Camping World Holdings Inc (CWH) 2018 Q2 法說會逐字稿

Good afternoon, and welcome to the Camping World Holdings Conference Call to Discuss Financial Results for the Second 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 afternoon, everyone. A press release covering the company's second quarter 2018 financial results was issued this afternoon and a copy of that press release can be found in the Investor Relations section on the company's website.

Management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These remarks may include statements regarding our business goals, plans, abilities and opportunities, industry and customer trends, growth and diversification of our customer base and increase in market share, retail location openings, acquisitions and related expenses, increases in our borrowings and anticipated financial performance.

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

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

All comparisons of our 2018 second quarter results are made against the 2017 second quarter results unless otherwise noted. I will now turn the call over to Marcus.

Thank you, and good afternoon, everyone. Our company had a very solid second quarter in our RV business and the industry growth prospects are equally good. The total revenue for our company was $1.45 billion an increase of 13%, and an all-time high. Our business is poised for growth in the near and long-term through the expansion of our RV dealership footprint, additional RV dealership acquisitions, differentiated product offering and the integration of RV sales into our recently-acquired outdoor business. This growth will allow us to expand our RV service network, rapidly increase our customer file, dramatically grow the Good Sam Club, and grow our national RV market share. Our RV business is on pace for another record year. In fact, in the second quarter, we did over $1 billion in new and used RVs, a record 33,637 thousand (sic) [33,637] RVs sold, a nice 8.5% increase.

What's even more important is the all-time high 21,745 new towable units sold, not only was that an increase of 14.1% in total, but notably, our travel trailers same-store sales units were up a strong 6.7%. While the early part of the RV-selling season was impacted by unseasonal weather, we saw really nice improvements as the quarter progressed. Roger and his team did an excellent job of balancing promotional activities to maintain strong profitability, while driving sales growth and dramatically lowering our RV inventory levels. We achieved our stated goal of reducing RV inventory, with a reduction of more than $161 million in the quarter alone.

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

On the company's most important asset, the Good Sam Club, the final size grew to a record 1.92 million members, the highest since inception, an increase of 9.2% from a year ago. As a sidenote, we added over 85,000 members in the second quarter alone. Look, it's taken us 15 years to build the RV business into where it stands today. We ended the quarter with 132 dealership locations, and we believe the investments we are making in our people and our infrastructure have positioned us to double the number of RV dealership locations over the next 5 years.

We will continue to efficiently invest in the aggressive growth of our RV dealership platform through opportunistic RV dealership acquisitions like we've always done, new store openings and the addition of Gander RV sales dealerships in our existing Gander locations.

The strategic launch of Gander RV sales has provided the opportunity to rapidly expand our RV business in key states like Wisconsin, Minnesota, Texas, Michigan, Ohio, Pennsylvania, North Carolina, New York and Illinois, which by the way represent 9 of the top 16 RV states according to Stat Surveys, Inc., and accounted for nearly 35% of all registrations over the last 12 months.

Although the investment will be higher than anticipated this year, due to our pacing of store openings and RV dealership integrations, we feel very confident in the return on our investment when the stores and dealerships are fully ramped and mature.

In fact, while we will continue to make opportunistic RV dealership acquisitions, we think this is a very efficient and attractive way to expand our RV dealership business as compared to the cost of building new stores with high land and building cost or the payment of goodwill premiums to acquire new RV dealerships would subsequently require additional capital investment for facility upgrades and expansions. With the continued growth of the RV industry overall and the increase in the installed base of RV owners nationwide, we are making meaningful human and facility investments to increase our service capacity and to make sure that we have the best trained technicians in the industry.

For the quarter, we had a record $170.8 million in RV service, repair, maintenance and parts revenue. Clearly, an important part of our business. We're in the process of opening up our second technical school to train service technicians, and we're looking at regional service centers to increase our service capacity into markets.

