Cabela’s Inc. (CAB), one of the leading specialty retailers of hunting, fishing, camping, and related outdoor merchandise, recently posted better-than-expected third-quarter 2010 results. The quarterly earnings of 31 cents a share beat the Zacks Consensus Estimate of 28 cents, and rose 10.7% from 28 cents delivered in the prior-year quarter. The Zacks Consensus Estimate has increased a cent in the last 30 days.
On a reported basis, including one-time items, quarterly earnings came in at 29 cents a share, up 3.6% from the year-ago quarter.
For fiscal 2011, management expects earnings per share to increase at a double-digit rate. Following this, 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, climbed 3% year-over-year to $643.3 million, and came ahead of the Zacks Consensus Revenue Estimate of $610 million. Total adjusted operating income grew 22.6% to $39.6 million.
Total merchandise revenue, which comprises retail and direct revenue, rose 2.3% to $587.3 million, reflecting a 2.4% jump in comparable-store sales. Merchandise gross margin expanded 170 basis points to 34.5%, reflecting the second successive increase and highest jump in three years. Management aims to increase the merchandise gross margin by 200 to 300 basis points by the end of 2012.
Retail revenue climbed 6% to $368.7 million, whereas direct revenue fell 3.4% to $218.6 million. Other revenue climbed marginally by 32% to $2.5 million.
Financial services revenue jumped 10.9% to $53.4 million. Credit card charge-offs for the quarter contracted to 3.9% from 5% in the previous year quarter.
Given the improving trends related to charge-offs, Cabela’s now expects charge-offs for fiscal year 2010 between 4.3% and 4.5%, down from 5% to 5.5% previously anticipated.
Financial Aspects
The company ended the quarter with cash and cash equivalents of $394.6 million, total long-term debt of $414.9 million and shareholders’ equity of $960.2 million.
Stores Update
The company in 2011 plans to open two new stores in the United States – one in Allen, Texas, and the other in Springfield, Oregon. In Canada, the company plans to open one store in 2011 and another in 2012.
Our View
Boasting a healthy balance sheet, viable strategy and improving operating efficiencies, Cabela’s offers investors one of the strongest growth profiles. The company remains on course to achieve the targeted long-term return on invested capital of 12%-14%.
Next-generation store format, multi-channel strategy and seasonal product assortments enable Cabela’s to focus on increasing stores productivity and sales per square foot, and lowering 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 Neutral rating. However, the company holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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