Camping World Holdings, Inc. Q4 FY2022 Earnings Call

Good morning, and welcome to Camping World Holdings conference call to discuss financial results for the fourth quarter and year ended December 2022. 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. 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; Matthew Wagner, Chief Operating Officer; Lindsey Christen, Executive Vice President and General Counsel; Tom Curran, Chief Accounting Officer; and Brett Andress, Senior Vice President, Investor Relations. I will turn the call over to Lindsey Christen to get us started. Please go ahead.

Thank you, and good morning, everyone. A press release covering the company's fourth quarter and year ended December 31, 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 our business goals, plans, abilities, and opportunities; our strategic initiatives, acquisitions, and planned capital expenditures; anticipated uses of capital; anticipated cost reduction initiatives and related cost savings; industry and customer trends; the expected impact of inflation, interest rates, and market conditions; the expected impact of the subsidiary LLC conversions on our ongoing income tax expense and tax distribution requirements; future dividend payments; 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-Q, 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 fourth quarter and fiscal year results are made against the 2021 fourth quarter and fiscal year results, respectively, unless otherwise noted. I'll now turn the call over to Marcus.

Thanks, Lindsey. Good morning, and thank you for joining us for Camping World's 2022 fourth quarter and full year earnings call. On today's call, I'm going to lay out our financial results for both the year and the quarter, discuss our action plan for the current economic environment, and provide some early insights into 2023. Once that's done, I'll turn the call back over to the operator for questions. As many of you are aware, the last several years have been great. While the industry reached new heights, the number of households with RVs grew at a historical level, and this hobby has turned into a modern-day lifestyle. This lifestyle and industry have changed dramatically since I became a part of it over 22 years ago. Through those years, I've seen and experienced it all, from 9/11 to the 2008, 2009 financial crisis; record high gas prices to rocketing inflation; and lastly, the pandemic. I point that out because, through all those times and things and in between, this industry has exploded. And in my opinion, while there have been, and will be always, temporary speed bumps along the way, both the industry and the RVer are not only here to stay but will grow. We're all dedicated to the lifestyle. From our perspective, it's the most affordable vacation in America, and the mandate for affordability is here to stay. This historically cottage industry with a rural birthplace is now fashionable for all ages, all cultures, and all interests. No one could have predicted that a worldwide pandemic would bring this lifestyle front and center. During those 22 years, I've fielded all sorts of questions. But there are two questions that have survived time. First, do Americans love RVing? And second, can this cyclical industry continue to grow each decade? In my opinion, the answer is an emphatic yes, and there are decades of data to substantiate it. 2022 was a solid year for our company, actually the second-best year in our history, with adjusted EBITDA of $653 million on record sales of almost $7 billion. Those results, after making acquisitions, dividends, tax distributions, interest payments, et cetera, yielded year-end working capital levels that we are very pleased with. We ended the year with roughly $348 million of cash, broken up by $218 million of cash in the floor plan offset account; and additionally, $130 million of cash on the balance sheet. We also have about $264 million of used inventory, net of flooring, and $247 million of parts inventory. Lastly, we also have $129 million of real estate without an associated mortgage. As our management team and Board think specifically about 2023 capital deployment goals, we plan to be more conservative around SG&A, capital expenditures, and initiatives as well as less tolerant around underperforming assets. So that we may remain aggressive in accretive RV acquisitions, prudent about reducing debt, being opportunistic about stock repurchase, and maintaining the dividend. With that, it's no secret that recently, the sale of new RVs and its corresponding margins have faced temporary challenges. The key to keep at the top of that list is new inventory management. While we have significantly fewer new units on the ground per location compared to any time between 2016 and 2019, we believe that both logistics supply chain improvements and tighter planning and forecasting with manufacturers will improve this going forward. We hope to improve turns and levels over the next six months through a combination of the spring and summer selling season, along with a disciplined and opportunistic approach to restocking. Historically, our inventory balances go up from year-end to the end of the first quarter. But our plan is to have that new inventory down to no less than $140 million by the end of the first quarter. Over the years, I've learned that new RV sales were less predictable with a wider range of