Good morning, and welcome to the Camping World Holdings' conference call to discuss financial results for the first quarter fiscal year of 2022. Please be advised that this call is being recorded, and the reproduction of the call in whole or in part is not permitted without written authorization from the company. Participating in the call today are Marcus Lemonis, Chairman and Chief Executive Officer; Brent Moody, President; Karin Bell, Chief Financial Officer; Tamara Ward, Chief Operating Officer; Matthew Wagner, Executive Vice President; Lindsey Christen, Executive Vice President and General Counsel; and Tom Curran, Chief Accounting Officer. I will turn the call over to Lindsey Christen to get us started. Please go ahead, ma'am.

Good morning, everyone. A press release covering the company's first quarter 2022 financial results was issued yesterday 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 the impact of COVID-19 on our business, financial results and financial condition; our business goals, plans, abilities and opportunities; industry and customer trends; our recently disclosed cybersecurity incidents; our strategic initiatives, acquisitions and planned capital expenditures; potential stock repurchases, future dividend payments, increases in our borrowings, our liquidity and future compliance with our financial covenants 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, our Form 10-Qs and other reports on file with the SEC. Any forward-looking statements represent our views only as of today, and we undertake no obligation to update them. Please also note that we will be referring to certain non-GAAP financial measures on today's call, such as EBITDA, adjusted EBITDA and adjusted earnings per share diluted, 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 statements are included in our earnings release and on our website. All comparisons of our 2022 first quarter results are made against the 2021 first quarter results unless otherwise noted. I'll now turn the call over to Marcus.

