Camping World Holdings, Inc.
Q2 2017 Earnings Call Transcript

Published: 11 Aug 2017

[Operator:]

Good afternoon and welcome to Camping World Holdings Conference Call to discuss Financial Results for the Second Quarter of 2017. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instruction] As a remainder, this call is being recorded. On the call today from management are Marcus Lemonis, Chairman and Chief Executive Officer; Tom Wolfe, Chief Financial Officer and Brent Moody, Chief Operating and Legal Officer and Roger Nuttall, President of Retail. I'll turn the call over to Mr. Moody to get started. Please go ahead, sir.

[Brent Moody:]

Thank you and good afternoon everyone. As you've probably seen a press release covering the company's second quarter 2017 financial results was issued this afternoon and a copy of the press release can be found in the Investor Relations section on the company's website. Our remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These may include statements regarding our business goals, plans and abilities, industry and customer trends, growth of customer base, retail location openings and acquisitions and anticipated financial performance. Actual results may differ materially from those indicated by these statements as a result of various important factors, including those discussed in the risk factors session in our annual report on Form 10-K filed on March 13, 2017 with the SEC. Any forward-looking statements represent our views only as of today and we undertake no obligation to update them. Please also note that we will be referring to certain non-GAAP financial measures on today's calls, such as adjusted EBITDA and adjusted EBITDA margin, which we believe may be important to investors to assess our operating performance. Reconciliations to these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings release, which is available on our website. With that, I'll turn the call over to Marcus.

[Marcus Lemonis:]

Thank you and good afternoon, everyone. On behalf of our nearly 9,000 employees we are very proud to report exceptional quarter results across the board. Our total revenue increased more than 20% to a record $1.28 billion. Net income increased over 26% to a record $105 million. And our adjusted EBITDA increased 36% to a record $142 million. Consumer demand for recreational vehicles remained very strong in the marketplace. And we continue to outperform the industry. Most importantly, we've been able to sustain our margin and leverage our revenue growth to deliver strong bottom line performance. We intend to remain very focused on strong margins, profitable revenue growth and the growth of our proprietary customer database. By cross selling a comprehensive portfolio of products and services to growing a database of outdoor enthusiasts over a long lifecycle period, we're maximizing our return on what we consider our greatest asset. We believe that the model works and we feel like, we've proven that. Our second quarter results are further evidenced of this theory. We also believe that this model can be extended into a broader base of targeted consumers, who's sharing affinity for the outdoor lifestyle not just the RV lifestyle. Our national network of 137 RV-centric retail locations. Our proprietary customer database and our wide array of RV-centric and outdoor products and services have positioned us as the leader in the industry. While we intend to always remain focused in our core business, the RV lifestyle and our growth opportunities in that industry, we believe our existing base affords us a unique opportunity to make significant impact on the broader outdoor lifestyle category. We're extremely excited about the future on many opportunities. The RV business and industry remains very strong and we've seen no change in the underlying trends towards driving that business. We continue to see growth in smaller towable units and younger first time buyers entering the market. At the point of sale, we have worked very hard to better integrate the selling of our F&I process and we continue to see strong results. Our F&I, finance penetration rates are higher than they've ever been with the sale of our F&I products contributing to our very strong profit margins. We also had contributions around improved gross margins from our Good Sam TravelAssist and roadside assistance programs. In the second quarter, we added 10 new RV dealerships from acquisitions. Opened one new greenfield location and acquired two Overton's locations as part of the recent Gander Mountain, Overton acquisition. Our growth pipeline remains full and we continue to see many acquisitions in greenfield opportunities. Additionally, we continue to finalize all plans for the Gander Outdoor and Overton businesses. During the quarter, we changed the name from Gander Mountain to Gander Outdoors and we revealed the new company logo. We're in the final stages of negotiations with numerous landlords and the final number of initial locations will largely be dependent on the results of those negotiations. As I've consistently stated, we will only open stores that have a historical level of profitability and also have a clear path to profitability in the future. In line with that, we believe to be a unique opportunity to expand into the broader outdoor lifestyle market and leverage our existing array of products and services. We're focused on locations that can offer all of our Gander, Overton's, Camping World and Good Sam products and services for the RV, boating and outdoor lifestyle. With the first of these locations targeted to open in November and our continued acquisition efforts and our new store opening strategy, we intend to increase our borrowings in the coming weeks. Those are my prepared remarks and I'm now going to turn the call over to Tom Wolfe, our CFO to take you through the financial highlights of the second quarter.