outcomes. That was always the puzzle that we wanted to solve. I felt like the key contributor to solving that puzzle was to create a more predictable business model, one that was hyper-focused on the following ideas: the used market, which is more than double the size in terms of transactions compared to the new; a robust fixed operations business, which includes service, collision, parts, and accessories, focusing largely on the ever-growing and steady installed base. Lastly, to operate a high-margin recurring annuity business. This business would capture revenue opportunities at multiple points in our operations, including our retail centers, our dealership finance and insurance offices, our service counters, our various web and online businesses, our campground network, and our national call centers. That's our Good Sam business. In breaking down these three, you will see that they continue to provide a strong opportunity for revenue growth, expanding margins, stability, and, most importantly, predictability. In 2022, our used sales approached $1.9 billion, an annual all-time high. We sold over 51,000 units, all while used margins remain within the historical range. While we're happy with the growth in the last three years, we see this white space opportunity for our company as a primary growth agent, both in the dealerships we acquired and the new web platforms that launched, including RVs.com. The fixed operations business, known as our products, services, and others, generated almost $1 billion in revenue. Please note that when you look at the annual and quarterly results of this segment, consider that we exited significant categories at the end of 2021, like fishing, hunting, apparel, and footwear. When you exclude that revenue and compare year-over-year results, service and parts revenue had growth in 2022. We see continued strength and stability through all cycles. Good Sam, with its high-margin recurring revenue sources such as roadside assistance, extended service plans, insurance, campground programs, and various other memberships and publications, had a record year, growing its sales by 6% and increasing its gross profit by over 11%. We are very excited about the prospects for 2023. I wanted to emphasize those finer points of the above categories to demonstrate that we understand the pieces of this puzzle and their contributions. Moving to a summary of our fourth quarter results. We recorded revenue of $1.28 billion, down 7% from last year, driven primarily by softening in new RV unit sales and margins in late November and December. We sold 10,334 used units in the quarter compared to 10,669 units last year, down slightly, but relatively in line with our expectations. It materially outperformed the broader market according to statistics. Our most valuable and predictable business asset generated $47.6 million in revenue for the quarter and $30.2 million of gross profit. Our adjusted EBITDA for the fourth quarter was $20 million. A few items impacted the profitability for the quarter. We elected, as a management team, to reduce underperforming retail inventory by $46 million, resulting in compressed margins from heavy discounting while generating cash. We did and continue to aggressively sell through new inventory to avoid inventory aging, resulting in short-term margin compression. It is due to a higher interest rate environment, and we experienced materially higher floor plan expenses. As we plan for the remainder of 2023, we believe new RV demand and new RV margins will continue to put short-term pressure on the industry. The start of this year has seen a high level of inquiries from consumers through the web, in stores, and that shows. However, conversion to sales on new units has been moderately tougher than last year, with tighter margins. With the temporary softness in new RVs, we continue to remain committed to our legacy growth strategy. We will do what we can to continue to eliminate waste, convert low-performing assets, and eliminate non-core, non-income-generating businesses to allow for continued scaling through acquisitions and new store openings. Currently, we have four locations under a letter of intent or definitive purchase agreements. These acquisitions are anticipated to close in the second quarter of 2023. It is our goal to continue to look for transactions that add overall value to this company, and it is our belief that those opportunities will be more robust in the coming months. Additionally, we anticipate more favorable pricing as well. The company currently has nine locations either built or soon to be finished. However, unlike our historical process, we are waiting on opening those locations until we have more visibility on the trend lines and the current state to avoid deploying capital or incurring any new store opening expenses at this time. We believe in the strength of our business and understand that the temporary softening of both new RV sales and margins demands action. Last fall, we started the process to reduce headcount, eliminate or reduce underperforming or excess inventory, locations, and business lines. In closing, we remain focused on where our business is going, and we're going to continue to take decisive action on our cost structure while making the necessary investments to intelligently and profitably continue to outperform the market. I'll now turn the call back over to the operator for questions.

