SG&A Reforms And Dealership Consolidations Will Strengthen Operational Resilience

Key Takeaways

• Strategic dealership expansion and growth in the used vehicle segment strengthen revenue and market share, supporting earnings and margin improvements.
  
• Cost optimization and strategic positioning against tariffs aim to boost net margins and stabilize earnings through efficient SG&A and manufacturing strategies.
  
• Efforts to reduce SG&A costs and deleverage reflect potential risks to revenue and margins if unfavorable market conditions and economic pressures persist.

Catalysts

Together its subsidiaries, retails recreational vehicles (RVs), and related products and services in the United States.

• The company is committed to improving SG&A as a percentage of gross profit by 600 to 700 basis points, which is expected to boost net margins as they reduce headcount and optimize dealership consolidations and efficiencies.
  
• The growth in the used vehicle segment, with a 30% increase in used unit sales, is projected to continue driving revenue and improve gross margins, as the used market provides a buffer against potential new RV price increases.
  
• Expansion and profitability of existing and new dealerships, such as the nine dealerships opened during the quarter, indicate sustained revenue growth and increased market share, supporting earnings improvement.
  
• The company’s strategic positioning to hedge against potential tariff impacts with its contract manufacturing strategy is expected to maintain stable gross margins and protect against cost fluctuations, aiding net margins.
  
• Investments in Good Sam’s infrastructure aim to stabilize margins and promote long-term earnings growth, indicating a focus on improving the quality and resilience of revenue streams.

Camping World Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Camping World Holdings's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.5% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $338.9 million (and earnings per share of $2.98) by about May 2028, up from $-28.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from -30.4x today. This future PE is lower than the current PE for the US Specialty Retail industry at 15.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.41%, as per the Simply Wall St company report.

Camping World Holdings Future Earnings Per Share Growth

Risks

• SG&A costs have been reduced through headcount reduction and dealership consolidations, which could indicate potential difficulties in sustaining revenue and managing net margins if challenging market conditions persist.
  
• The company has expressed concerns about leverage and is taking measures to deleverage, which might imply risks to earnings if they fail to improve their balance sheet as planned.
  
• ASP (average selling price) softness, driven by a shift towards more entry-level products, could impact revenue growth if consumers prefer cheaper models, putting pressure on overall gross profits.
  
• Potential tariff impacts and material OEM price increases could strain costs and consumer demand, adversely affecting revenue and earnings if not effectively managed.
  
• Uncertainties in consumer confidence, macroeconomic pressures, and credit availability could threaten long-term revenue streams and net margins if economic conditions worsen.

Valuation

• The analysts have a consensus price target of $20.583 for Camping World Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $30.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.5 billion, earnings will come to $338.9 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 8.4%.
  
• Given the current share price of $13.88, the analyst price target of $20.58 is 32.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.