Camping World Holdings Inc (CWH) 2018 Q1 法說會逐字稿

Good morning, and welcome to Camping World Holdings conference call to discuss financial results for the first quarter of 2018. (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 Camping World.

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

Thank you, and good morning, everyone. A press release covering the company's first quarter 2018 financial results was issued this morning 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 may include statements regarding our business goals, plans, abilities and opportunities, industry and customer trends, growth and diversification of 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 other 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 first quarter results are made against the 2017 first quarter results unless otherwise noted.

I will now turn the call over to Marcus. Thank you.

Thanks, Brent, and good morning, everyone. I am extremely pleased to announce our first quarter results for 2018. From my perspective, we had a very strong quarter and we achieved record first quarter results on many levels. Total revenue increased more than 20% to a first quarter record of $1.1 billion. Revenue in our Consumer Services and Plans segment increased more than 7% to a first quarter record of $53.8 million. The Good Sam Club, our most important asset, achieved an all-time high of 1.835 million members at the end of the quarter.

Revenue in our Retail segment increased more than 21% to a first quarter record of more than $1 billion. Total same-store sales increased 3.9% to a first quarter record of $839 million. Finance and insurance revenue as a percentage of total vehicle revenue increased to an all-time high of 12.2%. Total gross profit increased 21% to $304.8 million and gross margin improved to 28.7%, both being new record levels for the first quarter.

And the net income on the EBITDA side. Adjusted pro forma net income increased 16.5% to $36.9 million and adjusted EBITDA decreased 0.1% to just under $72 million.

Our first quarter results were generally in line with our expectations, and the backdrop across the RV industry remains very positive. Employment, wages and after-tax incomes are all rising. Interest rates remain relatively low and credit remains readily available.

Many RV shows in the early part of the season saw increased or record attendance levels, and trends remain relatively strong throughout most of the first quarter. While I'm usually hesitant to discuss weather, I do believe the unseasonably cold weather throughout much of the country in the early part of the selling season impacted our sales. All things considered, I'm extremely pleased with our team and our results and are very comfortable with our RV business.

The RV industry has seen several years of record growth rates and levels. But as we indicated on our last earnings call, we did not expect the industry to continue growing at double-digit pace and have not planned our business this way.

Our budget and our guidance for this year are based on a mid-single-digit increase in same-store sales, and we remain very comfortable with this assumption.

There's been a lot of talk about inventory this year. And while we did ramp up our inventory earlier than usual heading into the selling season, this decision was made for strategic and very thoughtful reasons. Our primary goal was to gain market share, which we expect to accomplish. But we also built inventory early in order to get out in front of price increases, stock our regional holding yards and accommodate our acquisitions that are coming on from last year.

While weather may have impacted the early part of the selling season, we're comfortable with our inventory position and the process of managing our inventory levels as the season progresses. We constantly make adjustments to our inventory, and we have the ability to react quickly to changes in market conditions and work very closely with our manufacturers to ensure the proper alignment. We have an experienced inventory management team, actually in my opinion the best, who monitors and adjusts our inventory on a daily and even an hourly basis.

All in all, we remain very optimistic for continued growth in the RV industry and the foreseeable future.

On the acquisition front, we continue to see plenty of opportunities. In the first quarter, we announced 5 new acquisitions with 6 locations across 5 states. On top of this, we also announced plans to open a total of 8 new Supercenters later this year and early next year. Some of these Supercenters will combine all of our brands in one location and to service a broad range in RV and outdoor active lifestyle customers will be serviced.

We've opened up 42 new Gander locations, which admittedly have opened a little later than I anticipated. Given the number of stores we're opening in a relatively short period of time and the fact that we are completely rebuilding the business, the inventory and the staff from scratch, there are challenges on several fronts, including our IT infrastructure, inventory management and distribution systems. This ultimately led me to the decision to slow down the operating process to ensure that we're opening the stores right the first time. You only get one chance to make a first impression with the customer, and this was way too important to me to rush it.

Despite some of the logistical challenges and slowed opening pace, we are extremely excited about what the team has accomplished. Sales recently surpassed the $25 million mark, and the stores have added 40,000 new Good Sam members to the club and 4,400 new Good Sam credit card holders.

We brought in over 3,000 employees for work and like-minded people who love the great outdoors, just like we do, to get back to work. We negotiated and created business relationships with over 600 vendors and created over 250,000 new SKUs in our Oracle system. We reopened the distribution center that has shipped over 5 million pieces of product. And we created and launched an entirely new point-of-sale system and a new website that feels different from back-end systems. By the way, we bought the company out of bankruptcy about a year ago.

All things considered, we are encouraged -- very encouraged with the initial performance of these stores, and we are very excited about the early conversion rates we're seeing in our Good Sam Club and our credit card program, which are running better than 12% for the club and 2.5% for the credit card. Momentum in the stores continue to build and we're adding new benefits and savings to the Good Sam Club for the Gander Outdoors customers.

While the unseasonably cold weather likely, probably most definitely, had an impact on our Gander Outdoors' business, I could not be more proud of what the Gander team has accomplished. And I like the way the business is taking shape.

Additionally, we expect to announce our plan to rebrand the NASCAR Camping World Truck Series to the NASCAR Gander Outdoors Truck Series starting with the 2019 season. And we provide official rights status for TheHouse.com, Overton's, Uncle Dan?s and a variety of our other brands. Camping World's NASCAR sponsorship has been very successful, and we expect the passion of fans of NASCAR will likely line up even more than our Camping World customers, to embrace Gander Outdoors and the outdoor active lifestyle the same way they've supported Camping World over the last 15 years.

