Lazydays Holdings, recently rebranded as GORV, is a fascinating case study in navigating turbulent economic waters. While the company reported a pre-tax loss for the first quarter of 2024, there's a compelling argument to be made that this period of financial difficulty might actually be laying the foundation for a stronger, more robust future.

On the surface, the numbers paint a picture of struggle. GORV grappled with a sales slump coupled with an industry-wide inventory glut of older models. New unit sales dipped by 11.1%, and gross profit per unit on these new units plummeted by a staggering 75.7%. These figures are undeniably jarring, especially for a company striving for profitability.

However, a deeper dive reveals a strategic shift that could be game-changing. GORV seems to be embracing the "your first loss is your best loss" philosophy. They've aggressively discounted their aging 2022 and 2023 inventory, taking a substantial hit to their margins in the process. But here's the key: this calculated sacrifice has resulted in a remarkably healthy inventory position.

As of May 2024, over 90% of GORV's inventory consists of 2024 and 2025 models. This stands in stark contrast to many of their competitors who are still saddled with older, less desirable units. GORV has essentially cleared the decks, positioning themselves for a stronger performance as the market recovers and consumer demand inevitably picks up.

Furthermore, GORV's commitment to used vehicle procurement is another intriguing element of this paradox. While new unit sales are sluggish, the demand for used RVs, particularly those manufactured between 2016 and 2021, is booming. GORV is capitalizing on this trend, actively sourcing used units and witnessing impressive gross profits and rapid turnover.

This strategic pivot towards used RVs reveals a keen understanding of the current economic landscape. Consumers are increasingly price-sensitive, and used units offer a more affordable entry point into the RV lifestyle. By leaning into this segment, GORV is catering to a wider audience and diversifying its revenue streams, creating a buffer against the volatility of the new unit market.

The company's focus on operational efficiency further strengthens this counterintuitive narrative. Despite the loss, GORV has managed to maintain a tight grip on SG&A expenses. These costs were within 20 basis points of revenue in the first quarter, a remarkable feat considering the company added seven new locations in 2023.

This laser-focus on cost control demonstrates GORV's commitment to maximizing profitability, even amidst a challenging environment. They are streamlining operations, identifying redundancies, and ensuring that every dollar invested yields optimal returns.

GORV's Inventory Strategy: A Closer Look

The "Lazydays Paradox" hinges on the belief that short-term pain can lead to long-term gain. GORV's willingness to accept a loss in order to clear out old inventory and realign its strategy could prove to be a shrewd maneuver. To illustrate this, let's examine GORV's inventory reduction efforts based on data from their earnings calls:

The table highlights the drastic reduction in older inventory, showcasing GORV's commitment to having a fresh and desirable selection for consumers.

Used RV Demand: A Profitable Opportunity

GORV is keenly aware of the booming demand for used RVs, particularly those manufactured between 2016 and 2021. As stated by CEO John North in the Q1 2024 earnings call, "There is so much demand for used units. In particular, if you can find like 2016 to 2021, that stuff is liquid gold. We're seeing gigantic grosses, really, really quick turns."

The chart depicts a hypothetical representation of the increasing demand for used RVs in recent years, emphasizing the market segment GORV is targeting.

GORV's Potential Upside

Here's a hypothetical scenario: let's assume that GORV maintains its current inventory health and continues to expand its used vehicle procurement efforts. As the market recovers, they will be in a prime position to capitalize on increased demand with a fresh, desirable inventory and a broader selection of used units to cater to a wider range of price points.

Let's also assume that GORV achieves its stated goal of a high single-digit EBITDA margin. With an annualized revenue exceeding $1.5 billion, this translates to an EBITDA of $112.5 million to $135 million.

While these are just projections, they highlight the potential upside of GORV's current strategy. By sacrificing short-term profitability for long-term stability and growth, GORV might just be setting the stage for a remarkable comeback.

"Fun Fact: Did you know that the Lazydays RV Resort in Tampa, Florida, spans over 125 acres and offers amenities like a lagoon-style pool, a dog park, and a full-service restaurant? It's a haven for RV enthusiasts and a testament to GORV's commitment to providing a comprehensive RV experience."

Conclusion

GORV's first quarter loss, while unsettling at first glance, might actually be a strategic masterstroke. Their decisive actions to address inventory issues, combined with their focus on used vehicle procurement and operational efficiency, suggest a company poised for success, even as the broader market grapples with uncertainty. GORV's willingness to embrace short-term pain for long-term gain could very well be the key to unlocking its full potential in the years to come.