Thanks, Lind. Good morning, and thanks for joining us. I'm here with members of our senior management team as we report results for the first quarter 2022. On today's call, we're going to lay out our financial results and the supporting comments around them. We'll also discuss macroeconomic industry trends with our short- and long-term view. As all of you know, 2021 was a historic year for Camping World, and 2020 was right behind that. Our industry grew at explosive rates during the pandemic, but it's important to remember the historical path leading to 2020. For over 50 years, RV-ers have loved this lifestyle, and the industry has grown every single decade since its inception. From our perspective, the world's passion for the outdoors has never been hotter. With new and younger buyers entering the market, a new, lighter, more innovative units being produced, our prospective customer file continues to grow. I've been in this industry for almost 20 years now, and I'm going to continue to work diligently to ease people's concerns when they see a flattening or a reduction compared to prior years of new RVs sold. While some see temporary shifts as a risk, our company sees it as a new launch pad, an opportunity to strengthen our infrastructure, improve areas of weakness and most importantly, make opportunistic and strategic acquisitions that further strengthen our foundation. We're proud to report for the first quarter of '22, we generated record revenue and saw that trend continue into April. Our total sales for the quarter were nearly $1.7 billion, up over last year by $105 million. While some of that revenue increase is attributed to a rise in prices year-over-year, it is also true that some of that came from an increase in our service and repair business, specifically when you eliminate the sale of outdoor categories that we exited in Q3 of 2021. It was also bolstered by our core Good Sam business as well as our used RV business. Our adjusted EBITDA for the quarter totaled $182 million, compared to $189 million a year ago, our second-highest first quarter since the inception of our company. The primary change to adjusted EBITDA was due to rebalancing our distribution centers. Costs associated with opening new locations added to the system, our cyber incident and our increased floor plan expense. Our gross profit for the quarter was up $40 million from the previous year, stemming from a combination of same-store contribution, and additional locations added to the platform over the last 12 months. Our SG&A was also up, but it was attributable to those same additional stores we added and the aforementioned expenses. One metric that we focus on heavily is our variable cost structure. It is important for us that as the different segments come under pressure, either in revenue or in margin, that we maintain our variable approach to expenses, namely compensation. For the quarter, we were pleased in our expenses as a percentage of gross were 69%, which is well below the historical Q1 average. Included in that number were the expenses from the internal adjustments to our supply chain process, separation costs for rightsizing our staff and the cyber incident. Those items are what drove the increase up from roughly 65% in the same quarter last year. But we're proud of the overall result, and we recognize that there is a constant need for improvement. When we feel the investor questions about our business and the industry, these questions commonly emerge. Number one, what is the current status of inventory in the industry? How will the stabilization of the supply chain affect margins? And will the manufacturers resist the temptation to overproduce? And what are the financial factors that have the greatest impact on this industry? Let's start with the inventory levels. From our perspective, the products that make up the bulk of the industry, which are towables, are now adequately restocked. As a reminder, right now, the start of the key selling season is when inventory is at its highest on a same-store basis. Over the next few quarters, through the natural selling season, it will appropriately reduce. We are hopeful, and we rely on manufacturers to shift back to production that matches retail demand. In an abundance of caution, we have positioned ourselves strategically, in case that doesn't happen, with rigorous and disciplined forecasting and ordering for our own just-in-time process. As for our used RV business, we have continued to see progress. We stacked on an additional $100 million of used revenue growth for the quarter on top of the $1.7 billion of used revenue that we reported at the end of last year. We reached a peak used inventory of over $423 million in the quarter but have since made the decision to increase our churn, essentially reducing that inventory. We continue to see robust demand for used and believe it to be a great alternative, specifically in a rate-increasing environment, so that we can provide multiple payment options for our consumers. In addition, it's important to note that we closely monitor values on a daily basis, and we run a very tight day supply of used inventory of less than 100 days. Turning to the supply side. The scarcity of RV inventory that existed during 2021 has, for the most part, repaired itself. From our perspective, it happened a little quicker than anybody anticipated, and that's a credit to the work done by manufacturers to keep our industry moving. With the shelves now restocked, we are now operating with stocking levels on the new side similar to historical levels. We hope to maintain these levels, but see manufacturing production discipline as a key to that. As we move through the balance of the year, we anticipate margins continuing to normalize on the new side. However, we expect used margins to be more consistent with historical 5-year averages, which are pretty good. Lastly, when we look at the macro factors that impact new RV sales, it's easy to recognize the pressure, consumer confidence, inflation, rising interest rates, etc., but for us, it's more complex than that. When you study our business, it's true that new RV sales are a big part of our company's revenue. However, it's also important to remember the other key areas that serve the installed base of RV-ers. Based on retail data over the last several years, we believe the installed base of RV-ers grew by over 1 million in the last several years. The installed base feeds our high-margin service, collision and parts business, our recurring, steady and predictable Good Sam business, which happened to grow 9% quarter-over-quarter, and our used RV business, which was up over 35% in revenue. As a management team, it's our job to anticipate changes and adjust our business for them. The common discussion we have is, what would our business look like if the new RV sales retracted at different levels. We sensitize the model. If you make the assumption that revenue is the only factor in determining the variability of our business results, then this is often the guide that I use. As a reminder, we generated $3.3 billion of new RV revenue in 2021. For every $1 of new RV revenue reduction that our company could experience, we would expect to eliminate approximately $0.30 in gross profit related to that $1 of revenue. After factoring in the elimination of SG&A attributable to that $0.30 of gross profit, which is primarily compensation and commission, the expected impact to EBITDA could be around $0.20 to $0.25. So we don't lose every dollar. This small example does not include any additional modifications that we would make to SG&A as a result of the reduction in revenue. The reason that I provide this math is to give all of our investors a clear path to their own expected questions, what happens if, and I hear that a lot. After doing this for 20 years, we've learned a great deal. We understand the importance of a variable cost structure, and our results show that. The importance of acknowledging what the market is both giving you and telling you and most importantly, being nimble in all cases to maximize our results. While we can't forecast exactly where the economy is going, we do know that our core business fundamentals are solid. We're proud to have delivered meaningful dividends since going public quarter after quarter with several increases along the way. To be clear, we are confident in that strategy. We're also committed to growing the dividend through consistent improvement in our business results and a disciplined stock repurchase program. During the quarter, we repurchased 2.6 million shares, totaling $80 million. In the last year, we have reduced our net outstanding total common units by 5.4 million units. Our outstanding fully-exchanged share count today sits at 83.7 million in both Class A shares and common units held by the noncontrolling interest. That's down from 89.2 million just a year ago. As we head into the core selling months for our company, we are pleased with revenue trends in April and through today, and we're going to continue to monitor closely those factors that affect our industry, our consumers and your investment. As part of that investment, our commitment is to grow profitably. We added 4 stores in the first quarter, and we'll continue to be disciplined in meeting the range of new locations we forecasted. Between acquisitions that are signed and new stores that are under construction, we believe we'll finish the year with no less than 14 new operating locations. On an annualized basis, with maturity, we expect those locations to add approximately $0.5 billion of revenue with profitability consistent with our other mature locations. Let me clarify, that's on an annualized basis with maturity. Lastly, we are making great progress on two specific fronts that we've spoken to you about in the past. First, our Good Sam RV peer-to-peer rental platform. We're experiencing significant month-over-month growth as we enter season, and it's a new business. With rental dollars processed through the platform in March of '22, over 7 times higher compared to the end of 2021. Our rental units on the platform have grown over 67% from the end of the year to now in the end of the quarter, with free relationships setting up the platform for continued growth at scale throughout the remainder of the '22 year. Secondly, by the end of Q2 2022, rvs.com expects to launch our beta end-to-end RV purchase experience in specific states. This digital consumer experience, including unit selection, financing and home delivery, would allow our company to serve customers well beyond the markets that we currently operate in. Our company, unlike some other fully-digital automotive companies, will be able to sell both new and used in 42 states, where we currently have a physical presence and license today. Over the next 24 months, we anticipate operating a physical location in 47 of the 48 contiguous states, consistent with the goal we laid out last year. I'll now turn it back over to the operator for questions.

Our first question is from Craig Kennison of Baird. Please go ahead with your question.

