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The Party is Over for the Pandemic-Winning RV Industry

The pandemic had proven a shot in the arm for the recreational vehicle (RV) industry. RVs emerged as a rare travel winner in 2020 and 2021. But the recent economic slowdown is adversely impacting several industries, and this time around, the RV space has not been an exception. With the RV industry being highly cyclical and threats of a potential recession looming, the craze for RVing is over now. The two major industry participants, Winnebago WGO and Thor THO, which witnessed double-digit share price gains in 2021, haven’t had a pleasant run on the bourses in 2022. Year to date, shares of THO and WGO have contracted 27% and 30%, respectively, underperforming the S&P 500’s decline.

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The Rise & Fall of the RV Industry

The recreational vehicle (RV) industry witnessed massive growth after the global financial crisis in 2008. RV shipments boomed between 2009 and 2017, thanks to the economic recovery following the recession. Sales then started to flag again, with the economic expansion beginning to cool off. The year 2018 marked the first annual decline in RV shipments (down 4% year over year) since 2009. RV shipments declined (16% year over year) in 2019 as well.

Then came the global pandemic in 2020 and sparkled another boom in the industry. The COVID-19 pandemic brought stringent travel restrictions, making airlines and cruises unviable and unsafe travel options. It was then that the pandemic-weary people started looking for ways to venture out responsibly and turned to RVs.

Pent-up wanderlust, after being cooped up for months, breathed a new life into the RV industry in 2020. People experienced the much-needed freedom and fun with the relatively safer RV vacays. The love of road trips, a desire to travel in comfort, wanting to explore the great outdoors and the ability to use an RV as a basecamp for other outdoor recreation activities got people all the more hooked on RV holidaying. RV shipments in 2020 totaled 430,412 units, up 6% year over year, on par with the third-best annual shipment on record.

Despite the widespread vaccination drive in 2021, RV holidays still had their days in the sun. The demand for RVs held strong as people began enjoying an active outdoor lifestyle along with friends and family. Millennials and zoomers’ zeal for off-the-grid-living boosted the RV culture. In 2021, RV shipments hit an all-time high of 600,240 wholesale shipments, surpassing the 2017 record of 504,599 units.

While the RV industry managed to navigate through the COVID-induced supply chain snarls, shortage of parts and components, a tough labor market and logistic challenges, it looks like the uncertain economic environment put brakes on the momentum.

After setting a single-month shipment record of 64,454 units in March 2022, shipments have been witnessing double-digit year-over-year declines since June. In November, RV shipments were 24,445 units, tanking 50.4% year over year. In the first 11 months of 2022, shipments totaled 472,691 units, down 15.6% from the corresponding period of 2021.

With the fortunes of the RV industry tied to the economy, industry participants like Winnebago and Thor reported a decline in revenues and earnings in the first quarter of fiscal 2023. While WGO’s top and bottom lines fell a respective 17.6% and 41% year over year, Thor’s profit and sales tailed off 71.5% and 21.5%, respectively, on a year-over-year basis. Thor, in fact, issued a dim guidance for fiscal 2023. It expects fiscal 2023 net sales in the band of $11.5-$12.5 billion, implying a decline from $16.31 billion recorded in fiscal 2022. Earnings per share are envisioned to be between $7.40 and $8.70, suggesting a sharp contraction from $20.59 in fiscal 2022.

While WGO carries a Zacks Rank #3 (Hold), Thor is Ranked #5 (Strong Sell) currently.

You can see the complete list of today’s Zacks Rank #1 (Strong) stocks here.

A Sagging Economy Dims 2023 RV Shipments Forecast

It will be a hard landing for the RV industry in 2023. Demand and sale of RVs are declining and the downturn is not expected to end anytime soon.

A rising interest rate environment and economic uncertainty will continue to act as spoilsports. The RV space relies heavily on consumers' affordability. Higher interest rates translate to increasing costs of financing and the question is whether customers would be keen on taking a high-interest rate debt to finance their next RV purchase, especially when the economic scenario is so uncertain. The central banks have signaled to keep the interest rates higher for longer through 2023 and no rate cuts till 2024. The FOMC has also lowered its GDP growth projection for 2023 from 1.2% to 0.5%.

Amid this backdrop, the RVIndustry Association forecasts RV shipments in 2023 in the band of 379,200-403,600 units, implying a more than 20% decline from the expected 2022 level of 495,300 units. The glum projections are a result of the fears of economic slowdown triggered by high inflation, rising interest rates and aggravated supply chain snarls.

How long the tough times will last for the RV industry is just anybody’s guess.

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