And our first question comes from Joe Altobello with Raymond James.

Thanks. Hey guys, good morning. I guess my first question is for Marcus. You've been very clear both on this call and previously that margins on new RVs will continue to come under pressure at least in the near term. If we look historically at your gross profit on new units, it's been around $5,000 per unit, give or take a few hundred. I think it peaked over $13,000 a couple of years ago, and last quarter, it was about $7,400. So where do you think we end up on that spectrum? Do we eventually get back to that $5,000 gross profit level on new?

Look, it's our opinion that, when we look at the margin profile of new, while we expect it to be down from 2021, we expect it to be above the 2019 level. Whether that's in the middle of that or toggling around the middle, we feel pretty confident. I think when we look at the overall year, we see better margin improvement in the back half of the year as we forecast things. However, we do anticipate that as a company, we will continue to be aggressive in moving through the flywheel of new RV inventory. While we don't necessarily have a lot of trepidation about where our new inventory sits today, it's slightly higher than we'd like it to be. The good news is that we're entering the spring and summer selling season, and we've been far more disciplined than we have been in years past, working with the manufacturers on what we're going to bring in and, more importantly, what we're going to bring in. We're being more opportunistic to ensure that we're going to pick up some margin to help offset the elimination of some of that older inventory.

And just to follow up on that point. Are you starting to see OEMs rethink their pricing strategy with respect to rebates and discounting?

We've seen a little bit more discounting than we have in the last couple of years, that's obvious. But we're very proud of how the manufacturers have wound down production in the fourth quarter and even at the beginning of this current year. As I was in Elkhart a couple of days ago, I was pleased to drive through some of those yards and not see thousands and thousands of units. I give the manufacturers, particularly for Forest River and Winnebago, a lot of credit for working more closely with the dealers. But this is an everyday thing, and we have to stay disciplined to ensure that the orders that dealers like ourselves are placing and the units that RV manufacturers are making are closer together. In the short term, the manufacturers have recognized that for the next three, four, or five months, they need to have RV retail registrations outpace the number of units that are being delivered. We expect that RV retail registrations should hopefully outpace the RV shipments for 2023, bringing those stocking levels back in line in the next three to four months.

Got it. Thank you.

Our next question comes from Mike Swartz with Truist Securities.

Good morning, everyone. I apologize if I missed this, but I think on the third quarter call, Marcus, you said you were anticipating, I think, a retail market of around 360,000 to 370,000 units for 2023. Has that changed at all since we last spoke with you? And maybe give us a sense of how the fourth quarter played out from a retail perspective and how that's carried into early '23?

Yes. So that number of 360,000 was our best estimate as a company of what we thought shipments would be from the manufacturers. Now we're hoping that the retail numbers are better than that, so we can fix the stocking levels. But our number that we predicted last summer, when associations and manufacturers were calling for 420,000 to 400,000, still remains in that 360 range, and it could be up 5 or down 5. For the most part, we believe that we've seen an unbelievable amount of discipline, quite frankly, discipline that I haven't seen in my 22 years that the manufacturers have instituted to ensure that we right-size that. We're pretty comfortable with that original estimate in the 360 range for shipments. Regarding retail registrations, the first part of the fourth quarter was not terrible. However, as we got to the middle of November and Thanksgiving and December, things started to decelerate pretty quickly. Now we had to remind ourselves that deceleration was nothing more than a reminder of what that fourth quarter was historically like in this industry. Whether it's any manufacturer or dealer, the fourth quarter always experiences a pretty material drop-off. An important note is that the rocket ship that takes us back into the selling season didn't necessarily start in January or even, quite frankly, February. We saw that maybe the last week of February and then accelerated through March, taking off in April. In previous years, we experienced January through February that this industry has not seen, quite frankly, ever before. We believe we've seen a return to the normal seasonality that exists. However, this calendar year 2023, that seasonality also came with slightly more margin compression than we have historically seen. We understand that this is a cleansing of 2022 that the industry has to undergo. We think that the manufacturers are being far more thoughtful about bringing 2024 in and pushing it to mid- to hopefully late summer. Those adjustments are expected to correct themselves. In summary, the fourth quarter was softer, but it accelerated at the end. The first quarter has not taken off as the industry had hoped. While there's still a lot of demand, with tightened margins and consumer shopping patterns leaning toward expecting larger discounts to capitalize on, we see a slight drag in RV retail sales and margin compression on the industry level. We do hope that we're outperforming the market, but apart from our fourth quarter outperformance, we don't have any data yet to support that we're performing the same in the first quarter.

