flat, so we've been -- on the same-store basis. So we've been able to make up a lot of that movement on our gross profit margins.

Our dollars are up.

Yes, our dollars are up. I'm sorry. Yes, our dollars are up on that, excuse me.

And you know what, as we continue to drive down that average selling price, which we've been talking about since the day we all met, that definitely impacts that because the closer the new selling price is to the used marketplace, customers may choose to go new versus used. Ultimately, what we want to do when a customer walks in our doors is sell them what we believe is the best thing for them and the most affordable thing for them, which is why, as an industry, the default rates are very low and we have a nice trade cycle with our customers. And so while we like to sell used because it has a higher margin, we ultimately want to drive the customer towards the product that they feel is best for them and that we feel we're going to be able to hold on to that customer for the long term.

Just one more quick one. I think, in the past, you've disclosed the same-store sales but for new vehicles and used. Can we get that detail? I don't know if you have it there.

Tom?

Can you repeat that again, please?

Just do you have the same-store sales for new vehicles, used, parts and service and F&I?

We typically don't discuss it. But we'll just look it up real quick, give us a second, and we'll come back to you on that, okay?

Okay.

Yes, the new was -- new is about 18.6% and used is down about 10.3%.

And that's revenue, not necessarily units. But...

Yes, yes, absolutely.

And we will take our next question from Seth Sigman with Crédit Suisse.

A couple of follow-up questions on Gander Outdoors. Can you share a little bit more about the strategic direction and how you're thinking about the assortment and the store format relative to what we've seen in Gander in the past?

Yes. I mean, look, our ultimate goal is to have an outdoor lifestyle center, in a perfect world, that has RVs and RV accessories and RV service. It would have an Overton's department that is made up of everything on the water. It would have an active sports department similar to what The House offers. And it would have the historical hunting and ammunition department that Gander did. And the best way to think about it visually, when you walk into the stores, it's going to feel like a co-op of multiple brands that have excelled in their specific categories and are assorted by and merchandised by the folks that have the most amount of experience in those specific categories. Additionally speaking, we will not carry the level of apparel and footwear that we historically have because we believe that, that is not as experiential. It's more of a commodity-based business. And we want to carry the types of products and services that require human interaction with an expert and/or some level of installation or something you need just in time. That is our defense mechanism against margin compression competing with Amazon-type retailers. Our goal is to just create that outdoor lifestyle center; it feels like there's multiple departments, cooperatives selling an expertise in a particular area of the outdoor lifestyle. The stores are going to be much smaller in size. I think, the largest Gander Outdoors footprint that will have Camping Worlds in it and an Overton's in it and an active lifestyle department, the largest one will be 52. The average will be somewhere around the high 30s to low 40s compared to -- square feet, excuse me, 52,000 square feet compared to Gander locations that were 100,000 and 125,000 square feet. So we have cut that box way down, cut the rents way down and got out of the -- as much as we could out of the commodity business.

Okay. That's great. That's really helpful. How should we be thinking about some of those start-up costs that you mentioned? So maybe cost per store? Can you break that down a little bit? And I mean, I see the breakout in the release today, the 1.35 million, but I'm not sure which stores those are actually attributable to. So just give us a sense of how to think about the investment here over the next 12 months?

From our perspective, we believe that we're going to be putting about $2 million to $2.6 million of inventory in each store, depending on the size of the store. We think the CapEx associated with that could be anywhere from $200,000 to $400,000. Obviously, we're working on looking at particular locations that are in better shape than others and if we're not requiring the landlord to make sure that those are up to snuff before we walk in. In terms of the burn that we anticipate, it still is difficult because we don't know how many stores we're going to end with. But we do know that we have a merchandising and marketing staff that is existing today. My rough ball estimate is that if we opened up 55 stores, that we would probably take a one-time charge of around $20 million and we would be investing anything from $2 million to $2.6 million per store in inventory.

Got it. And any sort of way to think about the pro forma profitability, maybe sales productivity and then profitability on a per box basis?

Well, unfortunately, we're not prepared to provide that estimate yet because we have to wait for the final plan to come into place. We don't even have any of the current boxes in our possession yet. And so we just -- we were not prepared to do that at this time.

We will take our next question from Tim Conder with Wells Fargo.

Maybe a quick clarification here. In the quarter, and you called out you got the 2 Overton's stores opened, any contribution in -- from the Overton's to revenues or EBITDA?

Tom, can you speak to that?

Yes, to revenue, it was about $8.4 million and $0.5 million or so on the bottom line.

Okay. That's helpful. And then, Marcus, going back to the IPO, I mean, you all outlined, I guess, a cadence of greenfield and acquisitions. And obviously, it's been much faster than that. In the earlier statement, you said continue to be aggressive on store acquisitions. Can you kind of redefine, I guess, here, maybe over the next 1 or 2 years on the RV side, what we should kind of think about as that new normal cadence?