In an effort to widen our RV prospecting funnel, we have made investments in the development and the acquisition of web-based businesses centric to the outdoor lifestyle customer base. E-commerce revenue for the quarter was over $41 million. While that was an all-time high, we expect significant growth in the quarters to come. We are now making additional investment both in technology and distribution to support the continued growth of this strategy.

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

We believe the completion of this strategy allows our company to become the most comprehensive retailer of outdoor products anywhere. In an effort to enhance our product and service offerings to the installed RV base, which we believe is approximately 10 million, and grow our active buyer file size, which is currently over 4.2 million as compared to 3.3 million 2 years ago, we plan to offer a full assortment of RV parts and accessories in all Gander locations by the end of this year. This would allow RV owners to access Camping World's and Good Sam's full product offering and service offering at over 200 locations nationwide.

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

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

Thanks, Marcus, and good afternoon, everyone. We had a solid second quarter and are pleased with our financial results of the business. Let me touch on some of the key highlights.

Total revenue increased 13% to $1.45 billion. Both segments contributed to the increase, with retail up 13.1% to $1.39 billion, and Consumer Services and Plans up 9.7% to $52.7 million.

In the Retail segment, new unit sales increased 11.5% to 24,442 units on a total basis and up 2.4% on a same-store basis. Other highlights included a 43.6% increase in parts, service and other revenue and a 23.7% increase in finance and insurance revenue. Included in parts, services and other revenue was $79.5 million in sales from the outdoor and active sports retail businesses.

Consolidated gross margin decreased 33 basis points to 28.8% of total revenue with gross margin in the Consumer Services and Plans segment up 325 basis points to 60.5%, and gross margin in the Retail segment down 44 basis points to 27.6%.

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

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

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

Turning to the June 30 balance sheet. Working capital and cash balances were $593.3 million -- or excuse me, $593.2 million and $212.4 million, respectively. Total inventory increased 5% to $1.49 billion versus year-end levels, primarily from new stores acquired or opened. Inventory of new vehicles decreased 12.7% in total and decreased 18% on a per dealership basis from December 31 levels.

Inventory related to our outdoor and active sports businesses was $292.8 million at quarter end. At June 30, 2018, we had $1.16 billion in term loans outstanding under the senior credit facilities, $854.6 million under floor plan notes payable under our floor plan facility and $24.4 million of revolving line credit borrowings under our floor plan facility.

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

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

Our revenue remains strong as we come off the record quarter. We are raising our revenue guidance to $4.9 billion to $5.050 billion, based on the continued strength of our RV business and the RV market. As mentioned above, we have increasing investment in our newly-acquired outdoor businesses, including the expansion and integration of our RV business. And as a result of the increased expenses associated with this expansion, we are revising our 2018 consolidated adjusted EBITDA outlook to the $370 million to $380 million range.

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

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

(Operator Instructions) And we'll take our first question from Craig Kennison from Baird.

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

No. We're seeing the same sort of strength that we saw in the second quarter continue into the third quarter month. So we're not seeing any jump at all.

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

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

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

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

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

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

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

Well, no -- I just -- I couldn't hear what you said, and I'm trying to figure out how much of a downward revision you made and the puts and takes that drove it.

Yes. So the lowered range is not reflective of any significant change in the profitability of our RV business, but rather the result of increased investments to really expand fast. We're trying to dramatically increase our footprint. And so those expenses associated with that rapid expansion are running through our P&L as opposed to running through goodwill. And we're adjusting our guidance down to $3.70 to $3.80, but adjusting our revenue up.

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

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

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

I'm going to have Roger answer that.

David, thank you. I think that what we're seeing is that our used inventory is performing very similar to what it has done in the last year, is that we don't do a lot of purchasing at auctions. We rely principally on consignments. We rely on trades to be able to build that. Our used inventory is up, but our stores are up also. And what we're seeing is that even though we have a little better supply of used inventory at this point in time, that, that market, the new market is strong, particularly in that entry level, and then we also see a very good market in the used inventory. I would actually welcome more used inventory without believing that it was going to be detrimental to our new sales.

