Holiday RV Superstores, Incorporated

views updated

Holiday RV Superstores, Incorporated

Sand Lake Executive Park
7851 Greenbriar Parkway
Orlando, Florida 32819
U.S.A.
(407) 363-9211
Fax: (407) 363-2065
Web site: http://www.holidayrv.com

Public Company
Incorporated: 1978 as Holiday of Orlando, Inc.
Employees: 225
Sales: $68.0 million (1997)
Stock Exchanges: NASDAQ
Ticker Symbol: RVEE
SICs: 5561 Recreational Vehicle Dealers; 5551 Boat Dealers

Holiday RV Superstores, Incorporated is a multistore retail chain of dealerships for sales and service of recreational vehicles (RVs) and recreational boats. The company, founded by Newton C. Kindlund and his wife Joanne M., is the only public RV dealership in the United States and one of the two largest retailers of leisure-time vehicles. Holiday RV, through its eight sales and service retail centers located in California, Florida, Georgia, New Mexico, and South Carolina, represents 51 brands of RVs and 12 brands of boats. The company buys more than 78 percent of its RVs from Fleetwood Enterprises Inc., Thor Industries Inc., and Winnebago Industries. Holiday RV also sells new RVs and recreational boats purchased from other manufacturers, including Forest River, Inc.; Rexall Industries, Inc.; Bayliner Marine Corporation; and Sea Ray Boats, Inc. All the company’s service centers maintain a full line of both new and used recreational vehicles and also function as full-service facilities for the repair of virtually any type of recreational vehicle. The Greer, South Carolina, and Las Cruces, New Mexico, centers sell and service boats, and the Atlanta center offers a limited line of boats. The majority of Holiday RVs sales are for travel trailers, including fifth-wheel trailers designed to be towed by another vehicle, and motorized self-propelled units that are built on an automotive chassis. The company has more than 225,000 customers, of whom 82 percent are 35 years old or older and have an income ranging from $20,000 to $60,000. Holiday RV also exports new motorhomes and travel trailers to some 27 foreign countries.

The Early Years: 1964-87

Newton C. Kindlund began his career as an RV industry entrepreneur in the 1960s by working with companies that manufactured recreational vehicles. In 1964 the Recreational Vehicle Industry Association (RVIA) recruited him to open a regional office in Elkhart, Indiana. After a brief time with RVIA, Newton joined Indiana-based Holiday Rambler Corporation and worked in sales and marketing. In September 1977 Newton and his wife, Joanne, moved to Orlando to establish a Holiday Rambler dealership. This was one of the first factory-owned retail dealerships in the country, and it prospered. By June 1978, however, Holiday Rambler dealers nationwide forced the corporation to divest its ownership of the retail business. Newton and Joanne acquired the Orlando dealership on a leveraged buyout basis and, in July 1978, began to operate their own company, which they named Holiday of Orlando, Inc.

The business expanded rapidly; soon additional office space was needed. Since the Kindlunds spent almost all their time at the dealership and wanted to stay debt-free while building up the company, they moved into a double-wide mobile home that served as both office and home. Reinvesting their capital in the business proved to be a critical cornerstone of success. Sales grew slowly but consistently, and in 1984 Holiday of Orlando was able to acquire a second dealership in Tampa. By 1987 the Kindlunds had positioned Holiday of Orlando for an initial public offering (IPO) of stock. The name of the company was changed to Holiday RV Superstores, Incorporated, and the company was traded on the NASDAQ exchange.

The Public Company, a Hurricane, and a War: 1987-94

From its first year of operation, Holiday RV consistently operated at a profit, but in 1988—its first year as a public company—Holiday RV posted record sales of $32.65 million, an increase of 40.7 percent from the $23.2 million sales of the previous year. In contrast, the national recreational-vehicle industry grew at an annual rate of less than five percent during 1988. Earnings per share remained at 15 cents but overcame the 42.8 percent dilution factor of the IPO of 2.14 million shares to the public. Holiday RV continued its expansion, establishing the Fort Myers RV Center in Lee County, Florida—one of the fastest-growing regions in the country. Later that year the company founded the Jacksonville RV Center. Jacksonville, situated on the 1-95 entrance corridor to the state of Florida, was one of the strongest Class A motorhome markets on the East Coast.

In 1981 the company had pioneered telemarketing in the RV industry; by the end of the next decade more than 60 percent of Holiday RV’s winter business was carried out beyond its predominant Southern market. Additionally, the company expanded from two to five RV Centers in Orlando and Tampa and spent $660,000 to acquire the total assets of a 17-year-old RV Center, renamed Holiday Superstores of South Atlanta, Inc., in Forest Park, Georgia. Holiday RV expanded its product offering to 35 RV brands, up from 27 in 1987, and became the South’s leading retailer of fifth-wheel vehicles and the industry’s third largest RV retailer. Class A motorhomes continued to represent the majority of the company’s dollar volume in sales revenues.