That's helpful. Thank you, Marcus. I also think you had mentioned a number of cost reduction initiatives that were undertaken later in '22, including store closures and headcount reductions, and curbing capital expenses and advertising. Can you provide a sense of the actions you've taken as you sit here in late February? How should we view the annualized run rate of the cost reductions you implemented?

I want to be careful because we don't provide guidance as a company, and we don't tie these cost reductions in our disclosures. To give you some context, we had a significant reduction in headcount, almost 1,000 people. While we made acquisitions in the fourth quarter, the net effect was substantial. If it netted out at around 850, at an average wage, it's a significant number. We prefer not to quantify it due to the human capital involved. However, as a part of that process, we redeployed some of those savings into investing in our remaining talent pool, both in attracting new talent and retaining it. We had to allocate significant wage increases as our employees, who are also consumers in the marketplace, faced high inflation. Therefore, we implemented wage increases across our base, particularly in service parts and those stable cash flow environments. In terms of cash costs, we eliminated about $20 million in annualized marketing expenses, which we don't expect to recur. These cuts came from terminating longstanding agreements with large national partners. We understood that in 2023 and 2024, we need to reinvest that capital into stock buybacks, debt reduction, and better wages for our employees. Additionally, we shut down a major distribution center and eliminated non-performing assets and exploratory teams around initiatives, all of which reduced costs. If I were to provide an estimate, it would be no less than $50 million on an annual basis. However, we are contending with rising floor plan interest expenses that continue to present temporary headwinds. For instance, in the fourth quarter alone, year-over-year, it's about $7 million more due to escalating rates. Some of that, only a small amount, is due to higher inventory, while most is due to higher rates. Hopefully, in the second half of this year and in 2024, as rates decrease, those savings will fall directly to the bottom line.

Our next question comes from Craig Kennison with Baird.

Hey, good morning. Thanks for taking my question. I wanted to ask about the used market. That's a market over which you have a little more control. Obviously, you said it's a larger market. I'm curious about your outlook for your own volume in that market. Is that a business that could grow even if new retail does not?

The way we're thinking about it, Craig, is how much can that used market outperform the new market. There will be headwinds in this giant macro environment. We're working hard to maintain our used business's same-store basis comp as close as possible, but we think it's going to significantly outperform the new segment. I believe the used registrations in 2021 were around 900,000, and we anticipate that number could drop to approximately 750,000 to 760,000. I could be off, but that's just a projection. Although there’s some softening, we believe we can maintain better performance than that. The special advantage in this business is the margin contribution it provides to our overall operation. Front-end margins are significantly better than those for new and historically sustainable annually. These contribute to our parts business through reconditioning and servicing, or improved performance on finance and insurance. We anticipate overall gross profits in the used segment to stay within a narrow band. While some of the softness is self-inflicted, as we've become more aggressive in procurement, we have strict discipline around our aging policies, acknowledging losses when necessary. In the fourth quarter, as we observed a reduction in new RV market demand, we adjusted the RV Valuator values accordingly. Stepping back, we wanted to understand what would happen to those values: were we making the market or validating our thesis? During this process, we didn't observe any drop in values or demand, which reinforced our position. We allowed a brief slowdown in acquisitions which might have cost us 300 to 500 units; however, we believe the knowledge and risk mitigated during this period will yield greater returns than simply focusing on unit sales.