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

Look, I can't speak to what's happening with other dealers. I know that our inventory is in great shape. But what I can tell you is in the acquisitions that we're looking at today, we're seeing normalized inventory levels in the handful, 2 handfuls of acquisitions that we're looking to make. And is there an exception to that? Maybe. But from what we're hearing in the marketplace, inventories have really right-sized from what we can tell.

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

Is it possible to separate the EBITDA performance in the quarter, and as well as your guidance between the Gander Outdoors and the RV business?

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

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

Okay. So the investment that you're making this year, how much of that EBITDA do you think you get back next year? Or is this, in fact, a multiyear investment program?

So it's -- we don't want to forecast 2019, but what I will tell you is that we have, over the last several months, built multiple models that show us the investment into this rapid expansion, which happens to include in large part these additional locations in those key states. When we look at the investment, which includes the purchase pricing, the original IP and the leases associated with them, the capital expenditures associated with it and whatever operating losses exist to ramp it up, to sort of get moving, that when these locations are fully mature, we believe that the revenue of these locations will be somewhere right under $1.4 billion and $100 million of EBITDA. If you do that cash analysis on the items that I mentioned, purchase price, CapEx, operating losses, things we can't get back, it's a 43% return. If you include inventory deployed and even though it's fungible, if you include inventory deployed, then the capital return would be 23%. And anything north of 20% for return on capital for us, quite frankly, exceeds mostly everything we've historically done. It's doesn't mean we're not going to make acquisitions, but we really like, not only the return on this capital, but we like the key states that it puts us in that we otherwise have not been able to successfully enter.

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

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

Yes. I'm going to answer the second question first. The investment, clearly, from a capital standpoint, is very heavily front-loaded. And that in our analysis, much like we have over the last 15 years, where we've opened up stores, we have noticed that it takes 12 to 18 months to get to that level where we feel good about the returns. In this particular case, we believe the bulk of the money has been spent and we're looking forward towards reversing that trend and meeting these return thresholds that we internally and shareholders have set for us. In terms of where we are, 60 stores are now open. The experience that we believe the consumer is recognizing when they show up in our stores is healthy and solid. We are now starting in the month of August to market the business as now open. We waited until we got all the kinks out of the way. The distribution center is very fluid now. We've received all the inventory, and we're now in a position where we're making sure that the inventory that we're repurchasing or the inventory that we have is best put to use. But so I would say, the heavy lifting to get open is over, and now we are excited about the heavy lifting to crank this up into the type of revenue that we're used to.

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

So there are 60 locations today, and even if they don't sell RVs, they will be co-branded with Camping World on the building. So if you went to Peoria, Illinois, it's Gander Outdoors and Camping World. And that really came from our members asking for more outlets. So that's number one. Number two, when we look at the Gander Outdoors and RV consolidation, what we did is we took the forecasts from both businesses, and we essentially put them together. And so when we talk about $1.4 billion of revenue and $100 million EBITDA, that includes all of the Gander locations, in total, whether they have a Camping World accessory store or a dealership, and all the dealership operations and service operations and F&I operations inside of them. What it does not include is the revenue and profitability generated from the sale of Good Sam memberships, from the applications and take rate on the credit cards and from the warranties associated with the products that we sell there, which we have never included in our dealership business. We expect that to be hundreds of thousands of members a year, obviously, giving us new customers and a wider funnel for our entire business. But the numbers that I gave you are purely from a fully-loaded box of all of them combined but does not include the return on capital from -- that Good Sam enjoys.

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

Look, historically, historically, it takes us 12 to 18 months to get to what we consider fully ramped and mature. We believe that, that clock has started to tick. In our opinion, in my opinion, we're probably 8 to 9 months inside of that window. A couple of dealerships have opened already. For those who attend next week you'll see one of the first ones in Kenosha. And we'll be able to talk to you about the shocking results that have come out early on. But 12 to 18 months is our historical model, and we know that we are deep into that. The difference is, is that the bulk of the capital, if not most of it, has already been invested. So as these dealerships open, we do not expect anything more than a de minimis amount of capital that has to go in to put some desks in and to [add a sign] for compliance. But for the most part, the heavy lifting and the heavy lifting of the expense is in this number.

