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Bear of the Day: Camping World Holdings

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Marcus Lemonis is the host of a popular business reality show on CNBC and his style and demeanor make him enormously likable to viewers and fans. On “The Profit”, he makes a financial investment in small companies that are struggling to grow but exhibit promise in the eyes of the successful entrepreneur. He generally assumes some temporary management responsibilities.

Lemonis’ mantra “People, Product and Process” is a really simple and valuable lesson for anyone who runs a business of any size.

With the help of his longtime mentor Lee Iacocca, Lemonis parlayed his family experience in the automobile dealership business into the creation of the world’s largest seller of Recreational Vehicles. With an impressive series of acquisitions, Lemonis has turned his company, Camping World Holdings (CWH - Free Report) into a $2 billion market-cap seller of RV’s, boats and a wide range of recreational accessories.

Since going public in 2016, Camping World has continued to make strategic acquisitions including the Gander Mountain and Overton’s brands in 2017.

While Lemonis is not the kind of CEO investors would generally want to bet against, he’s up against a few notable macro-economic headwinds that jeopardize near-term earnings growth at Camping World.

Rising commodity prices, rising oil prices, and rising interest rates.

The prices of steel and aluminum - major inputs in the construction of an RV - are rising, due primarily to tariffs imposed by the Trump administration and retaliatory tariffs imposed by our major trading partners.

The price of a barrel of oil has risen roughly 36% over the past year, with WTI crude going from $50/bbl in the summer of 2017 to $69/bbl today.

Federal Reserve Chairman Jay Powell has made it clear that he intends to continue steadily raising short term interest rates to keep the strong U.S. economy growing at a sustainable rate and hold inflation in the area of 2%.

This combination of factors makes RVs more expensive to manufacture, operate and finance. All of that is bad news for Camping World.

In Q1 2018, the company grew total revenues 20% to $1.06B from $881M in the year-ago period, but costs rose as well and income from operations were down 28% from $70M to $50M. Adjusted net earnings were $0.41/share.

The Zacks Consensus Estimate for Q2 and full year 2018 have been in decline lately and consequently Camping World is a Zacks rank #5 (Strong Sell). Shares in Camping World more than doubled in the first year after their 2016 IPO, but have since fallen back to just slightly higher than the $22/share IPO price.

Despite effective management and a charismatic leader, the economic forces that are currently aligned against Camping World probably means it’s going to be rough sailing for a while. Investors in the outdoor recreational products space would be wise to instead consider Johnson Outdoors (JOUT), a Zacks Rank #2 (BUY).

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