According to a 2023 IDS Recreational Vehicle Industry Trends Report, approximately 72 million Americans plan to take some form of an RV vacation in the future. The industry experienced a boom during the Covid-19 pandemic as domestic travel took precedence over international travel.
The largest publically traded RV dealership is Lazydays Holdings Inc. (LAZY, Financial). The company operates RV dealerships under the Lazydays name in the U.S. Services include RV sales, RV repair, financing, insurance products, third-party protection plans and after-market parts and accessories. It also operates the Lazydays RV resort in Tampa, Florida.
Founded in 1976, the company is based in Tampa, Florida. The current market capitalization is $162.8 million.
Industry overview
The Covid-19 pandemic helped stimulate a boom in the RV industry. Consumers discovered the possibility of working and learning in a remote setting and the RV industry benefited. Dealerships stayed open during the pandemic, but most manufacturers had to close down, so RVs started to sell out. Dealers could not keep new units on the lot due to this dynamic.
RV sales skyrocketed to 474,000 in 2020 and 513,000 in 2021. The market began to stabilize to normal in 2022 with unit sales of 402,000, which was reasonably close to 2019 levels.
Financial review
On April 27, the company reported first-quarter financial results that showed the continued slowdown from the Covid-19 pandemic boom years. Revenue decreased 21.4% to $295.7 million from $376.2 million in the prior-year period. Gross margins decreased to 22.1% from 26.9% a year ago. Adjusted net income was $1.2 million compared to $28.2 million last year. Operating cash flow was -$28.8 million.
Lazydays ended the quarter with liquidity of $175.1 million, including $41 million of cash, $20 million of availability on a revolving line of credit, $62.5 million of immediately available cash on a floor plan offset account and $60.8 million of unfinanced real estate that I estimate could bring in an estimated $51.6 million of additional liquidity. During the quarter, the company received $30.5 million in proceeds from the exercise of outstanding warrants.
The company has 19 dealerships in operation with days supply of new vehicle inventory at 207 and days supply of used vehicle inventory at 77. Total retail units sold in the quarter were 3,089, a decrease from 3,748 in the prior-year period.
During the earnings call, Lazydays CEO John North said, “While it's impossible to predict exactly where the market will go in the balance of the year, we remain committed to improving our operations and profitability. And we are optimistic about our future performance. We continue to make exciting strides in corporate development. We open a new location in Council Bluffs, Iowa this week, which is the second addition to our store network this year after the acquisition in Las Vegas in February. We remain focused on growing the number of locations we operate to expand our footprint in new markets, to create economies of scale and our operations and to leverage the network effect of clusters of Lazydays stores. To that end we have three more locations under construction that will be completed in the third quarter of this year. And we remain active in pursuing acquisition opportunities.”
Valuation
Lazydays is expected to report net losses in 2023, but analysts expect a rebound in 2024 with consensus earnings estimates of 81 cents per share. The price-earnings ratio on a forward-looking basis is approximately 14.
The GuruFocus discounted cash flow calculator creates a value close to today's stock price using 81 cents as the earnings starting point and a long-term growth rate of 6%.
There are four analysts that cover the company with an average price target of $16.50, a high price target of $20 and a low target of $12.
Guru interest
Chuck Royce (Trades, Portfolio) is currently the only guru invested in the stock with a 2.85% stake.
Summary
There are some current headwinds that may affect the company in the near term. Higher prevailing interest rates may decrease purchases as most recreational vehicles are financed somehow. Large-ticket items can also be cyclical and consumer purchasing would most likely slow down in a recessionary environment. In addition, used vehicle pricing is declining faster than new vehicle pricing, which pressures operating margins as used vehicles provide a higher gross margin profile.
However, from a long-term perspective, there still appears to be growth opportunities in the RV market. Once the exclusive domain of the elderly, the market for RVs is getting younger, creating a new category of consumer purchasers. In recent years, millennial age buyers were 38% of total RV purchases with a median age of 33 years old. As of 2022, 72 million consumers were planning some form of a RV vacation.
Management recently stated they believe the worst of the RV market correction is over. With Lazydays stock selling near 52-week lows, this may create an entry point opportunity for long-term investors.