There is no question that consumers today lead very active lifestyles, and we -- and they are interested in a variety of outdoor-related activities. Outdoor living is not just about sitting on your patio and cooking on the grill. It's about going places and doing things like camping, boating, fishing, hunting, biking, tailgating. Today's smaller and lighter RVs are the ultimate mobile experience that give consumers the ability to go and do, quite frankly, just about anything. And we see a significant opportunity to continue broadening and diversifying our business with the acquisition of our outdoor and active sports businesses over the past year and the opening of new Supercenter locations.

With the new outdoor and active sports businesses, we are building a 360-degree omnichannel business for outdoor and active sports enthusiasts.

The overall strategy is akin to a four-legged stool, picture it in your mind, with Camping World's omnichannel RV business as the anchor leg, driving market share and enhanced customer experience; Overton's as the second leg, with its omnichannel approach to growing and leading the marine and fishing sector; Gander Outdoors as its third leg, with its omnichannel approach targeting outdoor enthusiasts with their hunting, fishing, marine and active sports needs; and the specialty outdoor group as the last leg, serving outdoor enthusiasts with items related to hiking kayaking, backpacking, camping, skating, snowboarding and a ton more.

The 4 legs of this omnichannel stool are supported by and held together by our company's most important asset, the Good Sam brand, and the entire portfolio of Good Sam products and services. Each leg of the stool provides for growth in the Good Sam Club, with its current membership in excess of 1.8 million members and new and innovative ways to buy all the products for outdoor and active sports enthusiasts, while allowing them to enjoy exclusive benefits and discounts available only to Good Sam Club members.

The pieces of the puzzle have come together over the last 12 months with the strategic acquisition of various online and retail operations, all specializing in the niche. These recent acquisitions include Rock/Creek Outfitters, a powerhouse southeast regional brand, specializing in outdoor gear and camping supplies. Collectively, our recently acquired outdoor and active sports businesses generated over $39 million in the first quarter. Now while this is still a relatively small part of our overall business, these businesses are performing nicely and we are seeing good growth, both online and in stores.

Our goal is not just to sell the products that we carry in stores and online, but to grow our customer file, expand our base of Good Sam Club members and then cross-sell a broad array of products and services into a growing base of customers and Good Sam Club members. When a new member joins the club, we are able to build a customer profile that assist us in selling other high-margin products and services, but only things that they need. That has always been our business model, and this continues to be our focus as we broaden into wider outdoor lifestyle markets.

In closing, I want to thank all of our team members, 13,000-plus across all of our brands for their hard work and dedication. We have an incredible opportunity to continue developing and growing the business together, and I'm unbelievably proud of the work we're doing. Those are my prepared remarks.

I'll now turn the call over to Tom to talk about our financial results and be back at the end of that to answer questions.

Thank you, Marcus, and good morning, everyone. We had a strong first quarter and are pleased with our financial and operational results.

Let me touch on a few key highlights.

Total revenue increased 20.4% to $1.1 billion. Both segments contributed to our strong growth with Retail up 21.2% to $1 billion and Consumer Services and Plans up 7.1% to $53.8 million. In the Retail segment, same-store sales increased 3.9% and were driven by increases in finance and insurance, used and new vehicles and parts, service and other.

The biggest standouts were parts, service and other, which increased 41.4% to $164.3 million and finance and insurance revenue, which increased 39.1% to $91.8 million. Included in parts, service and other revenue was $39.3 million in sales from the outdoor and active sports retail businesses, including Gander Outdoors, Overton's, TheHouse.com, Uncle Dan?s, W82, and Erehwon Mountain Outfitters.

Consolidated gross margin increased 13 basis points to 28.7% of total revenue, with gross margin in the Consumer Services and Plans segment down 15 basis points to 57.8% and gross margin in the Retail segment up 36 basis points to 27.2%. The increase in retail gross margin was driven by a 205 basis point increase in finance and insurance as a percentage of total new and used revenue to 12.2% from 10.2% in the prior period.

Operating expenses increased 40.1% to $255 million, with a majority of the increase from SG&A. SG&A expenses increased 39.7% to $245.1 million and included a $19.7 million of preopening expenses related to Gander Outdoors.

The increase in SG&A expenses was primarily driven by increased variable wage-related and selling expenses associated with the acquired and greenfield RV locations opened over the last 15 months and the 28 Gander Outdoor locations opened through March 31.

Floor plan interest expense increased $10.7 million, primarily from increased inventory due to new dealership locations and existing locations expecting higher unit sales, along with a 100% -- 100 basis point increase, excuse me, in the average floor plan borrowing rate. And other interest expense increased 36.5% to $12.8 million, primarily from higher average borrowings.

Net income, adjusted pro forma net income and adjusted EBITDA were $17.3 million, $36.9 million and $71.8 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 March 31 balance sheet. Working capital and cash balances were $680.9 million and $331.3 million, respectively. Inventory increased 11.2% to $1.6 billion, primarily from the ramp up of the new Gander Outdoor locations and dealership acquisitions in the quarter.

Looking at our inventory on an estimated number of days of inventory basis, we have decreased our days of inventory on hand by 11% since year-end to 121 days, in line with our historical averages.

As of March 31, 2018, we had $24.4 million of borrowings under our revolving line of credit portion of our floor plan facility, $1.2 billion of term loans outstanding under the senior secured credit facilities and $939.8 million of floor plan notes payable under the floor plan facility.