[Tom Wolfe:]

Thank you, Marcus and good afternoon, everyone. As Marcus stated, we had a very strong second quarter and are very pleased with our financial results. Let me touch on some of the key highlights, please note that unless stated otherwise the comparisons are to the same period in 2016. Total revenue increased 20.1% to $1.3 billion and the same store sales increase of 10.6% and $177.1 million from these stores. Both segments contributed to the strong growth with retail revenue up 20.7% to $1.2 billion and consumer services and plans revenue up 5.9% to $48.1 million. As we said in the past, the continued trends towards towable units and younger buyers continues to be a net positive for the overall business. We believe this creates continued expansion of the RV customer base and allows us to cross-sell a greater number of other higher margin and recurring revenue products and services. Most notable are our roadside assistance and retail financing insurance programs, which experience healthy increases in the second quarter from an increase in the number of dealership and higher penetration. The biggest standout again was finance and insurance revenue, which increased 44.5% to $101 million and to 10.5% of total vehicle sales up from 8.8% in the prior year period. Gross margin increased 102 basis points to 29.1% of total revenue. Retail gross margin increased 124 basis points to 28% of segment revenue, while consumer service and plans gross margin decreased 40 basis points to 57.3% of segment revenue. Increased penetration of finance and insurance product along with a 593 basis point increase in used vehicle gross margin were the primary reasons for the gross margin increase. Operating expenses increased 20.4% to $236.1 million with the majority of this change coming from 20% increase in SG&A expenses to $220.4 million. The increase in SG&A expenses was primarily driven by increase variable wage related and selling expenses associated with same-store sales revenue and 17 new dealerships operated during the quarter. Along with $2.1 million of transaction expenses and $1.4 million of pre-opening and payroll costs associated with the Gander Mountain acquisition. As a percentage of gross profit, SG&A expenses decreased 227 basis points to 61.3% which includes the impact of $2.1 million of transaction expenses and $1.4 million of pre-opening and payroll costs associated with the Gander transaction. Floor plan interest expense increased $1.2 million to $6.6 million from $5.4 million primarily due to higher average inventory which was impacted by new dealerships compared to the prior year period. Partially offset by a 6 basis point decrease in the average borrowing rate. Other interest expense decreased 16.1% to $10.6 million from $12.6 million in the second quarter last year. Primarily related to a decrease in average debt outstanding and a 91 basis point decrease in the average interest rate. Adjusted EBITDA which includes floor plan interest expense increased 36% to $142.1 million and the adjusted EBITDA margin increased 130 basis points to 11.1% than 9.8% in the prior year quarter. Please refer to the tables in the earnings release for a reconciliation of net income to adjusted EBITDA and net income margin to adjusted EBITDA margin. Turning to the June 30 balance sheet. Working capital and cash balances were $393.6 million and $252.2 million respectively. Inventory increased 21.6% to $1.1 billion from December 31, 2016. Primarily from the 17 new stores operated in 2017 and the ramp up for our peak selling season. During the quarter ended June 30, the company received proceeds net of underwriter discounts and commissions of $122.5 million from the sale of $4.6 million Class A shares in a public offering. As of June 30, 2017 we have no borrowings under our $35 million revolving credit facility. $736.3 million of term loans outstanding under our senior secured credit facility and $780.9 million of floor plan notes payable under the floor plan facility. And now I'll turn it back to Marcus to discuss our outlook for the full year 2017. Marcus, are you on mute?

[Marcus Lemonis:]

Based on our strong performance for the first six months of the year, we're raising our 2007 [ph] adjusted EBITDA outlook to a range of $365 million to $370 million before anticipated one-time acquisition and pre-opening expenses for Gander. We revise revenue target is $4.05 billion for the full year 2017 for the base Camping World RV business, which excludes the impact of the Gander acquisition. Contingent on our final lease negotiations, our current plan is to open the initial 15 to 20 Gander stores by the end of 2017 another 15 to 20 stores in the first few months of 2018 and an additional 10 to 30 stores during the balance of 2018. With measured growth anticipated thereafter. As a result, we expect to incur meaningful incremental expenses without the benefit of the full revenue for sometime as we begin to ramp the Gander Mountain business to open stores. As we did in the second quarter, we continue to breakout the acquisition and pre-opening cost associated with the new business, so you can better evaluate the results of our core business. While we're not prepared to guide you the separate revenue or adjusted EBITDA levels for the new businesses, we can tell you that they are expected to accretive to adjusted EBITDA in the first full year of operation. As I wrap up, I want to thank most importantly our close to 9,000 team members. Together we'll continue to accomplish great things. And I can personally not be more proud of what's ahead of us. With that said, I would like to open up the call to the operator for the start of our Q&A session.