We will take our next question from Brett Andress with KeyBanc Capital Markets.

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

So we have nothing in our core business, both our RV business, our service business, our parts business, our Good Sam business, that have any margin compression of any significance. And we're expecting to continue that revenue to go. I think for the most part, and Tom may clarify it, the bulk of this are personnel occupancy and marketing costs associated with the ramp-up of the expansion of these locations, which include RV dealerships. So I guess, the short answer is, through the SG&A line, not inefficiencies.

That's correct.

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

So that's a really great question. We want the investment community and our shareholders and our consumers to look at Gander Outdoors no differently than they look at a Camping World location. Today, when you go on to a full-fledged dealership, the parts and accessories business is actually a separate legal entity from the sale of RVs. Now while we manage that location holistically, both in compensation and supervision, they are bifurcated. When you go to a Gander Outdoors location, it is the same exact concept. There is a subset of that location that has products and services, and it goes into the Retail segment. And then there is a portion of revenue associated with the sale of the RV, the finance of the RV, warranties and products associated with the RV and the service, repair and maintenance of that RV that sits in our FreedomRoads legal entity, which is our dealership business. It's no different from how we report it today. And we thought it was important, very important, that everybody on this call understand that when we talk about these additional locations, we're not -- we have not allocated any of the occupancy cost, any of the overhead, any of the labor. We have not allocated any of it to our dealership business so that everybody can see it eyes wide open. When we consolidate the revenue, we will consolidate the revenue, the gross profit, the margin, the expenses to provide a consolidated P&L.

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

I guess, I just wanted to start off with first, Marcus, you said that the sales performance that you saw at the end of the month has continued thus far through the first week of August because when we were on the first quarter call, obviously, April was a lot weaker than you had anticipated. I think maybe it would be helpful if you could provide any context as to what the back end of 2Q looked like, and maybe with the run rate that we're running at now.

I don't want to provide any specific guidance for what we think the third quarter or the fourth quarter will be up or down in units. But what I can tell you is that as you can see the results for the second quarter in our primary RV units, we're positive both overall and on a same-store basis. It is true that April, when we saw you and we saw other analysts, that April was a rough month. We got beat up in the Northeast and in the Midwest because of weather, and we were able to rebound very nicely in the following 2 months, that obviously made up for any trend that we were fearful of coming out of April. I will tell you that the trend that we're seeing in July and in August is consistent with the quarterly trend. And for clarity's sake, we feel very good that we are managing promotional activity, managing inventory and managing market share at the same time. We don't want to be in a model where we have this race to the bottom where we can go out and buy business. That's not our business model. We want to maintain our margins to maximize profitability, and we want to make sure that we're not beat by our competition. But if somebody is going to sell something at $1,000 loss because they have whatever issue they have, we're not in that game. But if somebody walks in our front door, as long as it's cash flow positive, we obviously want to make as many transactions as we can. But it is not -- we're not generating revenue because we're undercutting everybody on price. You can see that in our margins.

Okay. Perfect. And then, I guess, sticking with the margins for a second. Marcus, Tom, you made very clear that there has been no change to the RV business as a function of Gander, which has been kind of -- there's been a lot of moving targets with Gander as you guys ultimately decide how you want to operate that business. But I guess -- so you were originally planning the margin to decline. Is that a fair way to interpret those comments? Or was that, maybe, a little bit related to working the inventory down and how should we think about margins in the back half of the year?

I'm sorry, Seth, when were we talking about the margins going down?

I'm saying -- I was asking if you were, because it looks like margins sequentially got worse, the gross margin performance in new and used because more pressure, sequentially.

