Camping World’s Amortization Expense to Spike 43.7%, Pressuring Profits
Recreational vehicle maker’s razor thin net income margin to be negatively impacted by new accounting policy change.
February 24, 2022
Though demand for new and used vehicles remains elevated, shares of Camping World Holdings (CWH), a seller of recreational vehicles (RVs), have declined approximately 21% in the last year. Investors are skeptical of the RV boom’s sustainability post-pandemic. Importantly, a recent accounting change will negatively impact the company’s accounting earnings in future periods.
In its latest 10-K, Camping World disclosed multiple changes in the useful life estimates for finite lived intangible assets. Some useful life estimates were extended and others shortened, and net out, according to the company, as such:
“The weighted-average useful life of all our finite-lived intangible assets is approximately 9.8 years.”
On average, the useful life estimates were shortened 23.4%, from 12.8 years.
The increased amortization will reduce reported earnings in the coming year.
The company’s finite lived intangible asset amortization expense for 2022 is set to increase 43.7% to $6.9 million, or 47.7% higher than the three year average. It’s not insignificant when you consider 2022 amortization accounts for 2.47% of the company’s 2021 net income. For comparison, amortization was 1.72% of net income in 2021.
Camping World didn’t provide a reason for the reduction in useful life estimates though it could mean the carrying amount of certain intangibles are impaired. The move is in contrast with a trend we’ve highlighted over the past year in which some of the world’s largest companies extend useful life estimates and instantly boost profitability.
Related: THO, CWH, WGO, REVG, HZN, LCII, BRK.A
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