I wanted to ask about GPU, or gross profit per unit, on your new business. You had mentioned that inventory is now back to optimal levels. I'm wondering if that means we should look at GPUs coming down further to be more consistent with what you had on a pre-pandemic basis or if you think they can hang in at a higher level?

Well, obviously, Craig, with the traditional supply and demand curve, there are going to be pressures on margins as the competitive landscape ramps up. But it is important to note that we do not believe that we are going to return in the short term to margins like we experienced in '18 and '19. And so when we talk about pre-pandemic margins, we want to extract '18 and '19 because there was a glut of inventory in the marketplace. But I want to caveat that. A return to '18 and '19 margins could happen if, but we don't expect it to, the manufacturers continue to produce at a rate that far exceeds retail demand. And from the conversations that we've had with all the manufacturers, I think everybody learned their lesson. We think everybody learned their lesson, but we have to be clear. We're pretty good on inventory right now. And so we have seen some pressure in the first quarter, as you saw by our results, on the new side, but are very pleased and very confident that we can continue with pretty decent margins on the used side. So we're comfortable. We have forecasted it internally. And one of the things that we are looking to do, consistent with what we did in Q1, is continue to make sure that we're getting our fair share. We do not want to get our fair share by creating a race to the bottom. And we are a bellwether both for pricing and for promotion, and we believe that a healthy industry by all dealers and all manufacturers benefits us just the same. And so we want to make sure that we're not creating unnecessary pressure on margins along with the manufacturers doing the same.

That's very helpful. And then, I think I heard you say that you plan to reduce your investment in used RVs. I'm curious if that's true. What drove that decision? And then, if you could follow up, I believe, last quarter, you had targeted a goal of getting that used RV business to $3 billion over some horizon like 18 months or so. Is that still attainable? Or has your approach to that market changed as you try to balance the inventory?

No. I believe that when aiming for new highs, it's essential to invest more to gauge the market's appetite, and we must be disciplined in identifying opportunities for increasing sales. Similar to our approach in the first quarter, we want to be cautious with the capital we deploy to meet these objectives. Our analysis suggests that reducing our inventory to around $400 million could achieve similar results while maintaining our desired margins. While pursuing revenue growth is important, we must ensure we do not compromise our margin goals. We tightly manage our inventory days, aiming for under 100 days with a turnover of four times, and we seek to find the right balance. As you know, Craig, we are willing to pursue successful strategies, and if slight adjustments are necessary to optimize our capital efficiency, we are open to making those changes. Therefore, we plan to reduce our inventory from 423 to approximately the 390s to 400s. If we continue to see positive outcomes in the second quarter, as we did in April, and can achieve this with 380 or 375, we will keep refining that figure to achieve the best results based on our capital deployment.

Our next question is from Brett Andress of KeyBanc. Please go ahead with your question.

Following up on Craig's question. I hear you on not returning to 2018, 2019 levels, but on the new vehicle GPU, could you maybe help us understand where you entered the quarter and maybe where you ended it or exited it into April? I think we're just trying to get a little bit more color on how the second quarter and kind of the back half could play out, based on maybe where we are today.

Yes, I'm going to let Matt cover that.

As we entered into this year, we obviously were very optimistic with our 2021 results, and we took what the market was giving us at that time. And we saw a little bit of a change from our GPUs at the end of last year heading into this year, but frankly, not a very material change heading into the year. By February, we saw a little bit of an adjustment, and we made some changes in our online pricing environment. And then by March, we continue to see that sustain. Heading into April, we've really not seen much of a change in terms of those GPUs. And we're confident that throughout this quarter, we'll just continue to modify as necessary, based upon whatever demand trends we're seeing out there and what sort of pricing logic. We want to make certain that we're using to actually garner as much opportunity out there as possible. As Marcus said, we're not going to have a race to the bottom at all, and we don't see major fluctuations in short terms. However, as we continue to see quarters elapse and depending upon what the inventory situation is, then there's always a possibility of those GPUs could come down a little bit more over the coming quarters. What that is? I'd hate to speculate as we like to manage based upon current demand, current supplies and of course, we recognize what our competitors are going to do to actually garner a little bit of attention, and we want to make certain that we're getting our fair share of that marketplace.

I want to add that when I examine the trends alongside our goals, I anticipate that the GPUs in the second quarter might be 0.5 to 1 point lower than the first quarter we just reported as they stabilize. This is partly because, when we focus on the core of our business and aim to attract first-time buyers, we are adopting a new strategy in how we communicate payment options, emphasizing affordability, and ensuring we lead the market with entry-level units. We are still working to sell a $13,000 unit with a monthly payment of around $129 to $139, as we look to welcome new customers into our ecosystem. We will always strive to capture that market. Additionally, I found it noteworthy to observe the changes in our trade percentages during the first quarter.

Well, we started to realize that we're going back to those normalized levels of trade percentages; we're going back to 2020. We had that reduction in trade percentages, where we were down in the teens at that point. However, we've reached that more sustainable level of higher for 20% of trade-in rates, and we've really maintained that same track over the past few quarters now at this point while continuing to see that returning buyer coming back into the marketplace.