Those are my prepared remarks for the first quarter financial results, and now I'd like to turn it back over to Marcus for some commentary on our 2018 outlook.

Thanks, Tom. As I mentioned, we're going to open it up for questions after this outlook. As I stated earlier, our first quarter results were generally in line with our expectations, and we've not made any changes to our full year outlook.

Our 2000 (sic) [2018] outlook is for revenue in the $4.8 billion to $5 billion range and adjusted EBITDA in the $431 million to $441 million range. These estimates include approximately $400 million of revenue for the outdoor and active sports businesses and $34 million of preopening expenses for Gander.

While the Gander Outdoors stores opening in the first half of the year and their peak selling season -- excuse me, while the -- with the Gander Outdoors stores opening in the first half of the year and their peak selling season being the third quarter and fourth quarters, we will expect the Gander Outdoors stores to be a drag on the adjusted EBITDA in the first half of the year and accretive in the second half of the year, with quarterly progression similar to what we laid out in our earnings call -- last earnings call.

We're very excited about both the RV and the outdoor and active sports businesses, and we believe 2018 could be an important transition year for Camping World Holdings. We believe the fundamentals across the RV industry remain very strong, and we continue to plan our business around a mid-single-digit increase in same-store sales.

The unprecedented weather throughout much of the country in March and April had likely impacted the early part of our RV selling season. But there are still a long way to go and we feel very good about the early May trends.

With that said, we are going to turn the call back over to the operator and start the Q&A session.

(Operator Instructions) We will now take our first question from Rafe Jadrosich of Bank of America Merrill Lynch.

Marcus, Camping World has only really been public when the RV industry has increased at a double-digit rate and then investors really don't have a history of the company kind of going back to a period when you had more normalized growth. Can you just -- I think it would be really helpful if you can talk a little bit about how -- the earnings growth profile in an environment where the RV industry is maybe flattish or growing slightly. I'm sorry for the kind of the hypothetical question, but just given kind of where the stock is trading and the broader concerns about the cycle, I think it would be really helpful if you can put some context around the Camping World's growth outlook in a slower RV environment.

Yes. I mean, thanks, Ray. Let me address the last question first. When we decided to take the company public, we made a conscious decision to not wake up every morning and change the fundamental process in which we thought about the business. And over the last, call it, almost 15 years that I have been in this industry, there are always going to be peaks of growth and peaks of slowness. And I think from our perspective, it really is about the long-term plan. And we think back to 2008 and 2009 when the RV industry hit a few speed bumps, in fact, a couple of big speed bumps. Our focus was always to have a cost structure that was variable enough that allowed us to get through that period, but have a balance sheet prepared both with cash and with floor plan availability that allows us to seize the market. It's somewhat ironic when I read analyst reports, people that are maybe new to the industry that talk about the RV market slowing down. I'd never been in an environment where people talk about slowing down and you're hitting record highs. I understand that the growth on a year-over-year basis isn't double digit anymore. But I think what everybody needs to be careful in their estimation is that when the market slows down, it slows down for a very short period of time and, quite candidly, when I look at our online leads and I look at our foot traffic, we're not seeing a slowdown. We're seeing our ability to be able to achieve those same record results and quite frankly, it's discouraging for the people that are on the front lines when they read things about this market slowing down and they're seeing the same foot traffic, if not more, the same web leads, if not more. If cyclicality is something that people don't have a stomach for, for 6 months or 8 months, then it's probably not a good idea to invest in a business that has hints of cyclicality. But let me capture that a little differently, if I may. While the industry and the manufacturers may have cyclicality -- in short, while RV dealers purely may have cyclicality, that is the time, and I told everybody this during our IPO process, that is the time that Marcus, myself, and the management team actually wait for. We are a growth company, and we run our business 2 ways, maintain the business that we have now, manage the expenses, grow our margins, which we've done, grow our EBITDA, which we've done, grow our customer file, which we've done and be prepared from a cost standpoint for any headwind that the industry may present. I think secondly, while all that's happening, we're really strategically looking for acquisitions and new store openings that really give us the kind of growth we need long term. I think in the last 12 months, we made a conscious decision to change the way we thought about our business, dramatically changed the way we thought about our business. And we didn't believe that the RV industry by itself, singularly, was going to give our club and our portfolio products inside of Good Sam the growth that it needed to have double-digit increase on a long-term basis. Now historically, the club struggled with that. And so, Ray, I'll tell you the same thing I told you last time we were together, everybody keeps talking about a slowdown, but we're seeing record highs and record revenues and record earnings. And I mean, if we're planning on double-digit growth all the time, then it's probably not the place for somebody to

(technical difficulty)

That's really helpful. And just can you give a little bit more color about your comfort and flexibility around your inventory growth? Have you began to like reduce forward buys? How much flexibility do you have to adjust the inventory that you've already ordered?

Roger and I spent a lot of time, Roger, who runs our retail business, spent a lot of time talking about inventory. And we strategically, as I said on our last call, positioned the inventory in a way that we think poised us for the kind of growth we had in the first quarter. And we think it poises us for our ability to make acquisitions and open new stores in a more nimble way. We have the ability to brake or gas our inventory spend on a real-time basis. And so if we decided, which we're not deciding, let me be clear about that, if we decided to dramatically halt our inventory, we have the ability to do that really quickly. But we're not nervous about where the industry is, and we have zero hesitation in continuing to open stores and continuing to make acquisitions. And in fact, we believe that in the next 12 to 15 months, 25 of the Gander acquisitions, Gander stores, will have full dealership operations inside of them and we believe we have the inventory cycle and process in place to execute on all of that in addition to the acquisitions that we make in normal course.

