Another surge in Covid-19 cases would be particularly bad for the RV industry heading into the fall and winter seasons, which can be seasonally weak for the industry.
Photo: George Frey/Bloomberg NewsThe recreational-vehicle industry is enjoying a nice ride, but investors shouldn’t park their money for long.
With plane travel still largely grounded and the cruise industry temporarily docked, recreational vehicles offer owners the ability to turn shelter-in-place into an instant summer vacation. That has been a boon lately for RV stocks, after the industry was hit hard at the beginning of the pandemic. Shares of RV-makers Winnebago Industries and Thor Industries have both more than doubled over the last three months, while Camping World Holdings has more than tripled.
The summer of the RV may very well be upon us: On earnings calls last month, both Winnebago and Thor reported a recent influx of first-time customers. Thor said some buyers are even using RVs beyond leisure as creative workspaces, enabled by the spread of remote work policies. Back in May, Camping World Holdings Chief Executive Marcus Lemonis told investors on an earnings call that the first weekend in May “was the biggest weekend in our company’s history, period, end of story, in all aspects, [for] every part of our business.”
As businesses reopened and the economy looked to be heading toward some level of recovery in early June, even President Trump said in a press conference he was ready to buy an RV and cruise around town with the first lady.
But for investors, it may be too late to jump on the bandwagon. With coronavirus cases and hospitalizations now surging in many states, the industry may be running out of open road. Manufacturing difficulties and weak consumer demand could both take a toll.
As the first RV company to report for the months of March through May, Winnebago’s fiscal third-quarter results late last month offered a glimpse of the sales dip that could very well recur in the industry if the spread of the new coronavirus worsens. The company said retail sales fell more than 20% in March versus last year and that April sales came in “relatively similar to the rest of the industry,” which it said saw a 53% year-over-year retail decline.
Winnebago said sales in the quarter ended May 30 were hit by manufacturing suspensions, compounded by job losses among consumers. Manufacturing looks to remain a challenge, even if renewed demand continues into the summer. While Winnebago’s facilities are now open, Chief Executive Michael Happe said “every day is a battle,” given manufacturing work can’t be done remotely and stringent new safety protocols must be adhered to on site.
Winnebago did describe a “steady and sequential” recovery throughout May, bolstered by low interest rates and fuel prices. But Mr. Happe declined to give any numerical color for May and June “because of how dynamic things continue to be.” He also urged investors to consider that a second wave of infections “would most definitely change” the trajectory of the recovery.
Another spike in Covid-19 cases would be particularly bad for the RV industry heading into the fall and winter seasons, which can be seasonally weak for the industry. The RV Industry Association notes renewed lockdowns would be especially painful for the industry in specific states. More than 80% of RVs are built in Indiana, for example, and the most populous states like California, Texas and Florida also tend to drive the largest sales volume, the association said.
After a period of weakness in 2018, shares across the industry recovered late last year. While shares of the major players have historically traded in tandem, the virus has precipitated some dispersion among them. Despite the recent run, shares of Camping World Holdings and Thor Industries still remain down more than 40% and 30% from highs achieved over the last three years, respectively, while Winnebago shares are now trading at 20-year highs.
The recent spike notwithstanding, demand for RVs as sizable nonessential purchases has been sensitive to economic swings and has even been predictive of them. With the virus still raging and the economic outlook so uncertain, #rvlife’s hot minute could easily be short-lived.
Write to Laura Forman at laura.forman@wsj.com
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Time for RV Investors to Hit the Road - Wall Street Journal
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