Well, I know that there was a minor amount of pressure. But as we've said historically, we look at the gross profit on the transaction holistically. We take the front end and the back end combined. And at the end of the day, our teams are compensated for their performance on a transaction. And in some cases, we have a very healthy front end because there's scarcity in the product itself. In other cases, we have a very healthy back end because we sell the value of our products and services. And so as Roger thinks about managing his team, and as we think about that, when we look at our margins on the transaction as a whole, any adjustment up or down is de minimis. We expect our margins for the balance of the year to be consistent with what you have seen in the second quarter, which we feel very good about because we felt like we've balanced the promotional activity, and we were able to drop our inventory by $161 million without just fire sale-ing everything. We felt like we threaded that needle very well.

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

I want to address -- if I may, I'm going to address it in 2 parts. First, I want to address the comment that you made earlier that we were sort of finding our sea legs on our Gander strategy. We have our legs, and they are firmly planted. Our stores are open. We believe our assortment is right, and our customers are showing up. On a Saturday, we're doing 12,000 to 15,000 transactions. As we integrate these dealerships and/or our Camping World parts and accessories stores and/or a full Overton's, we look at these company plants as real estate locations that have below market rents with the opportunity to sell everything in our lineup, largely led by the sale of RVs, largely led by the sale of RVs. While I don't want to give a forecast for 2019, I'm not prepared for that. As I stated earlier, we believe the bulk of the investment has been made, and we believe that when these are fully mature and ramped up, this will generate around $1.4 billion worth of revenue or about $100 million worth of EBITDA. And as we have demonstrated in the past, it does take us 12 to 18 months to get [food up] maturation [processes] (technical difficulty). We believe we are into that process not at the beginning of that process. Part of the reason that we raised our revenues a little bit for the balance of the year because those units are starting to come online, and we obviously want to give full transparency about the timing of those and how they happen.

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

It's Rafe. Marcus, when you spoke about the improvement in inventory, I think you said you were able to balance promotions. So can you just talk about where you were promotionally in the second quarter compared to the first quarter? And then, how do you think about that going forward?

Look, I think Roger and I have come to the conclusion that we want to grow, and we want to grow both organically and through acquisitions and new store openings. But what we have to remember is that the people on our front lines and our management team are all paid on the results of their transactions. And when we talk about increasing promotional activity, that means ramping up digital advertising, ramping up event marketing. It doesn't mean that all of a sudden, we're undercutting or cutting prices. Now granted, if we have a particular floor plant or unit that maybe isn't moving the way we want it to, or we feel like we have one too many of something, the individual store managers and their markets have the latitude to do what they need to do in their local market to be competitive, manage their inventory and maximize their profitability. We don't believe that there's any change that will happen in the third quarter from the second quarter because we want to be aggressive, but aggressive doesn't mean heavy discounting. Aggressive means strong strategy, a very laser-focused digital marketing strategy and improving our sales process at every turn. We know that manufacturers are well poised and well positioned to sell us inventory in the back half of the year. And we are -- really, we feel we're at a position to really take advantage of those opportunities, maybe even before some of our competitors.

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

Look, our relationship exists solely, not solely, but largely with 3 primary companies: Fore, Winnebago, and Forest River. And we believe that each one of those companies has managed with a lot of temperance and a lot of intelligence, and a lot of, I think, and with smarts. And we don't believe that any of them are in any dire inventory position where they have to have a fire sale. Now as I remind everybody, we are the largest buyer of RVs in America, and we're the largest seller of RVs in America, and this is an unregulated industry. And so through our normal course of business, we do enjoy normal rebate programs and aging assistance because of the sheer volume. But that doesn't mean that there may not be some opportunities to pick up a point or 2 here or there in the back half of the year. Obviously, we want to make sure that our partners make money, and we make money. But we don't see any, at least with the vendors we deal with, we don't see any reason why they are distressed or panicked to do anything out of the norm.