That's really helpful. On the Finance & Insurance side, you’ve managed to maximize your F&I profit per unit. Should we anticipate a return to historical levels in this area or find a positioning somewhere between the heightened peak and pre-pandemic levels?

I have to be honest, this is one area of our business where I don’t see much risk, very similar to the Good Sam business. The growth we've witnessed in this sector stems not only from our F&I processes but also from presenting products enforced and administered by the Good Sam brand, resulting in improved attachment rates with every acquisition. I don’t foresee much fluctuation here; even with average selling prices moving around due to price adjustments or any market changes, I'm confident this will remain within a narrow band. Can there be a slight 0.5% flexibility in that number? Sure, but I haven't seen that any time recently.

I appreciate that. Regarding the dividend, could you share your conviction level around maintaining that dividend in most foreseeable environments?

The management team spends significant time discussing capital allocation with the Board, evaluating where we believe our shareholders will receive the best returns. Historically, our path toward acquisitions and debt reduction alongside opportunistic stock buybacks is a substantial part of the equation. Returning value to our shareholders consistently is also crucial. Long-term investors in our stock value predictable returns and recognize that although certain segments of our business may exhibit volatility, the predictability of Good Sam and our service and used segments are essential. We currently don’t see anything on the horizon that might compel us to modify our strategy regarding dividends, but we do have this conversation annually.

Our next question comes from John Healy with Northcoast Research.

Hi, guys. A quick question for Marcus. I just wanted to ask about the used side of things. What do you think the relationship is between discounting on the new side and when you may see a risk to the values on the used side? I understand the comments you made about the pullback early this year, and the lessons learned, but it seems to me that could introduce variability in how the year plays out. What do you consider the right spread between new and used prices, and when might those markets converge?

John! This is Matt speaking. Great question. We have worked diligently to provide solutions related to this, given that the RV Valuator was designed to predict retail values. We consider short and long-term trends to estimate those future values. Used assets typically sell in about 60 to 90 days, and we monitor this closely since certain assets, as Marcus previously mentioned, may take longer to sell. We aim for a more thorough understanding, projecting these trends about two years ahead. Generally, the sweet spot between new and a used unit one model year old is about 15%, though it can vary slightly by type and model year. We prefer to see a spread between new and used retail pricing. However, as Marcus pointed out entering Q4, trends appeared shaky within both markets. We opted to take a conservative approach to learn about the potential opportunities and assess whether we were impacting market values. Thankfully, despite our reassessed prices, we didn't observe a drop in values or demand, reinforcing our position. In the past month, we have shifted gears in our efforts within the used market, as we feel firm in our grasp of the opportunities this year.

Great. Thank you, guys.

And our next question comes from Bret Jordan with Jefferies.

Hi. Good morning, everyone. On the previous topic, I guess regarding model year inventory, since you're a bit overweight on 2022 inventory compared to normal, could you discuss the broader retail market's model year exposure? Do you think most of your peers have a heavier 2022 inventory compared to you?

We never want to speculate on where our competitors stand, but based on research and intel, we appear to be significantly ahead in terms of 2022 inventory ratios compared to others. We recognize the urgency in aggressively selling our new inventory, as it gives us a competitive edge once we move past this hurdle. Our strategy to continue aggressively selling new inventory this fourth quarter, first quarter, and part of the second quarter, is aimed at returning to normalized margins. Although eliminating the 2022 units might invoke short-term pain, the outlook appears promising; our used business is robust, and planning to opportunistically restock as manufacturers aim to earn back business should help mitigate margins for the overall year.

Okay. From a consumer viewpoint, are you observing any differentiation between lower-end towable products versus higher-end fifth wheels or motorhome products in terms of strength or consumption trends?

We have long believed that the entry-level market, those units priced between $20,000 and $35,000, represents the industry's sweet spot. Over my 22 years in the industry, we've observed how different segments react to market events, and typically, motorized vehicles are the first affected, especially during a rising rate environment as their monthly payments increase. However, a key point to remember is when financing a $25,000 unit, while rates increase, the payment difference between 6% and 7.9% is not sufficient to deter buyers. The ease of comparing vacation alternatives reveals that a monthly payment of $200 or $250 is still considerably less than a $250 expenditure for a night at the ballpark. We haven't seen a decline in that customer base. More importantly, we haven't observed retail lenders adjusting their credit approvals for that consumer base at this time.

