Boasting a healthy balance sheet, viable strategy and improving operating efficiencies, Cabela’s Inc. (CAB) offers investors one of the strongest growth profiles in the specialty retail industry. The company remains on course to surpass the high-end of the targeted long-term return on invested capital of 12%–14% through its next generation store format.
The new store model of standard sizes requires less capital investment, enhances store productivity and helps increase sales per square foot. Return on invested capital increased 210 basis points to 13.1% in fiscal 2010.
Cabela’s multi-channel model facilitates consumers to purchase directly from retail stores or order products through catalog and Internet channels, and have them delivered to the retail store of their choice without incurring shipping costs. This multi-channel approach gives the company an advantage over its competitors.
Cabela’s in order to focus more on improving store operations and owing to strained macroeconomic conditions, has slowed the pace of store expansion. The company opened eight retail stores in fiscal 2007, two in 2008, and one each in 2009 and 2010. However, with the gradual recovery in the economy, the company now plans to open 3 retail stores in 2011.
Cabela’s, which faces competition from Tractor Supply Company (TSCO), now aims to increase the merchandise gross margin by 200 to 300 basis points by the end of 2012. The company expects fiscal 2011 earnings to meet or beat the consensus.
The company is also concentrating on alleviating its bad debt risk in the credit card business. Although, the improvement in the economy has led to a lowering of delinquencies and a decline in charge-offs but we still remain cautious and maintain our long-term ‘Neutral’ rating on the stock.
Moreover, Cabela’s holds a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, and correlates with our long-term view.
CABELAS INC (CAB): Free Stock Analysis Report
TRACTOR SUPPLY (TSCO): Free Stock Analysis Report
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