We will now take our next question from Rick Nelson of Stephens.

Marcus, if you could, or Tom, address how sales trends may be in the nonweather-impacted markets. What you're seeing there? I know you mentioned May was strong. The weather has shifted here more recently. How that's impacted the demand?

I'll be honest with you. The smarter people in the company made me disclose weather reports. I don't ever like to talk about my business in terms of weather. Yes, was it cold? Did we have more snowstorms? Did we have more rainstorms in -- on the East Coast? Did it snow in Dallas, Texas and in Oklahoma? Sure, it did. But things are always going to happen. And at the end of the day, the customer base wants to be in the RV lifestyle. And people don't leave this industry. And if you look at the installed community over the last 40 years, did it -- it never ever retreated. And so if weather is the problem, what it really does is it delays the transaction. I think what weather impacts more than sales is customers' ability to get their unit out on the street, to get it out of storage. And so it probably slows down the service business and the parts and accessory business just as much, because I want to go camping and I want to head to Arizona or I want to head to Florida or wherever I want to go, but my unit is under 8 feet of snow. And so I can't necessarily get it there. Be rest assured that the RV-er is determined to use their product. And they don't all of a sudden get deterred by anything in the marketplace, including interest rates, including gas prices, including weather. But it may change their pattern. And while we saw better results in markets where it wasn't 2 feet of snow, we don't put a lot of stock in that. What we do want to focus on is what is happening with our web traffic, what is happening with our web leads, what are happening with our phone calls, what's happening with our foot traffic and how we're converting them, and we feel like we're executing them. Let me make one more point about RV sales, today, tomorrow, next month, next year. If everybody really paid attention to this earning's report, it talked about an increase in gross margin. And what our company is not going to do is start to chase things down the street. We're not going to try to win on price all the time by being the low-cost provider or having this race to the bottom. We believe that our company provides value for our customers, and we believe we have an infrastructure in place that provides a 360-degree level of value. And this notion that other people are going to start heavily discounting to get out of the way of something is not something that we are going to do. We're going to sell our products the same way we always have with a brand promise, with the plan to execute a good service experience and to deliver our members the type of discounts that they expect and they pay for. It's not changing our strategy. And so I want to be real clear that while the sales were only up, I don't know, 20-something percent or whatever they were, we're not driving our number by lowering prices and trying to win on price. We also lowered our average selling price for the quarter again, which is consistent with what we've talked about. And we believe that the lower the selling price, the wider the funnel. And so we're looking for a number of transactions, not top line, the same thing that we've told everybody for 1.5 year. This is not a revenue game. This is an earnings game, a great customer experience game, a build the database game and it is a marathon, not a sprint. And so any analyst or any shareholder that covers or invests in the stock, should not expect our company to deviate from the same process that we've used for 15 years, which is steady growth, aggressive marketing, aggressive acquisitions and new store openings in markets where we believe we can dominate that marketplace. That is our strategy. And weather, the stock market, interest rates, gas prices, the 13,000 warriors that work in this company are not going to change their pattern for any of those variables. We're going to deliver on what we said we're going to do for the long haul. So long and short of it, I don't really care about the weather and I would prefer not to talk about it.

Okay. The guidance, I know you reiterated for the full year. Last call, you provided some 2Q EBITDA forecast $154 million to $161 million. Are you reiterating that as well? Or do you see shifts in the quarterly performance?

It's -- April and May have started out pretty nicely. I feel really good about where things are going. The Gander Outdoors process, I intentionally slowed down because I really felt that both the customers and the shareholders wanted to see us execute that strategy for the long term. And so they have not gotten opened as quickly as we wanted them to. And we have not taken the circus approach to opening them by just setting off fireworks and spending a ton of money grand opening them. We've soft opened them. In some of the markets, they've opened up like a blaze of glory. In other markets, they've been a little slower. So I'm not prepared today to -- haven't had enough time to sit with Tom to discuss where we think the second quarter is going to land. We will shortly. But if we believe that there is going to be any adjustment to that second quarter, we promise that we will communicate that. We're still feeling very confident about our full year. We just don't know if any of that's going to shift around a little bit, and we'll have some visibility into it over the next, call it, 2, 3 weeks. But we feel confident with our annual number. But I don't feel confident enough today to tell you whether we think some of those earnings are going to shift. If they do, then obviously, we will adjust accordingly.

We will now take our next question from Craig Kennison of Baird.

Marcus, you mentioned buying inventory aggressively in part to get ahead of some price increases from your OEMs. And we've heard more from the channel that high steel costs and other factors are driving just the cost to make these units higher. Are you able to absorb any of that? And are you able to pass some of those price increases along to consumers in the same way that you might pass along higher interest rates?

Well, Craig, you and I've known each other for a long time. And so I think you know the -- part of the answer to that question, which is I'm not accepting price increases, and I'm not interested in hearing about all of the issues that create price increases because our customers don't want to hear about price increases either, and I'm not willing to absorb that on our P&L. We are sitting down with the manufacturers together trying to understand how we keep prices flat and how we take cost out of units and whether that's the way we buy or the size of the buy or the timing of the buy or the content in the unit, but we believe that we need to continue to deliver a product to the marketplace that does not have an expanding price. And while we sell mostly on payment, we still have very educated and responsible buyers who have an expectation to not see price increases. And as you would imagine, consumers aren't interested in tariffs and steel prices. And so while there have been some discussions about price increases, I know that Roger has been very point-blank with most, if not all the manufacturers, that those price increases aren't going to work for us, but we're open-minded to looking at ways to improve the process for the manufacturers. And it's important to us that the manufacturers have a high level of profitability, and that level of profitability drives their ability to service -- that services the part side of things, the warranty side of things and also taking care of the customer. But at this point, we do not have an expectation that we are going to be seeing big price increases, which obviously wouldn't result in us driving those and passing them to the customer.

