Cabela’s Inc. (CAB), one of the leading specialty retailers of hunting, fishing, camping, and related outdoor merchandise, recently posted fourth-quarter 2010 results, which surpassed the Zacks’ expectations for both the top and bottom lines.
The quarterly earnings of 86 cents a share beat the Zacks Consensus Estimate of 79 cents, and rose 11.7% from 77 cents delivered in the prior-year quarter. The Zacks Consensus Estimate remained stable in the last 30 days.
On a reported basis, including one-time items, quarterly earnings came in at 95 cents a share compared with 24 cents in the prior-year quarter.
Following the healthy results, a positive sentiment may be palpable among the analysts covering the stock, and we could witness a rise in the Zacks Consensus Estimates in the coming days.
Quarterly Performance
Total revenue, which comprises retail, direct and financial services revenue, inched up 1.5% year over year to $934.4 million, and came ahead of the Zacks Consensus Revenue Estimate of $911.0 million. Total adjusted operating income grew 12.1% to $94.3 million.
Total merchandise revenue, which comprises retail and direct revenue, fell marginally by 0.7% to $865.7 million, despite a 7.3% jump in comparable-store sales. However, merchandise gross margin expanded 70 basis points, reflecting the third successive quarterly increase.
Cabela’s, which faces competition from Tractor Supply Company (TSCO), reaffirms its aim to increase the merchandise gross margin by 200 to 300 basis points by the end of 2012.
Retail revenue grew 3.2% to $478.8 million, whereas direct revenue fell 5.1% to $386.9 million. Other revenue climbed $11.0 million from $2.5 million in the prior-year quarter.
Financial services revenue jumped 27.8% to $57.8 million. Credit card charge-offs for the quarter contracted to 3.4% from 5.3% in the prior-year quarter
Given the improving trends related to charge-offs, Cabela’s now expects charge-offs for fiscal year 2011 between 3.5% and 4.0%.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $136.4 million, long-term debt of $344.9 million and shareholders’ equity of $1,024.5 million.
Our View
Boasting a sturdy balance sheet, feasible strategy and operating efficiencies, Cabela’s offers investors one of the strongest growth profiles. The company remains on course to surpass the high end of the targeted long-term return on invested capital of 12%–14%.
Next-generation store format, multi-channel strategy and seasonal product assortments enable the company to focus on increasing stores productivity and sales per square foot, lowering its labor costs.
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 a long-term ‘Neutral’ rating. However, the company holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.
CABELAS INC (CAB): Free Stock Analysis Report
TRACTOR SUPPLY (TSCO): Free Stock Analysis Report
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