As well as the first-time buyers still showing up, and so that's a good indicator for us is that when we continue to see entry-level travel trailers still being a big part of our business. And I can't recall what month it was. It could have been March. We had sold 800 of what we consider our entry-level unit, our Coleman 17B. That was the single biggest month we had had in that particular space. And it's important to note that we don't think that, that 800 units of entry level came at the expense of a more expensive unit. We don't think that somebody said, I want to buy an RV and I'm now not going to buy the bigger one. We actually think we found new audiences in that quarter, and that's a big focus for us through the balance of the year, is continuing to attract new buyers, not only to the industry, but more importantly, to our business.

Got it. Okay. And then, Marcus, we've been getting more questions lately on the dividend and the payout ratio. And look, I know no one here has a perfect crystal ball on macro. But how low would EBITDA have to go before maybe you take a step back and think about the current dividend level?

We have no plans in the near term to modify our dividend strategy at all, and we have sensitized multiple scenarios to ensure that our strategy is sustainable.

Next question is from Daniel Imbro of Stephens Inc. Please go ahead.

This is Joe on for Daniel. Noting the negative growth in Good Sam Club members, what do you think is driving that? And what do you think is going to drive positive growth moving forward?

We're actually very pleased with the performance of our Good Sam Club. It's important to note that when we exited the Gander business, and we exited the categories in Q3 of last year, particularly firearms, hunting equipment, fishing equipment and apparel that we lost a set of buyers that were part of that file. And we made a decision not to chase that particular buyer because the crossover between their behavior and our core RV behaviors didn't match up. And so for us, it's more of a cleansing to a pure file, and we feel good that we've done that. In our core RV customer, particularly with our acquisitions and our new stores and our ability to add new names to our file, we're positively seeing growth in some of those areas. And so we're very happy with where that's happening. But we understand, through the third quarter of 2022, both on the revenue side and on the membership side, we have to cleanse out all of the consumers and revenue associated with those categories that we exited.

That's very helpful. To follow up, it was mentioned in the release that the new and used inventory is partly influenced by the easing of the new vehicle supply chain, and in the prepared remarks, you indicated that new inventory is closer to historical levels. I'm curious about what is driving the easing of the supply chain and what is considered normalized. Additionally, do you view this as a structural improvement or more of a temporary relief?

When examining historical trends, the industry is still keeping inventory levels relatively low. As the largest dealer, we have a unique advantage in sourcing from various manufacturers due to our established relationships, which allow us to create exclusive products and brands. Over the past year and a half, we have actively ensured that we have a steady supply of core products and floor plans despite the limited inventory market. We are confident in the efforts made by the manufacturers to meet our inventory needs, ensuring we are well-prepared for the upcoming season. However, we also wanted to be extra cautious in our preparations, understanding the potential uncertainties in the supply chain. Currently, we do not foresee any issues, but as we move into May and approach the peak selling season, we feel well-stocked and equipped to meet market demands. Looking ahead, we anticipate that inventory levels will adjust naturally as the selling season progresses and we reduce our stock.

We are closely monitoring our open orders daily and have historically based these orders on our demand forecasts. The disruptions in the supply chain have complicated matters, leading us to place more orders, anticipating that we wouldn't receive a large percentage. As we have restocked and prepared inventory for the selling season, we have proactively planned for reductions in inventory beyond the usual seasonal cuts. We expect to have adjusted our new inventory levels to a comfortable position in the coming months, having demonstrated that we can sell effectively with less stock. It is important to note that, given the ongoing impact of COVID in Asia and other regions on our supply chain, we decided to bring some inventory forward. Moving forward, our plan is to acquire inventory at a slower pace than our sales, a strategy we will adopt more than usual as we adjust seasonally. To be clear, we do not intend to maintain our current inventory levels throughout the year because we are aware of the associated risks and the importance of the disciplined approach that has been profitable for us in recent years. We will not compromise on this for anyone, especially not for our own benefit.

The next question is from Mike Swartz of Truist. Please go ahead.

To start off, Marcus, regarding the outlook for 2022, I know you didn't provide much detail, but I recall from the last call that you anticipated comparable sales to be slightly positive for the full year. Is that the outlook? Also, could you share your thoughts on how that might play out throughout the year?

Yes. Since our last call, the macroeconomic and geopolitical issues have escalated significantly. In this challenging rate-increasing environment, our new same-store sales for the first quarter were down 16%, which is slightly better than the overall market. Our used sales were relatively flat, and combined, we were down 11%. We anticipate these trends will persist, prompting us to adjust our SG&A to address the situation. While we recognize that further modifications are necessary, the new information—including political unrest and inflation—has influenced our outlook. Despite these challenges, we remain very confident that our used business will continue to perform well, as we saw in April. We also believe our service, parts, and other business will hold up. However, I want to clarify that our service, parts, and other revenue is down year-over-year primarily due to the discontinuation of Gander products, including firearms, hunting, fishing, and apparel. Excluding those, our labor hours and parts for service repairs performed strongly, even breaking an all-time record in one month. Regarding our Good Sam business, it is up 9% year-over-year, and we believe that the aspects related to our installed base will be fine. The primary challenge lies in the new RV sales, which we have less control over. We will make necessary adjustments to our compensation structures, fixed costs, and advertising strategies in response to changes we observe regularly. However, we expect that the negative same-store sales on the new side will continue for the next couple of quarters.