[Operator:]

[Operator Instructions] And we will take our first question from David Tamberrino with Goldman Sachs. Please go ahead.

[David Tamberrino:]

Maybe just start with the Gander Mountain stores, you just outlined there Marcus. I think if I add that up quickly it's a range of maybe 40 to 70 stores. And 70 was kind of mark, from maybe a month and half and two months ago. But then it was revised down based on negotiations about 57 locations. So one, understand what could get us to the lower end of that range at 40 locations. In total, just based on what you've been seeing from negotiations and what happened maybe the other 17 stores that were at 57 during the last press release.

[Marcus Lemonis:]

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

[David Tamberrino:]

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

[Marcus Lemonis:]

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

[David Tamberrino:]

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

[Marcus Lemonis:]

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

[David Tamberrino:]

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

[Marcus Lemonis:]

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

[David Tamberrino:]

Okay.

[Operator:]

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

[Rick Nelson:]

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

[Marcus Lemonis:]

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

[Roger Nuttall:]

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

[Marcus Lemonis:]

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

[Rick Nelson:]

All right. Yes, thanks for that color. Kudos to Roger. Also looking at demand has been very strong for RVs, can you comment on what you're seeing third quarter to-date, is that demand continuing and any sign post [indiscernible] commentary on the financing environment that you're seeing.

[Marcus Lemonis:]

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

[Rick Nelson:]

Great. Thanks a lot and good luck.

[Operator:]

And we will take our next question from Rafe Jadrosich - Bank of America Merrill Lynch. Please go ahead.

[Rafe Jadrosich:]

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

[Marcus Lemonis:]

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

[Rafe Jadrosich:]

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

[Roger Nuttall:]

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

[Marcus Lemonis:]

Our dollars are up.

[Roger Nuttall:]

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

[Marcus Lemonis:]

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

[Rafe Jadrosich:]

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

[Marcus Lemonis:]

Tom?

[Tom Wolfe:]

Can you repeat that again please?

[Rafe Jadrosich:]

Do you have the same-store sales for new vehicles used parts and services and F&I?

[Marcus Lemonis:]

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

[Tom Wolfe:]

Yes, our new is about 18.6%.

[Rafe Jadrosich:]

Okay.

[Tom Wolfe:]

And used is down about 10.3%.

[Rafe Jadrosich:]

Perfect. Thank you so much.

[Marcus Lemonis:]

And that's revenue, not necessarily units but.

[Tom Wolfe:]

Yes, absolutely.

[Operator:]

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

[Seth Sigman:]

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

[Marcus Lemonis:]

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

[Seth Sigman:]

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

[Marcus Lemonis:]

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

[Seth Sigman:]

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

[Marcus Lemonis:]

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

[Seth Sigman:]

Understood. Okay, thanks very much.

[Operator:]

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

[Tim Conder:]

Maybe a quick clarification here. In the quarter, [indiscernible] two Overton's store opened, any contribution from the Overton's to revenues or EBITDA?

[Marcus Lemonis:]

Tom, can you speak for that?

[Tom Wolfe:]

To revenue it was about $8.4 million and it happened [indiscernible] on the bottom line.

[Tim Conder:]

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

[Marcus Lemonis:]

Yes, I mean I would consider that for forecasting purposes I would use that same seven to 10 number that we said at the IPO. As I told everybody through the process, we're opportunistic acquirers and we also aren't going to pay a premium that we believe comes away from our philosophy. We're not looking to steal things, but we are definitely not ever going to be willing to overpay for them and from a greenfield standpoint, we definitely hit the pause button in our strategy of greenfields because the greenfield is going forward, may if not, will possibly include the Gander's and the Overton's and the Active Sports as part of that overall complex. So I think the seven to 10 is still a very safe number. But there could be moments of time where sellers believe that we have to make acquisitions and they've increased their prices and we will pass on those transactions. Just like, we passed on one not too long ago.

[Tim Conder:]

Okay, helpful there.

[Marcus Lemonis:]

But we might have people in the industry particularly other dealers like to listen in on calls like this and so the message should be clear, we're not overpaying, we don't need to do deals, we will but we don't have to.