Regarding negative equity: is it impacting affordability? Are customers seeking to trade in units affected by this, and are they able to integrate that negative equity into new transactions?

Unfortunately, negative equity doesn't just influence affordability; it hinders accessibility. With negative equity and minimal down payments, turning that into a new transaction is challenging. We have worked hard with manufacturers to create special units in large batches with considerable discounting, enabling us to factor in negative equity during financing negotiations. The manufacturers have been very cooperative and supportive in helping us address this issue, but we must commit to large orders ranging from 300 to 1,000 units for this flexibility.

Our next question comes from Brandon Rolle with D.A. Davidson.

Good morning. Thank you for taking my question. Firstly, you mentioned the OEMs are assisting you in softening the impact of margin deterioration with elevated model year 2022 inventory. Could you elaborate on that support’s extent and their willingness to aid you, given the presence of cheaper products?

The manufacturers have been very responsive, addressing aging issues within our business along with those at every RV dealer across America. Their support has taken two forms. First, they are providing floor plan assistance or marketing co-op or salespersons' incentive assistance, recognizing the need to move existing inventory. Secondly, the manufacturers are becoming more promotional to entice sales orders, which parallels our efforts to encourage transactions with retail customers. Unlike past downturns, they are producing inventory in a more measured manner aligned with just-in-time retail demand. This has enabled RV dealers to manage their inventory levels more effectively. We are likely exaggerating the slowdowns and losses that we've experienced, since manufacturers offered dealers a breathing period to clear their inventory without overwhelming it with more units. I believe that as we navigate through spring and summer, their effective management will yield benefits for both them and us.

Great. Additionally, there has been significant consolidation in the industry over the past two years with many regional dealership rollouts. It seems like their balance sheets could be stressed as they work through model year 2022 inventory. How do you plan your business in areas where you intersect with these more stressed chains? And could these dealers be potential acquisition targets during the cyclical adjustment?

We’ve constructed our business model on the premise that we are a growth company. We can’t rely solely on growth through various channels and segments; acquisitions and new store openings are foundational principles of how this business operates. During challenging times like this, we accelerate those initiatives. As we continue to eliminate categories, liquidate non-performing assets, and close locations, it’s not because we are feeling pressure but rather because we want to harvest acorns, tighten our CapEx, and bolster cash reserves, both in stock and our bank accounts. We will persistently pursue growth through acquisitions. If we see some normalization in the marketplace and accept that new margins and demand will remain soft for a while, as long as we maintain stability in used and service areas, we will continue to actively seek opportunities. As mentioned earlier, we have four locations under letters of intent or definitive agreements and another nine locations that are built or ready to build. Our inquiry remains strong as we evaluate opportunities to assist distressed dealers in exiting their businesses smoothly without disrupting their families or balances.

Our next question comes from Tristan Thomas with BMO Capital Markets.

Hi. Good morning. This has been touched on earlier. How do you think the RV OEMs will handle new model year pricing in model year 2024?

In discussions, I'd like to remind everyone that OEMs are great innovators and creators, but they are essentially assemblers. They face various supply chain pressures that will affect their pricing strategies. We hope that manufacturers don’t resort to simply lowering prices by decreasing unit content, as this diminishes consumer value. Our company is uniquely positioned to benefit, as our parts and accessories business relies on installing items that might get omitted in those scenarios. Whether it’s electronics, awnings, furniture, or cabinetry, we believe we have a hedge to navigate both aspects of the market. We encourage OEMs to focus on innovation and eliminate non-value-adding items; we want them to identify and extract expenses that do not detract from the consumer experience. Inflation is a reality, and prices rarely decline; if they adjust lower, it's typically to rebalance supply and demand, and eventually, prices reestablish themselves and continue rising. Therefore, we anticipate minimal dramatic reductions in average selling prices, but potential normalization, with some temporary discounting before they settle back into their rhythms.