That's helpful. Marcus, you mentioned that the maturity run rate for the 14 new locations expected to open this year is about $0.5 billion, which translates to around $40 million per location. Can you provide some insight into how the ramp-up to maturity will occur? Will it be achieved in two years, four years, or five years? Please give us some context on that.

Yes, that's a great question. We look at our stores today. I think our average store does about $43 million, and we wanted to cut that a little bit shorter because we make acquisitions that sometimes are north of that and then we opened stores de novo that take a minute. On our new stores that we opened, as we forecasted in the past, you get to a traditional performance level. It takes 18 to 24 months. We do sense sometimes see profitability happen a little earlier than that, from a positive cash flow standpoint, but it doesn't reach the operating leverage, from an EBITDA performance, for about 18 to 24 months, operating in that EBITDA margin. From an acquisition standpoint, oftentimes a variety of things happen. Sometimes, they integrate into the system, and they perform very well and they exceed our expectations because our systems go in. And sometimes, they retract slightly for 12 months. But on average, between $35 million and $40 million is what we expect to see, on average, within 24 months of them being in our system. And if we can do that on a regular basis, assuming that market conditions don't deteriorate at a rate that we don't want to deploy our capital that way, so we should be able to stack $0.5 billion, $0.5 billion, $0.5 billion every year and then get other organic growth from our core businesses.

Our next question is from Joe Altobello of Raymond James. Please go ahead.

I guess first question, Marcus, I just want to go back to your comment you made to Mike's question on same-store unit sales. You mentioned new was down, call it, 17% in Q1.

15.

Was flat. Yes, and do you expect those trends to continue for the rest of the year? We have some easier comparisons coming up, so could you provide some insight on what you observed in April? You seem satisfied with April, but did those trends show a slight improvement during the month?

They actually did not improve on the new side, but they did improve on the used side. And so as we talked about in the latter part of last year our company strategy, when we started the sense in the latter part of last year that there could be some pressure around GPUs and potentially some pressure around volume, we had to pivot. We think that we'll continue to see that pressure temporarily on the new side as we're comping big numbers. And keep in mind, when you're operating 189 stores, two units here, three units there, when you multiply it, it starts to add up very quickly. We're doing everything we can to replace that missed opportunity with finding either first-time buyers through our funnel that we haven't met before, which is probably why we performed slightly better than the marketplace, and our used business as an alternative, based on people's payment preference or value proposition as well. And the fact that we're performing nicely, in light of these macroeconomic issues on the used side, gives us a lot of bright light for the future because historically, we relied on our service business, our retail business, our Good Sam business as the predictable part of our business. But now that we can add our used business in all segments, by the way, as another tentpole of predictability, we have set a goal as a company to take out that erratic behavior. But in terms of the new RV sales, our internal discussions have focused around what adjustments do we need to make to our overall business in anticipation of that new same-store sales number staying in that same range. If we're wrong and they repair themselves because the comp set is easier as we go through the back half of the year, then our business will be the beneficiary of it, but we don't want to anticipate it and then be wrong on the SG&A side.

Okay. Got it. That actually segue to my second question, which is your comment earlier about OEMs being disciplined on production. You seem fairly optimistic there. When we look at the RV IA data, it's up double digits in Q1 on a record Q1 last year. So maybe help us understand or try to square those two data points, if you will.

I always try to hesitate commenting on any RV IA forecasting the data, and they always hesitate to try to speculate why the manufacturers would continue to produce at a rate when they conceivably see the retail registration information as all of us can. But I also do know that the prudent managers that run those businesses also feed the data. And when you think about lead times for ordering raw materials, for ordering frames, for ordering other parts and pieces, those lead times are not just in time, especially when you're coming out of the supply chain breaks that we had in the last 24 months. We complement the manufacturers on hedging and bringing some of that raw product in, speculatively. But Matt and I both had conversations with each individual manufacturer, both that we purchased from and even ones that we have no relationship with, telling them what we were seeing in January and in February. And we strongly encourage them to cut their production back to scale to meet and match what retail demand was and in some cases, even withdraw a little bit, so that the inventory that's out there in the system can settle in and then we can get into more of a just-in-time inventory. We were confident that these manufacturers see the benefit of that in their own business because the ignoring of that factor ultimately would lead to a glut in their finished-goods yards, a rigorous and disciplined approach to ordering and purchasing on the dealer side, and it would lead to unnecessary discounting by the manufacturer to clear those yards. I don't believe they want to go back to that level of business, where they're trying to push out product at all costs. I don't believe they will do that. And I think collectively, as an industry, we learned that lesson. We are hopeful, but I want to reiterate like I said before, we are not going to bank on anybody else's decisions, but our own and so have planned our forecasting and our ordering and our intake of inventory as if they're not going to. And if they do, great, the inventory right sizes and margins stabilize.

