Camping World Analyst Downgrades RV Dealer After 'Challenging' Q1

Outdoor and camping retailer Camping World Holdings Inc CWH reported first-quarter results Wednesday afternoon that were highlighted by "challenging" financial results and an "ambitious" 2019 outlook, according to Bank of America Merrill Lynch.

The Analyst

John Lovallo II downgraded Camping World from Neutral to Underperform with a price target lowered from $15 to $13.

The Thesis

Camping World reported a beat on the revenue line at $1.065 billion versus expectations of $1.044 billion due to strength in used vehicles; products and services; and finance and insurance, Lovallo said in the Thursday downgrade note. (See the analyst's track record here.)

But digging beyond the revenue line reveals some concerning metrics, including an adjusted EBITDA miss — $21 million versus $45 million — due to higher-than-expected SG&A expenses, the analyst said. This translated to a loss of 67 cents per share, which was "well below" BofA's expectations for a 14 cent per share profit.

Despite EBITDA coming in roughly 50 percent below expectations, Camping World maintained its full-year EBITDA outlook at $320-$340 million, Lovallo said. The optimistic outlook for 2019 comes at a time when the retailer said April new RV comps were lower by 10 percent year-over-year.

It is likely Camping World will need to revise its 2019 guidance to the downside, which poses a "challenge" to the stock, the analyst said.

In addition, the company's net debt-to-adjusted EBITDA ratio of slightly more than four represents a potential risk if the RV sector remains weak for longer than expected, he said.