Okay. One final question: what are you observing about trading activity? And how is rvs.com performing?

Your first question pertains to trading activity; over the past few years, it has become a relatively predictable cycle. Trading activity generally rises during the fall, correlating with high-profile motorized and fifth-wheel season, which we experienced this year. This typically continues into January, February, and March. By the latter half of March, trading activity may slow, but it constantly remains within a 20% to 30% fluctuation throughout the year, month by month. Regarding rvs.com, we launched this site about seven to eight months ago and have since made ongoing improvements. We recognize the value this platform brings, which is why we cautiously ensured an impeccable customer experience before expanding our marketing rollout. Recently, we enhanced our product listing pages and have seen hundreds of thousands of unique visitors weekly without any marketing efforts. Our digital retailing capabilities are live in Texas and Tennessee, allowing customers to create accounts, handle financing online, and have home delivery. Our operations will be fully updated for digital financing in 38 of the 48 contiguous states by mid-summer, with a national strategy rollout planned by year-end. This approach enables us to cater to customers beyond the usual 100-mile travel radius for purchasing new or used state-of-the-art products.

Got it. Thank you.

Our next question comes from James Chartier with Monness, Crespi, Hardt.

Good morning. Thanks for taking my question. I want to discuss the used segments. Sales were down in the used business, but inventory grew and continues to grow, and you mentioned flat comps for next year. How should we conceptualize inventory turns in used for 2023 and beyond?

Our goal is to achieve used inventory turns that range from 3.5 to 4 times annually. Certain quarters may reveal accelerated turns, while inventory tends to build up in preparation for the beginning of the year, exaggerating the appearance of slowing down. The mid-summer period will often exaggerate increased turnover as well. Thus, our annualized average should fall between 3.5 and 4 turns. This range is broader as we test certain markets; launching stand-alone stores or adjusting locations may yield different results, leading us to optimize around a specific inventory mix. We expect our turns to pick up as we learn and understand the right levels.

Great. Historically, you discussed the SG&A to gross profit ratio being between 60% and 70%. You seemed to be at the high end of that for 2022. How should we approach that for 2023?

We have never stated a range of 60% to 70% for SG&A. It's always been 70% to 72%. We were fortunate that in certain periods in 2021 and '22, we enjoyed ratios around 62%. However, in previous years, like '19, we saw estimates around 87% to 88%. We anticipate that for 2023, based on compressed margins, our SG&A on an annualized basis will be in the mid-to-high 70s range. This may surprise some, but it’s crucial that we maintain adequate personnel levels to support acquisitions, store growth, and keep our service parts teams engaged during periods of typical high turnover. We want to keep our spending reasonable during a time of evolving demand and margin pressures. But historical patterns indicate that this is a finite challenge. We want to cut excess costs without compromising our core operations. In the long run, we believe margins will stabilize, getting us back into the 68% to 72% range, which historically yields the best EBITDA margins.

Our next question comes from an unidentified analyst with Stephens Inc.

Good morning, guys. Thanks for taking my question. In looking at parts, service, and other segments, I heard you mention growth expectations for the full year, excluding the divestitures. However, you noted in Q1 that you still have customer classifications and revenue relating to that divestiture that will take time to unwind. Given the decline in parts, service, and other, are we experiencing a longer cleansing period for those customers than expected, or are we facing additional headwinds?

Are we speaking specifically about the club or the revenue?

The revenue.

What we were lapping in 2021 over '22 was the full assortment available in our business. We began the liquidation process aggressively at the end of Q3, continuing into Q4 of '22. In '23, we shouldn't face the same headwinds from those categories like we did previously. We expect a clearer and more accurate depiction of our service parts and other segments in 2023 without the distractions of preceding years' noise.

If there are no more questions, thank you for joining today's call. We'll be prepared for any follow-ups. Thank you. This concludes our conference for today. Thank you for your participation, and have a good day.