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

The primary goal behind Gander Outdoors was to find additional locations in key markets where we could sell more RVs and do it more capital-efficient than we could through building or making acquisitions. The secondary benefit is that we are finding new customers for our funnel. And as that funnel gets wider and we start prospecting with people who have an affinity for the outdoors, they may be at a different level of the funnel, maybe higher in the funnel. But as we've seen in Kenosha and in Roanoke and in Fayetteville, those are our early Gander RV locations, we have seen shocking success in being able to attract those consumers to the RV lifestyle who maybe never knew about it before. I think the biggest thing for us is, we believe that this strategy, while expensive, still with a good return, puts us in front of customers that we otherwise would have never seen. And that is part of growing it. When we look at the growth of the Good Sam file, we believe that in the next 30 to 45 days, we will have broken the 2 million member mark, which is a big, big milestone for our company. And we're growing now at a pace that is double, maybe even triple than the club has ever grown, and we've seen a modest increase in our retention of about 0.5% as well. So that story is starting to become clear, that we are an outdoor company. And whether you hunt, fish, camp, do whatever you do, you do it in an RV. You drive there in an RV. You stay in an RV. You do your activity, and you drive back. And that's really how the story has jelled for us internally as well. New people who didn't know who now are taking advantage of it as well.

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

Just a couple of clarifications first, if I may. The comment about the RV side inventories year-over-year, they were down $161 million. Is that correct?

Yes, sir.

From quarter-to-quarter.

From quarter-to-quarter (inaudible).

Sequentially. Okay. Okay. From Q1 -- okay. And then, Marcus, still looking by year-end, I think you had made a comment along the way that your non-RV unit-related inventory, so PG&A, all the retail side, that, that collectively could be down 15% by year-end. Is that still -- I just want to make sure I had that right, that portion first. And then, if that's right, how is that still tracking?

I think that, ultimately, what we want to do for the balance of this year, and I want to keep in mind that any money invested in inventory is fungible. It's not like CapEx. It's not like losses. That can be recovered and put back in the bank, and that obviously is our plan. As we have tried 2 strategies and tested them, and we've seen significant results. Number one, we took 3 Camping World stores, historical Camping World stores, and we integrated a mild assortment of products that are typically existent solely in Gander. And we have seen, in a very short period of time, we look at like the quarter, for example, we saw a modest double-digit increase in those stores. And it did tell us something, that if we can be more efficient and more selective at our existing 140 Camping World stores, that there's an opportunity for growth over the next 2 years in that business as well. Conversely, when we look at our Gander locations, we now are putting full Camping World parts and accessories assortments in those stores. And so Camping World will now have, essentially, for its -- the true Camping World consumer, by combining all these assets, will have 200 locations in a matter of 6 months to shop from as opposed to 140. Once those stores are set, and we see what products are doing well and what products are not, it is Tom's, Roger's, Brent's, and my expectation that we will then sell down in those categories that did not perform like we had hoped, and pull that inventory back into the cash register, back into the bank. And if we have any location of the Gander's that for some reason don't pan out, right? So if for some reason one or 2 of them don't work out, we will not let that linger. We do not have a pride of authorship. We will make a move, if we have to, to pull that inventory back in and get out of that lease. And so there is no pride of authorship in this process, but there is pride in making sure that we utilize our combined assets to maximize the return for the shareholders.

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

Our company goal, not in a couple of years, but in short order, is to be brand-agnostic to what's on the front of the building. Obviously, if a customer went there and they saw everything, he would act like a duck, smell like a duck, and walk like a duck. There are some categories that we do not have at Camping World that we probably won't, that are unique to that business, and that are unique to those specific markets. Well, we need that traffic. But when you walk into Kenosha, it will look a lot like an RV dealership, and we'll see it next week. When you go to Roanoke, or you go to Fayetteville, we really look at how many brands can our company own, either nationwide or in the same market? Camping World? Gander? We have RV World. We own some today, and we operate them. We're opening a few more. And we have independent RV dealer names like Nelson's or whatever it may be, John's RV. And so we're not married to one brand. We're married to growing our file size, growing our database, and growing our market share, and doing it with the most efficient use of capital.