[Tim Conder:]

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

[Marcus Lemonis:]

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

[Tim Conder:]

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

[Marcus Lemonis:]

We have not seen any of it, so far.

[Tim Conder:]

Okay.

[Marcus Lemonis:]

We would heavily push back on any increases in prices based on the volume that we deal with our specific manufacturers, we would not be open to that idea.

[Tim Conder:]

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

[Marcus Lemonis:]

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

[Tim Conder:]

Okay, thank you. Very helpful.

[Operator:]

[Operator Instructions] and we will take our next question David Tamberrino with Goldman Sachs. Please go ahead.

[David Tamberrino:]

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

[Marcus Lemonis:]

Parts and service?

[David Tamberrino:]

Yes.

[Tom Wolfe:]

In the products and services. We had some marketing costs and so forth that got skewed between the quarters but overall for the six months, we're up.

[David Tamberrino:]

Okay, incremental margin costs for parts and service.

[Tom Wolfe:]

Yes.

[David Tamberrino:]

Okay, thank you very much.

[Marcus Lemonis:]

As a company we feel very good about the performance, but Roger, Brent, Tom, myself all feel like there's more room for opportunity. We're constantly digging into ways to get more out of the dollar. We take every ounce of capital that's inside the company very seriously and we understand how that needs to be deployed. Our focus is to continue to invest in growing the company in keeping our leverage at a manageable level and in creating dividend opportunities both the standard dividend and special dividends overtime. As shareholders we're looking for enhanced yield and our goal is to do that. And so that's why we're so focused on what we're doing - we realized that opening up one more store than we should is taking a $2 million and investing that when it could be done for something else. So that's why you seen the stutter-stepping on the number of locations because we want to make sure that we understand, is this our best dollar? Where else could this dollar go? And how could it get us to a higher EBITDA margin or higher EPS? And that's our philosophy going forward.

[Operator:]

We will take our next question from Ryan Brinkman with JP Morgan.

[Unidentified Analyst:]

This is [indiscernible] on for Ryan. I just had one going back to sort of the RV space. You guys get a lot of RV dealers acquisition kind of earlier in the year and especially Virginia, then you did one more in Michigan. And kind of being a little slow down, it seems like in terms of number of acquisitions you're doing in RV. I just wanted to get a sense of where with your expansion and your target locations?

[Marcus Lemonis:]

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

[Unidentified Analyst:]

And the other thing is, when it comes to finding, RV acquisition. You mentioned that you get called all the time from different people interested in selling their RV dealerships or how are you finding the acquisition in terms of the TheHouse.com or maybe in the e-commerce space?

[Marcus Lemonis:]

You know in most cases I'm a networker. I rarely use brokers, it's not a slight tolls [ph] bankers or brokers. But I'm a networker and I like to deals with people, we've got a lot of noise in between and TheHouse transaction just came to us on a phone call from a friend of the industry, who knew the owner of the business and the owner was looking to grow his company in a different way and it was a simple tried up on a Tuesday, a handshake on Tuesday afternoon and we got the deal done. So we try to keep it very simple and I'm always looking and I'm not scared to make cold calls myself to be very candid with you. I often do that and sometimes I get hung up on and sometimes it works. But that's our strategy and it has been Roger's and Brent strategy as well.

[Unidentified Analyst:]

Then last one from me just. On Overton's it was sort of right off the bat it started to contribute the business. For the TheHouse.com when do you kind of see that sort of ramp up and maybe what's the level of contribution that you could see probably from that acquisition?

[Marcus Lemonis:]

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

[Operator:]

We'll take our next question from Jim [indiscernible] with [indiscernible]. Please go ahead.

[Unidentified Analyst:]

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

[Marcus Lemonis:]

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

[Tom Wolfe:]

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

[Marcus Lemonis:]

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

[Unidentified Analyst:]

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

[Marcus Lemonis:]

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

[Unidentified Analyst:]

Great. Thank you.

[Operator:]

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

[Rafe Jadrosich:]

Thanks for taking my follow-up. I wanted to Marcus like most of the investments that you typically make is, big upside with limited downside. Just in terms of Gander leases, can you talk about your flexibility that maybe - you should be your building in, how long-term or to leasing, do you have an opportunity to ask them, if they're not as profitable as maybe you were anticipating?

[Marcus Lemonis:]

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

[Rafe Jadrosich:]

Great, thank you so much.

[Operator:]

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

[Marcus Lemonis:]

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

[Operator:]

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