And a second question has to do with your growth in used. It seemed to tick higher and higher than your growth in new units. Are you seeing any change at all in consumer behavior that's driving growth in used?

I think we're starting to see the trade cycle pick up a little bit. People that bought over the last 4, 5 years are starting to get into that trade cycle. And oftentimes used growth is a function of new growth, because when there is trade-ins, that feeds the used market. And what we saw 3, 4, 5 years ago, as we were seeing a ton of first-time buyers to the market that didn't have anything to trade, we're now starting to see those folks. Our used inventory, candidly, is lower than we want it to be. We actually think we're turning it too fast. But as I have said many times before, we're not going to go out into the marketplace and just buy inventory that we think is going to yield us virtually a 0 return. But we are seeing that used business pick up. I don't think that anybody should read between the tea leaves and say used business is growing and it's growing at a faster rate than new. I'd like to liken it to bowling. I don't care how the pins fall. I just need them to fall. And whether the customer buys a new or a used, our job as a company and our sales people's job is to put each customer in the right unit for them, their family and their budget. And in some instances, that may be a less expensive used unit or it may be a more expensive new unit that now is used that allows them to get into the right floor plan that they want. And so we don't discriminate or try to skew our customer into something that is good for us. We need it to be good for them, so they stay our customer.

(Operator Instructions) We will now take our next question from David Tamberrino of Goldman Sachs.

Just a question on the new cadence for Gander store openings. I think, Marcus, you're originally targeting maybe 70 store openings. Is that going to be completed by the end of 2018? Or is that now a 2019 event?

No, I would expect all the stores that are from the previous company that we identified as opportunities to be opened no later -- in my hopes, no later than mid to end summer. The only ones that will be delayed are the various ones where we are building full dealerships in old facilities. So there is a retrofit involved. Augusta, Georgia; Marion, Illinois; Huber Heights, Ohio just example of some markets where there were previous Gander stores. We acquired the property. We're now doing a full conversion and acquiring additional land. Going forward, it is my goal, whether it's Wichita, Kansas or Fort Pierce or right outside of Chicago, any market that we open that we are trying to open up with a 360-degree outdoor lifestyle center without adding a lot of cost. So almost the same amount of land that we used to historically have, but adding a 30,000 square foot industrial, commercial-type box to the facility. And so that requires a little more planning. But we are -- our goal obviously is to hit the stride of the Gander selling season in the fall/winter. And so we expect to get them all opened by the end of the year for sure.

Got it. And then can you maybe talk to us about how you're thinking about cash needs for the business for the remainder of the year? I know there is some incremental start-up cost, but net debt for the quarter looked like it ticked up sequentially year-over-year. Trying to think about where you would end up finishing 2018 after you get through the sort of a transition period where you're opening all these stores.

Finishing from a cash standpoint, David?

Well, just from a net debt leverage. I mean, if I'm doing the math correctly, and sometimes we do that incorrectly, as you are aware, I think you're at about 2x net debt leveraged after 1Q on trailing 12-month EBITDA, I think that's up from 1.7 at the end of last June, certainly up from about 1x your average for the majority of 2017. So I'm just trying to figure out if that should be coming down as you get these incremental companies -- incremental stores launched? And where you're targeting that for the end of the year?

So the company historically, prior to going public, was closer to the 3x range. And we were always very comfortable as a private company at 3x. We've driven that down in this environment largely to be prepared for any growth opportunities, and the strategy always was to keep the leverage lower as a public company so that we had plenty of runway to make any massive strategic acquisition that we ever wanted to, and more importantly, to be able to deploy that cash for internal growth, that opportunity for internal growth. With the cash, with the leverage that we increased not too long ago, we're making very big RV acquisitions and we also want to leave a war chest on our balance sheet. It was always our intention to grow the Gander business with cash and inventory as opposed to a bunch of revolvers and debt. And the Gander inventory at this point is virtually free and clear, absent the senior debt. I don't expect the leverage to drop much through the balance of the year. The only level that it would drop would be any change in the LTM that would affect it. But I don't see us using any of our cash to do anything other than make acquisitions, pay dividends and continue to invest in the company. I don't expect us to make any large debt payments.

Okay, understood. And just lastly, F&I continues to be strong. Is there a max value you think you can get up to or kind of runway continuum? Could that be at $4,000 gross profit per unit by the end of this year with the pace...

It's funny, David. You've asked me that question many times. I always say no to you. And then Roger continues to deliver. My answer is going to be no because I like the process of saying no and then Roger proving me wrong. But I actually don't think so. I don't think there is much more room. And keep in mind, as the average selling price drops, that number gets inflated; as the selling price increases, that number gets deflated. What we don't ever want to do as a company is sell our customers anything that they don't need, and we don't want to incentivize our management or our employees at the field level to have an F&I process that would not have goal alignment with the customer. And so we keep a very close eye on making sure that we're only selling our customers things that we believe add value to their specific purchase. I think that what's ultimately happened is that the team under Roger have done a great job in negotiating with their retail lenders, with their warranty providers, with their aftermarket providers for volume rebates and discounts that have definitely enhanced that performance. And when we make acquisitions, the team has proven time in and time out that that's really the first place that the business grows is in those acquisitions. But on a same-store basis, I would not expect much more growth other than the consistent solid performance that's existed.