Yes, I mean, I would consider that if you were -- for forecasting purposes, I would use that same 7 to 10 number that we said at the IPO. As I told everybody through the process, we're opportunistic acquirers. And we also aren't going to pay a premium that we believe comes away from our philosophy. We're not looking to steal things, but we are definitely not ever going to be willing to overpay for them. And from a greenfield standpoint, we definitely hit the pause button in our strategy of greenfields because the greenfields going forward may, if not will, possibly include the Ganders and the Overton's and the active sports as part of that overall complex. So I think, the 7 to 10 is still a very safe number. But there could be moments in time where sellers believe that we have to make acquisitions and they increase their prices, and we will pass on those transactions. In fact, we passed on one not too long ago -- 2 of them, actually. And we know that people in the industry, particularly other dealers, like to listen in on calls like this, and so the message should be clear, we're not overpaying. We don't need to do deals. We will, but we don't have to.

Okay. As we -- as you commented on earlier, the channel inventory is lean to actually potentially a tad excessively lean. Given that, given that you've seen wage pressure commentary in the RV industry and a little bit, not much, on the commodity front, what is your thought about, at retail, how we -- anything that we should think about on a comparable pricing type of environment here as we look in -- as we end the season and look to the new models coming out here in the fall?

I'm not sure I understand the question. Comparable pricing between the manufacturers?

Comparable pricing, I guess, on a year-over-year basis. How much is pricing going up on new RV units on average, looking potentially into the new model year?

We have not seen any of it so far. And we would heavily push back on any increases in prices based on the volume that we do with our specific manufacturers. We would not be open to that idea.

Okay. And then, lastly, from an IT data analytics perspective, how do you feel that you're set now, especially now folding in Gander, you talked about a little bit of e-commerce, adding on some skill sets there. How do you look at it? Are you seeing the need for some accelerated investments? Or do you feel pretty good at a certain percentage of revenues? Just a little maybe update from -- on your thoughts there.

The Gander acquisition, along with Overton's, is requiring us to elevate our game as it relates to our POS in our existing Camping World stores, and we are doing that. I think it also gave us an opportunity to sit down with Oracle, who's our provider, and really redevelop proprietary things that allow the customer transaction of the product to integrate nicely with our desire to cross-sell the services that Good Sam offers. We believe that we're improving our level of sophistication, but we will invest probably twice as much in this calendar year into technology and platforms than we did historically, both because we have more stores, and second, because we are upgrading the platforms that we're operating on today. We know that the future of our business depends on our ability to develop the customer and their buying patterns, and develop an affinity with them to sell them the products and services that are best for them. And all of that is largely based on our knowledge of their transactions in the database. And so we are spending money to refine those skills. And believe it or not, the refinement of those technologies also gives us the ability to lessen our traditional marketing spend. And so we're really just trading dollars -- one that's an investment that gives us a return over time versus one that is a hit to the P&L in the current year.

(Operator Instructions) And we will take our next question from David Tamberrino with Goldman Sachs.

Just one follow-up for me. There was some P&S margin compression year-over-year, just wondering what was driving that.

Parts and service.

Yes, in the products and services, we had some marketing cost and so forth that got skewed between the quarters. But overall, for the 6 months ended, we're up.

Okay. Incremental margin cost for parts and service.

Yes. Look, as a company, we feel very good about that performance. But Roger, Brent, Tom, myself always feel like there's more room for opportunity. We're constantly digging into ways to get more out of the dollar. We take every ounce of capital that's inside the company very seriously and we understand how that needs to be deployed. Our focus is to continue to invest in growing the company, in keeping our leverage at a manageable level and in creating dividend opportunities, both a standard dividend and special dividend over time. As shareholders, we're looking for enhanced yield, and our goal is to do that. And so that's why we're so focused on what we're doing. We realize that opening up one more store than we should is taking a couple of million dollars in investing that when it could be done for something else. So that's why you've seen this stutter stepping on the number of locations because we want to make sure that we understand, is this our best dollar? Where else could this dollar go? And how could it get us to a higher EBITDA margin or higher EPS. And that's our philosophy going forward.

We will take our next question from Ryan Brinkman with JPMorgan.

This is Elad Hillman on for Ryan. I just had one going back to sort of the RV space. You guys did a lot of RV dealer acquisition kind of earlier in the year, and especially in Virginia, and then you did one more in Michigan. And there's kind of been a little slowdown, it seems like, in terms of number of acquisitions you're doing in RV. I just want to get a sense of where we were with your expansion and your target locations?