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

15 years ago, we decided to start this business. And Roger and I, in the first 5 years, we're trying to figure out how to build the model that was scalable, and we were testing a lot of things. And in the next 5 years, we had a huge growth spurt. And then, we had a slight downturn in 2008 and '09, where we supercharged coming out of the downturn. We believe that we are well-positioned, both from a human capital standpoint, a balance sheet standpoint, and a real estate standpoint to double the number of RV dealerships we have today or at the end of the quarter, 130-something, in the next 5 years. And so when I talk about aggressive, we're saying we're going to do everything in the next 5 years that we did in the first 15 years. And while that may seem bold, it's not as bold as it sounds. Predominantly because of the way our business is structured. It's structured in regions. We have an operating system. We have the controls in place. We have the inventory buying process in place. And we have the ability to make acquisitions in 75 or 90 days. We have the ability to build stores with our construction team, and we have the ability to integrate into these existing locations, of which the shareholders are paying for in 2018. When you see the returns of 23 with inventory and 43 without, you'll see why we wanted to be aggressive because we need to double the size of this business. What we don't want to do is give any color around the rest of the industry. Right now, we are laser-focused on every single one of our locations and hitting the metrics that we're talking about, which is getting this great return off this investment. We feel the industry is strong. The manufacturers are telling us the industry is strong, and we feel like we're a good bellwether because we have stores coast-to-coast, North to South. We feel we're a good bellwether for the health of the industry. That survey shows you that in our core business travel trailers, we outperform. We hope to always outperform, but we want to manage that with margin and profitability.

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

I understand you want to look at margin holistically, but I'd like to take a closer look at margin on new RV sales down 150 basis points. What were you impacted by? Mix, cost pressure, pricing, et cetera?

I don't know that we were impacted by anything that was abnormal. I mean, when you get into the heat of the summer selling season, everybody gets a little more competitive. And I'm sure there were certain markets, like Dallas, for example, where we were trying to really grow explosively and we may have decided to be slightly more aggressive in a vacuum. As you can imagine, when you have men and women on the front lines in the Midwest and the Northeast that were coming out of a terrible winter and a terrible April, they're trying to recapture their earnings for their own personal pocketbook. We give them the latitude to be aggressive in those markets to either get that business back, claw it back and make up some ground. In no way, shape or form did Roger and I -- because 1.5 isn't material enough to do that. In no way did we say, "Let's just lower our prices and go for it." But I know that there were markets that we've strategically needed to do that because we're playing catch up or we want to chase somebody else because we're new to the market. I don't think it's anything to be alarmed about. We are happy that we were able to lower our inventory even more than we thought we were going to. I guess it's a positive byproduct. We believe that as we buy that inventory back over the next 6, 8, 12 months, we will be able to replace it at a cost that will give us that margin back. Will it give us it all back? We don't want to set that expectation, but we don't see any trend that anybody should be alarmed about on, specifically, a very small erosion in new margins because we had a very big explosion on the F&I side. And that's how we look at it. So quite frankly, it's hard to tell a guy, hey, I know you cut the deal because of X, Y, Z, but you made it up by doing X, Y, Z, and in total, you're ahead. That's how our people are compensated, and we don't want to change their thinking or methodology. We are managing it to make sure it doesn't become a deeper trend than that.

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

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

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

We have never seen the RV consumer say, forget about it, I'll do it next year. We hope to get some of that back. It's not in our forecast. We would have to really change our pricing model to claw that back, and we don't want to change our philosophy and how we're operating the business. We're talking about 50, 60, 70 units in certain markets. We don't want to change our overall strategy to find 50 units because we think the margin compression and the profit compression would far exceed whatever we picked up in that revenue.

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

So I just want to understand the kind of the EBITDA opportunities in Gander. So just looking at the revision to guidance today, it looks like Gander will be on the order of a $60 million EBITDA loss this year. And then -- so the expectation is that, that goes to $100 million EBITDA profit in 18 -- 12 to 18 months. So it's $160 million swing. Is that the correct way to think about it?

Yes, sir.