We will now take our next question from Seth Sigman of Cr?dit Suisse.

Just a couple of follow-up questions here. First, as it relates to the outdoor business, wondering if you can break out the costs associated with that business this quarter, not the actual preopening costs, but the operating costs associated with the stores that you have opened and also the impact on EBITDA, if you can.

Yes. So I'll have Tom take the details, but I'll give you the color on it. It's a very simple process. There are multiple outdoor businesses out there and I'm going to break them up into categories. TheHouse is an online business that is based in Minnesota that has a very small single store and a warehouse and had exceptional top line growth and EBITDA performance for the quarter. Uncle Dan?s is a -- along with Erehwon and Rock/Creek is part of our specialty outdoor group, which were smaller independent neighborhood-like outdoor stores that don't really have any incremental cost to them because we made acquisitions of existing businesses. And so we've seen nice performance out of them. Where the incremental costs have really come up is reramping up overtons.com and the distribution center associated with that, because the inventory was essentially down to 0; reopening up the distribution center in Lebanon, Indiana for Gander Mountain, which is 500,000, 600,000 square feet of product and all the staff that it took to bring in millions and millions of product and then turn it back around and get it out; and then the cost associated with opening stores. When we exclude the new store opening expense, there are operating costs that exist in the overhead it takes to run that business, purely and almost simply made up of the merchandising department, the inventory management department and the small online business associated with that. That group that exists in Minneapolis is unfortunately nothing more than an expense at this point. And what it's doing is that it's preparing to open up all those locations. So that add back only exists to the extent that, that stores aren't open. Once they open, the pro rata EBITDA of the stores that are opened, the pro rata expense in Minneapolis and in the distribution center of the stores that are opened start to hit the P&L. When these stores actually open, the minute we flip the lights, the rent and the payroll associated with those stores, even if the register doesn't ring for a week or a half a week, that the minute they start getting in there and at least talk to one customer, that those expenses start to hit our books. And these stores take a minute to get traffic back in them, to get transactions, and we're trying to maximize the customer experience and minimize the expense. So what the business is actually incurring right now are operating expenses associated with the distribution center to fulfill the open stores and the expenses associated with the open stores, even if they've only been opened for a day and they haven't really caught their wind yet, or had their grand opening. Is that a pretty accurate summary, Tom?

Yes, it is. And just the impact to adjusted EBITDA for the outdoor stores for the first quarter was about $8.9 million loss.

Okay. And so is the expectation that next quarter should be less than that, because you will have the stores -- a majority of the stores up and running for at least a quarter at that point?

No. I would expect that to be significantly more next quarter, because some of them just opened in the last couple of days. And so they're opening at a pretty regular cadence, and they're going to continue to open. And so I would expect that to expand and then slowly start to contract in the third and fourth quarter and then look differently in 2019. And we always set the expectation that Gander was going to be a big expense for 2018. What I want to sort of make sure that you understand is, we're sending a lot of time, as we should, understanding the expense associated with opening up a brand-new business. We as a management team are not spending 1 minute not thinking about how we're growing our core RV business and that performance. And for me, the Gander Outdoors process is, you can either buy a business for $500 million or $600 million or you can start a business and own all the inventory and have the leases structured the right way, and we chose to start from scratch, knowing that it would run through our P&L for a period of time and pay massive dividends going forward. The dividends for me with Gander are more than just the cash flow that it generates. It's the database that it builds and the membership file, and it is my expectation that if you look at how much the Gander business has contributed to the club in just 60 days, 75 days, 40,000 new members in a short period of time with only some of the stores open, it's our expectation that we could crack 120,000 or more in Good Sam members, which would give Good Sam the highest growth level that it's ever seen. That is our business model. Grow the club, grow our EBITDA and be profitable. And the fact that the Gander segment is going to have losses is logical. Nobody opens up a business and makes money right out of the gates. We're confident in that, and we're asking for everybody to be more realistic about that process of opening the stores and what the P&L expense is going to be. And I'm not directing that to you, I'm just saying that in general.

Well, I guess, the question is, is it any different than what you would have expected initially?

I think it's a little bit more than I thought it was going to be, only because I slowed the cadence down. And so it could be exaggerated -- the loss could be exaggerated by 10% or 15%, because I slowed the cadence down, number one. And number two, we pivoted -- Brent Moody and I pivoted late in the game as we were negotiating leases where we were able to drop off a couple that we didn't like and add a few that we liked. But those few required us to add dealerships to them. And so we -- instead of opening up the 70 that we originally thought, we're going to open up the same number, but the mix is different, and about 11 of those are delayed. But what's not delayed is the expense that goes with the overhead in Minneapolis and the overhead in the distribution center. So I would say, yes, it's bigger than I thought it was going to be 7 months ago or even 4 months ago. But I'm very comfortable with where it is, and I don't believe that we could be much tighter. I think originally Gander, when it operated before, had 300 or 400 people in their corporate office, and we're sitting with something like 72. And that's all buyers by department. And so I feel good about it, but it definitely is more than I originally anticipated.

We will now take our next question from Tim Conder of Wells Fargo Securities.

Marcus, just to stay on that and to complete the thought, I guess, sort of clarify, you're looking at 70 stores opening by year-end, and obviously, the cadence, as you just described, pushed out here a little bit with 11 of those stores now you've pivoted on and adding RV facilities in conjunction with those stores. Is that the way we should be perceiving it?