Yes, we don't believe we've slowed that strategy down at all. What we want to be mindful of is not taking our eye off the ball during our selling season. And so there are a number of transactions that we have been discussing, negotiating, talking to. We announced one in Amarillo, Texas as well that I think did not maybe make the news headlines, but we announced it. We are not changing our strategy and have not. But there's definitely -- from a timing standpoint, not from a working on acquisition standpoint -- a mindset to not make hay while there's hay being made. And right now, we're in the middle of our selling season. And so I just want to be clear that, that strategy hasn't changed and we haven't changed our pace.

Okay. And the other thing is when it comes to finding RV acquisitions -- and you had mentioned that you get calls all the time from different people interested in selling their RV dealerships or things like that -- how are you finding acquisitions in terms of the TheHouse.com or maybe in the e-commerce space?

In most cases, I'm a networker. I rarely use brokers -- it's not a slight towards bankers or brokers, but I'm a networker and I like to do deals with people without a lot of noise in between. And TheHouse transaction just came to us on a phone call from a friend in the industry who knew the owner of the business and the owner was looking to grow his company in a different way, and it was a simple slide up on a Tuesday, a handshake on Tuesday afternoon, and we got the deal done. So we try to keep it very simple. And I'm always looking. And I'm not scared to make cold calls myself, to be very candid with you. I often do that. And sometimes I get hung up on, and sometimes it works. But that's our strategy, and it has been Roger's and Brent's strategy as well.

And then, last one for me. Just a thought, on Overton, it was sort of, right off the bat started to contribute to the business. For the TheHouse.com, when do you kind of see that sort of ramp up and maybe what's the level of contribution that you could see, profit that we could expect from that acquisition?

So that business is what I would call a finely tuned machine. Our expectation is we close very shortly and we'll enjoy the revenue and earnings benefits immediately upon closing.

And we'll take our next question from Jim Chartier with Moness, Crespi & Hardt.

It sounded like the initial impetus for the Gander deal was Overton's and the database, so can you just talk about where you are in marketing the Good Sam product and services to the Overton's customer?

So we have started marketing it to the Overton's customer but have not started marketing it to the Gander customer yet. Our first step in that marketing process was a deal that Tom can talk about with the credit card. Tom, are you permitted to talk about that?

At this point in time, just at a high level, we're working to integrate the credit card program, the Gander credit card program with Good Sam.

And so we see that as a great opportunity. But we want to be very mindful that the Gander brand has been beat up very severely in the last 120 days by the liquidators. And we think that the Gander consumer has been equally beat up. And we want to be very mindful that we have a very intelligent process to handle those issues before we start selling them things. We are dealing with customer service issues. We're dealing with a variety of issues. And it was more important to our management team to address the consumer's issues before we started pitching them new ideas and new products. So I would expect that in the middle to latter part of fourth quarter, we will have a strategy in place to start executing that and reaping those benefits in 2018.

Great. And then, on the Gander Mountain e-commerce business, when do you anticipate starting that up again? And then, what percentage of the business do you think you can recapture in the future?

Well, we anticipate having that business up and running no later than the middle of the fourth quarter. We want to make sure that we are restocking our distribution center with the right brands and the right products, and we are now in the process of both interviewing and selecting vendors that will be part of that lineup, making sure that they conform to our standards and our philosophy. And as we bring them into the DC, I would expect the online process to start. We may start a drop ship program slightly earlier than that, but I would not anticipate ganderoutdoors.com really operating within -- really, not before the next 60 to 75 days.

We will take our next question from Rafe Jadrosich with Bank of America Merrill Lynch.

I just -- I wanted to -- Marcus, I think most of the investments that you typically make is big upside with limited downside. Just in terms of the Gander leases, can you talk about the flexibility that maybe you're building in? Like how long-term are the leases, and do you have an opportunity to get out of them if they're not as profitable as maybe you were initially anticipating?

In some cases, we're assuming the leases that were already in place, so there can be a very small tail on them. In other cases, we're doing 15 to 20-year leases because it's advantageous to us to lock-in these low rates because we know the commercial market goes up and down and we think it's an opportunistic time. We also want to do that specifically when we're adding an RV dealership to the complex because I know that Roger and his management team like to know they have some level of permanence in those places. Additionally, if we're going to be investing any capital in build-out of service bays or building out anything inside the store, we want to be able to get the full life of the money out. But all that being said, we feel that the leases that we have signed, we have specific language about our right to sublease spaces coupled with the economics and the financial terms of those spaces that if one doesn't work out, we are sitting in a very good position to exit stage left without much harm.

This does conclude today's question-and-answer session. Mr. Moody, at this time, I would like to turn the call back to you for any additional or closing remarks.

I'll go ahead and actually take it. This is Marcus. I want to thank you, everybody on this call, for your continued support of Camping World and our team and we look forward to speaking to you again on our third quarter earnings call in November. So have a great summer and happy camping.

Thank you.

Ladies and gentlemen, once again, this does conclude today's call. And we do thank you for your participation. You may now disconnect.