The economic lull of the early 1990s, the tightening of consumer spending, and war in the Persian Gulf impacted the recreational vehicle and leisure boat market; according to RVIA, there was a 27 percent drop in RV sales and a drop of 31 percent in marine sales. Holiday RV reduced operating costs, decreased major short-term expenditures, sharpened its retail focus, and moved into marine products by acquiring an existing dealership, Ledford’s RV and Marine World, in Greer, South Carolina. Adherence to management principles and calculated risk paid off. Holiday RV outperformed industry sectors and increased its market share; 1990 sales and service revenues decreased less than one percent to $40.12 million from the fiscal 1989 sales of $40.42 million. The Greer acquisition contributed significantly to revenues, which otherwise would have dropped 19.5 percent.

The national economy remained soft and Holiday RV lost money in 1991. Increasingly, consumers opted for towable recreational vehicles (travel trailers and fifth-wheel travel trailers) that were “value-packaged” with standard options such as awnings, microwave ovens, and roof air-conditioning units. Since Holiday RV’s primary historical market was in motor-homes, the company suffered from inventory imbalances and lower gross profit levels. Business picked up in 1992 when the storm clouds of Hurricane Andrew proved to have a silver lining for the company in an unprecedented demand for temporary housing. Holiday RV obtained the industry’s largest single contract ($4.3 million) awarded by the Federal Emergency Management Agency (FEMA) to provide 400 Dutchmen Travel Trailers for relief from the devastation of the hurricane. The company, along with many other southeastern RV dealers, marketed self-contained travel trailers through temporary sale locations in Homestead, Florida. Taking into account sales to FEMA and sales made through the Homestead location, Holiday RV sold close to 620 units and returned to profitability. The Jacksonville dealership remained unprofitable, however, and was closed to eliminate a drain on the financial and human resources of the company.

In January 1994 Holiday RV became a coast-to-coast operation by acquiring Venture Out RV from Gulf Oil Corp. Venture Out RV was a 37-year-old California multistore retailer with stores in Bakersfield and Roseville (Sacramento). In the company’s 1994 annual report, President, CEO, and Chairman Kindlund said that, although the year was disappointing from an earnings standpoint, the company had become truly “a national company with a much broader focus on expanding its future rate of growth.” He noted that the company was becoming much better at meeting the needs of customers. For the first time in the company’s history, sales of vehicles exceeded 2,000 units, up more than 35 percent over the last four years, and revenues had reached $53.21 million. There was reason to be optimistic about the future of the company. According to studies by the University of Michigan Survey Research Center and Louis Harris and Associates, the RV industry was nearing a potentially booming market in the next decade as baby boomers, younger and more affluent than their parents who were the traditional buyers of RVs, were approaching the over-45 age group targeted by Holiday RV.

Realizing Market Potential: 1995-96

Throughout fiscal 1995, Holiday RV’s most successful year to date, the company maintained a strong financial position and high liquidity. Holiday RV’s marketing plan took into account an anticipated upturn in new motorized vehicles at the expense of a downturn in new towable products and further diversified into high-line diesel motorhomes at the Tampa, Orlando, and Greer locations. By the end of April 1995, the company had reached record revenues of $39.5 million and had installed a state-of-the-art management information system. This system allowed all departments within the company and its various store locations to network online and maintain e-mail communication 24 hours a day. During the summer, marine sales were at record levels at the Greer location. At the exhibit of new 1996 models, the company won three Customer Service Index (CSI) awards for superior customer satisfaction, and a 1995 CSI rating indicated that 87 percent of Holiday RV customers would refer business to the company.

Company Perspectives:

Holiday RV Superstores, Incorporated offers the highest level of products and services at the industry’s most competitive prices in order to be the best in the business for its customers, employees, and shareholders.

In September 1995 the company formed Holiday RV Superstores of New Mexico, Inc., after a $620,000 cash acquisition of Camptown RV, a 27-year-old RV retailer with stores in Albuquerque and Las Cruces, New Mexico. The new superstore fronted directly on Interstate 10 in Las Cruces and gave the company the opportunity to establish eight superstore locations on the strategic east/west “snow bird” (people who journey south for the winter) corridor. At the end of fiscal 1995—due in large part to expansion in California—Holiday RV’s annual sales peaked at $70.03 million, an increase of 31.6 percent over 1994. Although industry unit sales of recreational vehicles decreased by 4.8 percent in 1995, Holiday RV sold a record 2,714 new or used recreational vehicles and boats during that year. The overall effect of improved operations driven by a national marketing campaign was a 100 percent increase in earnings per share, from 10 cents in 1994 to 20 cents in 1995. In 1995 Holiday RV completed a three-acre expansion that doubled the size of its superstore fronting directly on 1-75 in Forest Park, Georgia.