You should. I think that's exactly right. We pushed out the cadence because we wanted to get it right the first time. And we also encountered -- I tell you, Tim, I think what happened that I underestimated. And when I visited the distribution center in Lebanon, I probably have never experienced anything like it. When you take 600,000 square feet of an empty distribution center and you try to add hundreds of thousands of new SKUs and hundreds -- and thousands of new vendors and you literally move all that product in on a brand-new operating system that you've never used before and then you have to move all that product out, it was kind of a giant (expletive) show. And we had -- luckily, we had store staff from around the country get on school buses in Greyhounds and drive to the distribution center and stay in hotels and RVs and work 14, 15 hours trying to get the product out for their store. I mean, what an unbelievable team effort. But nobody wants to hear that. What they want to know is that it was a perfect process. And it wasn't. And rather than continuing to flex that and lose people and break the system, I made the decision that my people were more important than my profits in that moment. And that yes, if we go backwards $7 million or $8 million or $9 million over the course of my lifetime, it's a blip, but it was more important to me that the people not be broken, the process not be broken, the customer experience not be broken and that's on me, not them for slowing it down. And I would stand behind it with my 35 million shares, very comfortably.

Okay. Shifting kind of back to the RV side. At this point, given the trends you're seeing here through early May, what do you see from an industry perspective, the -- kind of the retail unit sales doing in '18 here?

I don't ever want to prognosticate on what I think the industry is doing. What I keep hearing is that people are saying that -- I read a couple of reports from a number of analysts that say that people -- that things are slow. They're not slow for us. And what we're doing is holding on price, holding on process. And our goal is to continue to grow our market share. And whether we do that organically or through acquisition, we are not seeing the slowness. Have there been some shifts in some categories? Yes. The travel trailer business is not as robust as it was a year ago, but it's still more robust than it's ever been before other than the record highs. We believe we will achieve those record highs and surpass them, as we did in the first quarter. And so we are not worried about what the industry is doing. And quite frankly, if any dealer is complaining about how they're feeling in the marketplace, if it's a market that we're in, they may be feeling it from us more than they are from the general

(technical difficulty)

Okay. And then from a floor plan financing perspective, when the industry is normal -- and granted, we have not been there in the last 2 years, we've been on an unsustainable level. But when it is normal, during the off season, the industry,, historically, as they've done in boating and other areas, the OEMs have provided floor plan financing support for dealers. Do you see that returning here this upcoming fall? Or are we at a new normal?

Roger is one of the best that I have ever seen at keeping the relationship with the manufacturers at a very leveled perspective. It is our goal as the company that they make money and we make money. But where we believe there is opportunity for both parties is, we are not interested in having units sit around. And so we hold our manufacturers to a very high standard on aged inventory and quite frankly, they hold themselves to that same standard. If there is going to be assistance, it's going to come in the form of either discounts on merchandise that needs to be moved that's in the manufacturer's yard or rebates that are going to exist on units that need to be moved on dealer lots. I'm sure that there are manufacturers that have relationships with one-off dealers that can change the form of the discount. And whether it goes to the unit and it comes in the form of floor plan reimbursement, it's almost how many ways can you skin the same cat. It's the same amount of money just under a different veil. We follow GAAP. And so what that requires us to do is whatever incentives we get from the manufacturer, we're required to suspend that money, not record that discount or income on our balance sheet or on our P&L, excuse me. And when that unit finally sells, we recognize that income then. A lot of dealers, historically, we've noticed, will change that structure and have the manufacturer write them a floor plan credit expense. And so it's the same amount of money that they are going to run through their P&L as a credit floor plan, when we're going to actually set that up on the balance sheet as deferred until that unit sells. So that may change the look and feel of the P&L, but it doesn't change the -- it's kind of like form over substance. It's the same amount of money, just skinned differently. We prefer to do it in accordance with GAAP.

We will now take our next question from Seth Woolf of Northcoast Research.

Couple of questions. Just, I guess, Marcus with your comments related to reiterating full year EBITDA guide, 2Q there may be a shift. Just -- was the -- so you stated you are uncertain at this point whether or not you could reiterate it, is the only delta change in Gander? Is that the only thing that would possibly cause you to alter your outlook?

That's 100% correct. We are very confident in our core RV business that exists today and the performance of that business. And we are very confident in our Good Sam business and the performance of that business, and see opportunities for both organic and acquired growth in those businesses. The only thing that's causing me to pause is this new variable and that's part of the tough part of being public so early in this process, is we want to continue to run our business the same way we always have and when we made the decision to create the four-legged stool, there were some variables that we could tell all of you that we put it on models and we have the smartest people in the world putting it on paper. But as you know, paper to reality are 2 very different things. And it became apparent to me that in order to achieve the paper part of things, I was going to have to break people and break process and break system and compromise quality and compromise the number of things. And no disrespect to anybody, I kind of didn't really care about anything other than making sure that I didn't break that plan and I didn't break make my people, and I didn't break the process or the customer experience. And if the net result was that people speculated about the health of the company and drove the stock down and wrote all sorts of crazy things about what the company is doing, I kind of didn't really care because at the end of the day, I know this business better than anybody that will ever write about it, ever. And I know exactly what works and doesn't work. And I knew that in order for this business to be the kind of growth company that it needed to be, that I expect as the largest shareholder for it to be and you expect as an analyst and the other shareholders expect that I had to deliver a long-term strategy that diversifies the company that gave a clear path to growth for the Good Sam Club and its products, and sticking solely to the RV business was not going to accomplish that. But make no mistake about it, the RV business is the most important part of our company. It is the thing that we know how to do better than anybody. And our ability to grow it through acquisition and new store openings has not been wavered in any way. And I could argue, in fact, that our growth of the RV sector has actually happened more since Gander came around. We actually got more focused on it. And so I need everybody to have a bit of patience about this very small business called Gander that is less than 10% of our total revenue. And we're spending a lot of time thinking about it, as we should. But let's not ever be confused about what creates the ATM machine and why people invested in this company, which is it's a growth story. Period. End of story. And it's meant to grow and your number one metric of growth. And I told everybody when we went public. You want to know if this company is slowing down and it's in trouble, you look at the Good Sam Club and you look at the installed base -- the database itself. That should be the number one metric of whether this company has a problem or not. Is the club growing and are -- is the retention of that club growing and is the penetration of the other products associated with that club growing? And if the answer is yes to all of them, then you know that we're doing the right thing. If the answer is no, then you know we're not doing the right things. And it really -- I don't mean to be that simple about it, it really is that simple.

