It’s been a rough year for Camping World Holdings’ equity. A cyclical slowdown in RV sales and Gander Outdoors integration issues caused investors to run for the exits. The equity gave up about 25 percent of its value since the beginning of the year.
Recent news suggests the stock may not have found a bottom yet.
This story originally appeared in Seeking Alpha.
CWH stated that 27 to 37 locations could be closed, repurposed, or sold. Selling all of those stores as a portfolio would be ideal, but that’s unlikely to happen. Those stores are probably not generating enough sales volume, not located in the right markets, or not merchandised appropriately to attract a portfolio buyer (like private equity or other large investor). Perhaps a few stores can be sold, such as the sale of 13 Uncle Dan and Rock Creek locations, but the majority will probably be either closed or repurposed.
That’s where things can get ugly in the short term. Closing or repurposing stores is not free. Closing stores will likely bring a variety of different costs, such as inventory liquidation costs, lease termination fees, employee relocation and/or terminations, among others. All closing costs are likely to flow through the income statement (most likely through the selling, general and administrative line), so they will hurt profitability of the overall business.
According to company filings, CWH operated a total of 76 stand-alone retail locations as of June 2019. Up to 37 may close or be turned into dealerships. That means about half the stores are being addressed. Out of the other half, I estimate some are doing well, and others will need further addressing.
One important factor to notice is the strategy announcement did not include an update of EBITDA or revenue guidance. A potential guidance cut represents downside risk for the stock as it means CWH may miss expectations. Revenue estimates are currently below guidance of “approximately $5 billion.” But if management cuts revenue guidance by just 5 percent, then it means analysts’ revenue estimates could be too high.
As of this writing, analysts expect CWH to generate $4.88 billion in revenue this year. Retail brought in about $670 million in revenues in 2018 (before the realignment of the company’s reporting segments). That projection might not materialize as stores begin to close. As many investors know, when companies miss expectations, the stock doesn’t generally do well.