Camping World's Dividend Coverage Fades With Declining RV Sales

Since we downgraded Camping World in March 2022 from Borderline Safe to Unsafe, economic conditions have deteriorated further as rising interest rates, persistent inflation, and a looming recession continue to pressure profits and squeeze consumers.

With the firm's RV inventory about 25% higher than a year ago, it will be harder to offset waning demand and inflation with material price hikes.

As such, earnings are expected to fall to pre-pandemic levels, a rate that no longer covers the RV manufacturer's aggressive dividend.

For perspective, the firm's lofty annual dividend, which grew six-fold in the past two years, is higher than Camping World's earnings in every pre-pandemic year of the company's history as a public company.

Needless to say, management was far too confident that the pandemic-boosted demand would prove a structural shift in consumer spending and not just be a short-term spike. 

With the firm's headwinds poised to persist, a backlog of RVs to work through, leverage moving higher, and earnings expected to fall way short of covering the dividend, we are again downgrading Camping World's Dividend Safety Score from Unsafe to Very Unsafe.

We estimate the RV distributor could reduce the dividend by as much as 50%, which would still leave the payout ratio higher than we're comfortable with at around 75%.

We will continue to keep an eye on the company and will provide updates as needed.