Okay, excellent. And then just one more kind of 2 parts. One of the things that we have picked up recently in our checks is that as the weather has started to break in the Northeast and the Midwest, you've really seen a lot of units start to move, especially from some of the early shows where maybe consumers came in, put a down payment on a unit, but they didn't actually start the process of financing it and taking delivery of it. But now that it's getting warmer, you're starting to see that. I know you don't want to get too detailed with some of the cadence you're seeing in the RV business, but there have been some concerns in the investment community over the last 2 weeks. So to the extent that you are starting to see an acceleration in -- April, May, you kind of alluded to being very pleased with it, I think it would be -- I think investors would really appreciate it.

Yes. I think that investors need to be very careful in their interpretation of an increase in cadence or an acceleration. By definition, the spring season and the summer season are, by definition, bigger months and quarters. And so there should be an acceleration. I think investors at this point need to really think for themselves just more logically as opposed to tactically about -- yes, in upstate New York, it was slower; in Ohio, it was slower; in Michigan, it was slower; Minnesota, it was slower, all -- that whole Northeast area. Same applies to Utah and Colorado, anywhere there was extreme weather. By the way, in the history of the RV business, there has always been some weather report that some RV dealer would like to point to, if there was a hurricane in the fall. Yes, it happens. And I think the difference in our company is that we're spread across the country and that's one of -- I think that's one of the investment benefits of our business, is that if a part of the country is hurt, like the Northeast and the Midwest were hurt, that our team members in the Southeast and in Texas, and in California pick up the ball, which is why we have an improvement in same-store sales by nearly 4%, aside from the weather. But it's going to happen, and I'm sure that next quarter I'll be able to tell you about some other phenomenon that happened that I didn't expect. Here is what I'll tell you, if you're basing your thesis solely on is there a slowdown or not, once and for all, we are not seeing a deceleration in our web leads and our web traffic. We are not seeing a deceleration in our foot traffic to our stores. We are not seeing a deceleration in the number of transactions that we're working on. What we are seeing is an improvement in our margin and a focus on not deviating from what we're doing. And I can't speak to other dealers starting to panic and sell things at the cost or at a loss and maybe stealing a unit here or there. I can't speak to that. I don't know if it's happening, I'm sure that it is. But I don't want to hear from my team is that we're going to have to all of a sudden massively cut our prices to be competitive, because my first call is going to be to the manufacturer before it's going to be to anybody else. We have to stay on path. And until I see a deceleration in leads, until I see a deceleration in foot traffic, we're not going to change our thought process. Our belief is that we price our units right from the beginning. And if you go online today and you compare our pricing to other dealers in the marketplace, we believe that we win almost every time. But we win because we add other value to that price. And yes, there may be somebody that has it priced $800 less and a customer may choose to buy only on price and not care about service or not care about any of the other benefits, and we're not going to play that game. We're not going to play the race to the bottom. You look at some of the competitors that Gander has in the marketplace and Gander has better pricing than it's ever had, and it still has good margins. And you have these other people that are in the space that are out there discounting and saying that the way they're going to win is they're going to beat on price. I mean, if everybody just wants to win on price, ultimately everybody loses. That's not a game we're going to play, not for anything. Because once you establish that pricing model, it's impossible to come off that drug. And we have a EBITDA margin expectation and a gross margin expectation. And if that means that our top line doesn't grow at the same rate or that I'm reading something now that says we missed the EPS by $0.01, which is ludicrous to me because we told everybody what the guidance was going to be and we hit it. So I guess, that doesn't make any sense to me. We are going to just stick to our plan, and we're not going to deviate for anybody or anything because we know that we're going to make more money this year than we made last year. And the last time I checked, that was actually a good thing.

At this time, we have no further questions in the queue. So I would like to turn the call back to Mr. Lemonis for any additional or closing remarks.

Thank you, everybody. For the analysts that cover our company, we're very grateful for the very thoughtful write-ups that you provide. For those who invest in this company, I think you can tell from my enthusiasm that I believe more in what we're doing now than I have in the history of this company. And obviously, if you're investing in the company, you have to make your decisions based on your information. But we're very proud of what we have, and the 13,000-plus people believe in what we're doing and we hope you do as well. Thank you very much.

Thank you. This does conclude the Camping World Holdings conference call to discuss financial results for the first quarter of 2018. We thank you for your participation today. You may now disconnect.