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

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

Sure.

So obviously, in any business that's starting up, there's a certain amount of labor that isn't add back-able. When you open the doors and you start training, and you're trying to get the customer back and you're marketing. And so some of those, while they're not add back-able, they're not repeatable because you get a certain amount of momentum and traction that start to build some tailwind, right? What we were overcoming was the company that shut down and heavily liquidated. And so we have to climb back out to tell people, "A, we're open. B, we're different. C, look at our new shiny objects that are here." It does sound like a big leap. But when you start integrating RV sales and RV service, and you start to get some tailwind behind those numbers, it moves pretty quickly because the fixed cost structure is fixed. And so as we add RV sales or RV service or Camping World products to these locations, it doesn't require incremental labor, it doesn't require incremental rent or electricity, or taxes or any of those things. And so really, it's like going from a dead stop to a full, healthy marathon. And that -- I know that seems extreme. We don't want it to seem that extreme, but it is from starting from scratch to just getting normalized. We experienced -- by the way, this is a very important point. In the history of our company, we have, on several occasions, bought a piece of land, built a store, put a Camping World there, and added a dealership. Omaha, Nebraska; Springfield, Missouri; Council Bluffs, Iowa. We've done it at Roanoke. We've done it over and over again. And when we do that, we experience a burn for 12 to 18 months. The difference is, we're doing this in a clump. And we feel good about that because we're getting scale, and we're getting economies out of it. And while the investment is all up front, we feel like we'll accelerate this growth and accelerate the volume of the company pretty quickly.

Great. That's very helpful. And just as a follow-up. You mentioned earlier some investments in the digital capabilities. Can you just talk about what percentage of RV sales are done online today? And how that's been growing? And where you think that can [big] ?

So we report and record 0 revenue from the sale of RVs. We use the internet and our web strategy to generate leads for a [warm] transfer to a qualified sales professional that's going to talk to our customers and obviously convert them into a sale. The revenue that we're talking about on the web side, which we think has a ton of white space and we're very excited about it, is campingworld.com, where RV parts and accessories are sold; overtons.com, which is where all of our fishing marine and boating products are sold. Gander, The House, Uncle Dan's and Erehwon. And the move that we're making is to consolidate the disparate systems that they've historically operated on and the disparate distribution centers that they've historically operated on and consolidate them into, to start with, one single DC in Greenville, North Carolina, a DC that has historically excelled at online fulfillment. We have made some human capital investments and changes and some technology investments that will allow a new system called Demandware to be installed. When Demandware is installed, every brand that I mentioned, plus any additional brand that we launch, will be able to, with a click of a mouse, pull any bit of inventory or assortment out of the centralized warehouse and have it live within 24 hours. Never have we ever had anything like that. So Camping World will be able to offer seasonally whatever is in the vault. Gander, the same thing. And so whether we have master brands or whether we start creating micro-sites, like chair wall, the grill wall, the cooler wall. It changes the landscape of our online presence. I want to add one more layer. When you look at the way folks search online using strategic keywords to find the product they are looking for, we believe that with this strategy in Demandware, we'll be able to rank multiple brands in the higher ranking of any organic or paid search in the categories that we dominate. It's difficult to do that with one brand like Camping World. But when you show up with 5 or 6 brands with a different presentation and a different marketing, and they all rank high in that strategy, you start to capture them through one of your webs. That ultimately was our strategy. And the way that we wanted to do that is to throw them into our funnel, the outdoor prospecting funnel, and then sell them an RV or sell them some related product. We had to come up with an affordable and efficient way to widen our funnel and widen the breadth of our offering and differentiate ourselves.

Great. And then, did you mention you could also be selling through Amazon as well? Be it the goods at Camping World and other products as well?

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

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

Thank you for your continued interest and support of Camping World. As we look to double the size of our business over the next 5 years, we look forward to speaking to you again on our third quarter earnings call in November. Thank you.

Thank you.

Once again, that does conclude today's conference. Thank you for your participation. You may now disconnect.