Our next question is from Ryan Brinkman of JPMorgan. Please go ahead.

I think I recall you suggesting, maybe around the middle of 2021, that the industry was probably a year or so away from matching demand with supply, but that there could also be a period after that, where inventories remain lean because of a need to restock wholesale inventory. So the comment that you made today about total full stocks being adequate, does that indicate that inventories normalized maybe faster than was previously thought? And would you say that as a function primarily of higher supply or lower demand or both? What do you think?

I think there are two key points. First, the situation unfolded more quickly than we had expected. The manufacturers operated at higher levels than usual during November, December, and January. The January shipments reached over 60,000, which is unprecedented for us. It's important to recognize that manufacturers are working to ensure all dealers, not just our company, are back to a stocking level that brings some stability to their businesses, and we support this effort because a healthy industry benefits everyone. One thing we didn't foresee was that manufacturers would be ramping up production despite having forecasts months in advance, along with a slowdown in demand, which I prefer to describe as normalization. It’s worth noting that the demand observed in the first quarter of 2022, and what we see in April and May, remains among the highest we've seen in the industry. While it might appear that we are pulling back, we're actually retracting to a level that is still quite strong. As this occurred, manufacturers were producing at high rates, while retail registrations dropped by 10%, 15%, or even 20%. These two factors likely brought inventory levels back to a normal state about four to six months faster than we anticipated. The straightforward solution is to reduce manufacturing and receive inventory at a slower pace, which would set up a strong selling season. It would be a mistake to continue high manufacturing rates and high dealer purchases; that would push concerns into the fourth quarter. Given the industry's intelligence, I expect us to normalize within the next four to five months as we sell many units. I believe we will be alright, but the situation did happen swiftly.

Okay. Great. That's very helpful. And then just, I think, the pandemic and its aftermath resulted in the demand for RVs, of course, increasing more than the supply did that resulted in large upward pressure on new RV prices, likely by association, used RV prices too. And there were other reasons prices were increased, including the higher raw material and other manufacturing costs, depreciating dollar or whatever. But generally speaking, I think prices and margins rose more than might have been expected. And so as we move forward, just curious, how you think about if demand were to fall relatively modestly or supply increased relatively modestly, do you see the potential for more than might be expected decrease in prices or margins similar to how we had more than might have been expected increase earlier? I think it's really hard to say. But just curious, how you might be thinking about that in the context of the inventory management you've been talking about in this call, your outlook for margin, which you're not being as explicit with as previously, et cetera?

Well, I want to be more explicit, if I haven't been explicit about margins. Margins have come down over 2021 levels. The results in Q1 of '22 give you an indication that they have done that. We expect there to be slightly, slightly more contraction of our margins in Q2 as we look to accelerate sales to deal with slowdown in demand, and we love to make sure that the inventory stabilizes. Here's what I feel pretty confident about. As long as the manufacturers don't overproduce in the next six months, we will not see a return to '18 and '19 margins. And while that may not be explicit enough, it is clear for us what needs to happen and it's clear for the manufacturers. I do believe that demand is going to continue to feel pressure, and whether that's rising interest rates or general consumer demand, we think it's going to feel pressure. Our hedge against that is clearly twofold. Number one, in each segment that we stock today, we have to stock at the lower-end price point of each of those segments. And while we're blessed that financing terms exist from 180 months to 240 months and a rise in interest rate doesn't affect the payment that materially, it is on the consumer's mind. So we have to make sure that we position ourselves at the bottom half. We always want to have the least expensive home in the neighborhood, not the most expensive home in the neighborhood. Secondly, our offensive strategy on pre-owned is another hedge that gives our consumers when they raise their hand and say, "I love this lifestyle. I either want to trade up or trade something out or I'm new to the industry." Our pre-owned strategy gives us a very smart and intelligent alternative to that rising price. And it isn't by accident that we started to grow our used inventory, and it isn't by accident that we started to really focus on that internally because we knew that if the market started to tighten up, we had to give the customer an alternative, which is probably why in April, for example, our used business was up materially. The response by the consumer says, I'm not going to not go outdoors, and I'm not going to exit the industry. And I want to make sure that, that's really, really loud and clear. When the market contracts, as it did in 2001 and it did in 2008 and it did in 2018 and '19, from a new entry perspective, what did not happen is that the installed base of RV-ers, part of the industry that actually supports the bulk of our company, never retracted. Decade after decade after decade, regardless of the noise that happened inside of a small cycle, every single decade, more people got into the lifestyle than the previous decade. And we know with almost certainty, unless something happens that we've never seen happen before that 10 years from now, we'll be saying the same thing. 20 years from now, we'll be saying the same thing. In our business thesis and our long-term thesis of our company, when you study it from the day we started it to the day we went public to today, supports that strategy. Our financial results may fluctuate from time to time. But if anybody anticipates that the fluctuation that they saw in 2018 and '19 is what the range of performance will be, I would caution you against that. I want to say that again. If you're looking at this industry and you're sensitizing your models based on it dropping 10% or 20% or 30%, the hedge for our company, not the manufacturers, not other dealers, is different because so much of our gross profit comes from service, parts and other, from used, from our Good Sam business, from our finance business, from all those other things. And if you take $1 billion of revenue off the table, like we showed in our prepared remarks, you can do the math, $1 of revenue, $0.30 of gross profit, and the associated cost of delivering that gross profit get removed as well. And so for $1 of revenue, do you lose a lot of profitability? Yes, you lose some, and you can do the math and extrapolate it out. And we've done that internally, which is why we're able to demonstrate that so clearly. The other benefit to our company in a retraction of demand is that it allows us to tighten up our own belt. But the thing that I think people miscalculate is, our company is what we do and how we behave in that retraction period. If you go back and look at every other period, we grow the base of our company at a disproportionate rate. Today, as we sit here, we have 40 new locations. Not acquisitions, 40 new locations on the board over the next 4.5 years. And we started to forecast and plan that out because we understand the cost of investment, the cost it takes to open them, the time it takes for them to mature, and we started to factor that into our cash flow. We've also started to think about the necessity to return predictable dividends to our shareholders, and we factored that into our cash flow. So whatever sensitivity models everybody is putting out in the marketplace, we're doing them first. And we understand what's about to potentially happen with this perception, we would caution people on looking at other moments in time and thinking that they know where our business is going.

