It used to be recreational vehicles, or RVs, were confined to retirees who embraced the open road and nomadic lifestyle in fifth-wheels, camper vans, or more modest motorcoaches that were vacation homes on wheels.
Eventually, the appeal of the “RV Lifestyle” expanded beyond senior citizens to families while coaches became more and more luxurious. Some Class A motorhomes were even outfitted with stainless steel appliances, wood floors, and fireplaces. Luxury RVs moved away from the mode of transportation for touring rock stars to ordinary road-trip enthusiasts.
Then came the pandemic.
RV sales exploded as the sector became the beneficiary of COVID travel restrictions and social distancing and as consumers used surplus payments from the government to splurge on items like RVs, boats and motorcycles. With the added benefit of low gas prices, RV shipments set a record high of 600K in 2021, nearly 40% above 2020 shipments and 20% above the last record high in 2017.
But as the economy started to limp back to normal, higher interest rates were the companion to the re-opening as the Federal Reserve swung into action to curb inflationary pressures by hiking interest rates by 500 basis points.
With as much as 80% of RV sales financed, high interest rates slammed the brakes on sales. Although 2022 RV shipments were still the third best on record, they were down 18% from 2021, dropping another 3% in 2023. By the end of 2023, RV shipments were nearly half of where they were just two years prior.
On Wednesday, Thor Industries’ (NYSE:THO) CEO said out loud what was plaguing the RV market for the past year: high interest rates would continue to weigh on sales and dampen the company’s outlook for at least the first half of 2024. The largest RV manufacturer in North America saw its profit drop 75% in the fiscal second quarter on a 6% decline in sales.
Thor’s results sent reverberations through the sector with shares of Winnebago (WGO), LCI Industries (LCII), Lazydays (GORV), and Camping World (CWH) all losing ground in sympathy with a 17% drop in Thor (THO).
Winnebago (WGO), which reported its latest quarterly results in December, experienced a similar drop in sales attributed to market conditions, product mix, and higher discounts. The company’s fiscal Q1 profit fell by 49% to just $1.06 per share on a 33% drop in sales. Camping World (CWH) reported a 13% drop in sales year-over-year.
Lazydays (GORV), the largest RV dealership in the U.S. also experienced a difficult quarter due to “industry wide economic pressures.” The company’s Q4 loss swelled to $108M from $1.4M in 2022 on a 19% drop in revenue. While Lazydays (GORV) expects to return to profitability in 2024, increased RV sales could be attributed more to the “aggressive discounting” the company undertook in 2022 and 2023 models than on improved macroeconomic factors.
So where does the RV sector head from here? Forecasts from ITR Economics expect RV wholesale shipments to perk up in 2024 to 334,700 to 365,500 units, an improvement of 10% to 16% from RV Industry data for 2023. This corresponds to an average 200 basis point decline in financing rates, but still nowhere near the peak in 2021.
Profits will likely remain lean as manufacturers lower prices to compensate for higher interest rates. Thor (THO) and Winnebago (WGO) already experienced a dramatic drop in profit margins from 2021. In fiscal Q2, Thor’s (THO) profit market dropped to 12.3% while Winnebago’s (WGO) fell by 130 basis points to 15.2%. Compare this to 2021 when RV sales were at their peak. In the fourth quarter of 2021, Thor’s (THO) profit margin was 16.6% while Winnebago’s (WGO) was 18.1%.
It’s likely the RV industry will remain undermined by higher-for-longer interest rates. And while the sector will continue to recover, the process will likely be slow as economic forces continue to batter consumers. Americans are facing shrinking retirement accounts, mounting credit card debt and stagnant incomes, all of which will curb discretionary spending, especially on big-ticket items like RVs.