It therefore came as no surprise that RV News, the RV industry’s trade magazine, chose Newton C. Kindlund as “1995 RV Industry Executive of the Year.” In an interview in the January 1996 issue of RV News, Newton spoke about the business principles that guided the molding of his unique, publicly held company and prepared it for success: “In this business there are four main expenses that you keep your eye on:... people, inventory, advertising, and facilities. We have been able to stay focused on disciplines in those areas, on how we control inventory, how we compensate people, how we do it consistently, how we set up the matrix of rewards, and how we handle advertising.” He emphasized that developing systems and procedures based on these principles allowed the company to maintain control without removing power from * ‘key people at the top.” He also pointed to some of the future challenges for RV retailers including leasing programs to attract baby boomers, manufacturer-dealer franchise agreements that protected a dealer while helping him to be a professional businessman, consumer lending, and franchising. He further observed that“If we had franchising we would be doing a better job by knowing that we were building something more than a rebate check at the end of the quarter. We would be building some intangible net worth in the business.”

The national drop-off in RV sales of 1995 became more pronounced in 1996. Management turnover, start-up costs, and minimal sales at the Las Cruces location contributed to profit losses for Holiday RV. Nevertheless, sales and service revenue increased 6.76 percent to $74.76 million in 1996. The company realized the need to fuel growth by building sales momentum on a store-by-store basis and took that goal as its special focus for 1996. Late in that year significant product innovations—such as wider bodies (102” widths), dieseis, and a slide-out feature that expanded living areas—increased sales of motorhomes. Also noteworthy was the growing demand for pre-owned RVs. In 1995 sales of pre-owned recreational vehicles had risen sharply in the western United States and in 1996 this consumer trend surfaced in the eastern part of the country as well. Unfortunately, while used inventory sales accounted for about 48 percent of unit sales in 1996, these vehicles produced only 25.7 percent of overall revenues. During the fourth quarter, the company formed Holiday RV Assurance Services, Inc., an Arizona finance and insurance (F&I), in-house subsidiary to provide various F&I products on a national basis.

In Holiday RVs 1996 annual report, Newton wrote that the company’s board of directors believed that—in light of Holiday RVs financial strength and overall performance—the market value of the company represented by its share price of $1.99 at year-end, did not reflect the intrinsic value of the company. Furthermore, they held that although Holiday RV had not shown consistent earnings from quarter to quarter, a comparison with other “pure play” publicly owned dealer chains—such as Republic Industries and CarMax—clearly indicated the quality of Holiday RVs performance.

Toward a New Century: 1997 and Beyond

During Holiday RVs 1997 fiscal year, industry unit growth declined for both new recreational vehicles and for recreational watercraft. The company’s total revenues fell 9.1 percent to $68.0 million from $74.8 million for the previous year. Inventory build-up in eastern stores led to gross profit erosions for some product segments throughout the year. The good news was that the company, having refocused on increasing its profit margins and adjusting product lines, continued to grow business without having to incur long-term debt. The net result was that Holiday RVs earnings per share were the highest in its corporate history.

Among the significant events of the year were the introduction of a vanity credit card, dubbed Superstores MasterCard, which featured a point system that enabled cardholders to receive discounts on future purchases for RVs and boats. The company also hired Prudential Securities, Inc. as an exclusive financial advisor to explore strategic alternatives, such as possible acquisitions, mergers, or even the sale of the company, for enhancing shareholder value. The company continued its ongoing process of looking for further acquisitions and possible mergers while analyzing why, during a booming economy, the RV industry was not more profitable, and why growth in the industry had been comparatively slow over the past 20 years. In an interview in the October 1997 issue of the Wall Street Corporate Reporter, Newton opined that his industry’s slow growth was due in part to the pricing of products. With the average motor home in America selling for $68,000, the cost of RV products had grown at almost twice the rate of inflation. “The real mission for us,” Newton emphasized, “is to develop affordable products that appeal to a wider population.”

One of the ways Holiday RV planned to grow the company by meeting the needs of a wider population was to launch a line of private-label recreational vehicles in 1999. The proprietary product line, named Virginia Road, would include travel trailers and fifth-wheel trailers equipped with uniquely designed features. According to the Wall Street Corporate Reporter, Newton believed that private-brand marketing allowed for consistency at each Superstore location on a nationwide level. He thought that with a private brand, Holiday RV could influence research and development of RVs and respond from a retailer’s, rather than solely from a manufacturer’s, point of view to what consumers really wanted. For Newton, the Virginia Road line offered an entry “into the realm of mass merchandising... through a joint-venture marketing effort with a mass marketer.”

In January 1998 Holiday RV also sought to increase shareholder value through the repurchase of up to $1 million of its common stock. By May 1998, the company’s stock was riding high. On April 29, 330,000 Holiday RV shares traded hands: a volume the company had not seen in years. That the company had indeed turned a corner was clear when 1998 third-quarter results were released in August 1998. Net revenue had reached $57.78 million, a ten percent increase over the $52.42 million reported for the same period in 1997. Furthermore, at the end of the third quarter net income peaked at $400,025, an increase of 47 percent over the $271,568 in net income posted for the same period in 1997. Holiday RV, the only public company in the highly fragmented, cyclical recreational vehicle and recreational boat industry, made a quick turnaround to increased revenue for the third consecutive quarter and increased profitability for the fourth consecutive quarter—while maintaining a greater than 90 percent Customer Satisfaction Index. This achievement augured well for Holiday RV’s continuing success.