Our next question is from Bret Jordan of Jefferies. Please go ahead.

This is Ethan Huntley on for Bret. Could you maybe just talk about some of the trends or maybe the cadence you're seeing in the service segment? I know you mentioned things were trending pretty positively with a greater installed base, but sort of any color on the cadence of that business?

Yes. One of the significant challenges for our industry and specifically for our company arises when the installed base expands rapidly and customers remain loyal to the space. This creates a considerable issue in our industry. I realize I shouldn't refer to it as a problem, but we have a growing number of consumers who enjoy the lifestyle and want to utilize their products because they are affordable compared to alternatives. Unfortunately, we do not have enough service days or technicians to meet this increasing demand. The demand for repair, service, collision, renovation, new furnishings, flooring, roofing, awnings, reconditioning, warranty work, customer pay work, and new tires is substantial, and we struggle to manage it all. Recently, there's been a positive development that also focuses our capital strategy—other dealers appear reluctant to service the customers they sell to, leading many customers who approach us not to have purchased from us. This may be attributed to the strong Camping World brand or the trust in Good Sam, but it is creating a bottleneck for our own clients. Thus, as we plan our capital allocation for the next several years, one driver for opening 40 new stores is to increase service capacity relative to retail square footage. Historically, we built stores that were 10,000 square feet with 12 service days, whereas we are now constructing stores with 6,000 square feet of retail space and 18 to 24 service days, reflecting the overwhelming demand we face. If anyone is concerned about the industry's health, I invite them to visit our service departments and witness countless units awaiting repair. We hope manufacturers will recognize the importance of investing in repair parts and producing these parts in excess. We plan to implement strategies in the short term to enhance our capacity, reducing the time customers have to wait for their units to be serviced—currently unacceptable. We aim to decrease this wait time by at least four or five days or even more. The service demand is astounding. There was one month when our service labor and parts revenue exceeded $50 million in the first quarter, which we have never achieved before, and we approached that figure again in April. Therefore, we understand where our capital should be directed and where we can expect returns, especially when considering the margins associated with this business.

That's very helpful. And then maybe just as a follow-up here. I think the current RV IA forecast for '22 shipments is about 590,000 or so. Do you think that's still about where things shake out? Or do you think that's maybe a little bit on the high side?

We better hope not. We think that number better be at least 50,000 to 60,000 less than that. At least, 50,000 to 60,000 less than that. But again, we know that we're dealing with sophisticated and very smart management teams at those respective manufacturers, starting from Lippert on the supply side and Patrick, all the way up to the finished manufacturer with Thor in Winnebago and Forest River. We are confident we're dealing with smarter people than even us in predicting those models. We just hope that they are putting those things into practice.

Our last question is from Gerrick Johnson of BMO. Please go ahead.

Great. Sorry, I was disconnected for a moment, so if you answered these, just say 'pass'. I'm curious on unit ASPs, the increase you saw there, the proportion that was mix versus price increase. And then I have part B to that.

And we've continued to see a little bit of an increase here sequentially from last quarter to this quarter. But given that our mix around this time of year in April, May timeframe, we start to sell a heavier density of towable units. You start to see that average sale price start to level off a little bit more. And furthermore, as we continue to put that emphasis on used units, which the ASP on used is going to be lower than a new unit, we think that's relatively sustainable here for the next quarter, where we don't see much of a material change from quarter-to-quarter.

Yes. One thing for clarifying point. On the new side, okay? On the new side, Matt has laid down a mandate with his team that he wants to see a mix to lower-priced units, particularly in light of what's happening in the macro environment, right? We want to continue to make sure that we make camping more affordable for people than anybody else. On the used side, however, we are playing a little bit different game that we've played in the last 24 months because we're not heavy on the new motorized business. In fact, we really don't play much in the diesel business. We are going after because there are still some supply constraints on the new motorized side, we are playing in that used motorized business. And that is what has contributed not necessarily to the gross profit margin of our used business but the gross profit dollars of our used business. And so we want to bifurcate those two and look at the ASPs in new one way, and used another way, and we'll continue to provide color. But the way I thought about it for my entire life, is that the more you can drive down ASP, the more you're widening the funnel to the addressable market. And the more you can make financing affordable and available to consumers, you're widening the market. I do not believe that a consumer makes the decision to not buy an RV for $159 a month to take vacations and enjoy the outdoors with their family. That's something that feels so discretionary. I don't think they look at it as the luxury good. When you look at the cost of airlines, the cost of hotels, the cost of theme parks, the cost of doing a lot of other things, $159 a month or essentially, $5 a day is still cheaper than a gallon of gas. And the primary product that we sell, towables, don't take any gas. The tow vehicle does. But when you look at the distance that people drive to go camping, 25, 50, 75 miles max, this isn't the days where people are just full-time camping and traveling all over the country. People have households have mostly two working incomes. And they're camping on the weekends, which means they can't go that far. So we see consumer credit tightening as a potential impediment, interest rates as a head scratcher. But if we drive down ASP and we have a good used offering, we're providing enough of an alternative. So that's how we think about ASP, new separately from used.

All right. But Matt, I was kind of thinking year-over-year, not sequential. And just for reference, whenever we as the sell-side ask questions, we're usually asking year-over-year. But year-over-year, you're up 15% in new ASP and 30% in used. So I'm wondering there, you see your mix shifting to more towable so that should bring your ASPs down on mix. So are we seeing that on a consolidated basis, you put it together? ASPs are up, what, 17% year-over-year, so is pricing up 20%, and mix bringing it down a couple of points? Or how should we think about mix versus...

Well, I brought up the sequential element of it because that was far more relevant compared to year-over-year, given that just about every industry has seen price increases across the board. So you're in that range with that 20% suggestion of invoice price increases year-over-year, which we've seen that quarter-to-quarter, that ASP, as well as if you start to back into the same-store new unit versus some of the other factors in the supplemental data, you'll see the average rough COGS associated with these assets has also continued to go up that same amount. So yes, we were able to yield a greater gross margin as well, or GPU, but that ASP has come up year-over-year. We don't see that, though, changing much here from quarter-to-quarter now. We feel like the biggest price increases transpired over the past couple of quarters, especially.

Okay. Great. Regarding the retail cadence during the quarter, Matt, you mentioned adjustments in February, which I assume coincides with the invasion. How did you observe the year-over-year performance at the start of the year, and how did it evolve throughout the quarter? If there was a decline in February, did things improve again in March?

February started out actually relatively well, where it was around that time, about the second, third week in February, we started to see a bit of a slowdown year-over-year. And then heading into March, we saw a little bit bigger difference, in terms of a decline, year-over-year. Heading into April, it's been roughly about the same, compared to March. And then, as we're heading into May, we actually feel very good about current sales volume year-over-year. So we'll continue to monitor this and make modifications to our strategies to ensure that we are capturing demand that exists out there. And by the end of the sales season, we're confident that our inventory levels will be in a very good position, based upon whatever retail sales volume will transpire here over the next three or four months.

Okay. Great. And since I'm last, I think I'll throw one more in there for the benefit of the group here. Now that you have about $10 million per location RV inventory, that's about double from last year's $5.5. If you adjusted for ASP, maybe 55% higher. So a big increase in. Understanding, if not all spread like peanut butter, where might you still have holes in your inventory? Where might you be a little bit heavy?

I don't think we have any holes in our inventory today and where we believe that we are heavier than we would like to be, but it was strategic in terms of bringing that forward, was on the entry-level travel trailer side. That's from my perspective. I don't know if, Matt, if you want to add some color to that.

Yes, I think you are on right information. However, within the motorized segment in particular, there's still a little bit of opportunity for us to be able to supplement some of our inventory there to capture a little bit more of the market. But we also know that motorized is only going to account for about 12% of the total amount of units sold annually. So we feel like we've covered the mass production of the marketplace and the mass retail volume.

And used helps us fill that void.

Correct.

Okay, guys, thank you very much for joining us on this call. We look forward to getting back to you on our second quarter results. Thank you so much.

Ladies and gentlemen, that concludes today's conference. Thank you for joining us. You may now disconnect your lines.