Cabela’s Inc. (CAB), one of the leading specialty retailers of hunting, fishing, camping, and related outdoor merchandise, delivered solid first-quarter 2012 results, backed by healthy performance of retail stores, strong growth at financial services division, elevated merchandise gross margin and lower expenses.
The quarterly earnings of 40 cents a share exceeded the Zacks Consensus Estimate of 33 cents and jumped 60% from 25 cents earned in the prior-year quarter.
Quarterly Performance
Total revenue, comprising retail, direct and financial services revenues, increased 6.3% year over year to $623.5 million, ahead of the Zacks Consensus Estimate of $621 million.
Total merchandise revenue, including retail and direct revenue, increased 5.1% to $535.3 million. The company’s favorable inventory position prevented it from providing markdowns, which in turn, facilitated it to register a 150 basis points expansion in merchandise gross margin to 34.5% during the quarter. Further, Cabela’s enhanced merchandise offering also boosted its results.
Cabela’switnessed retail store revenue of $345.3 million, up 14.4% year over year. Cabela’sstrategic merchandising and inventory planning as well as excellent in-store customer service facilitated the company to register a 4.2% increase in comparable store sales. The company noted a 5% increase in average ticket. Further, enhanced productivity boosted retail profitability, which expanded 120 basis points to 12.8% during the quarter.
However, Direct revenue was disappointing during the quarter as revenues dropped 8.3% to $190.2 million. However, operating margin increased 70 basis points to 18% during the quarter.
Other revenue declined 10.5% during the quarter to $4.5 million compared with $5.1 million in the prior-year quarter.
Credit card charge-offs for the quarter contracted 74 basis points to 2%. The decrease also marks the lowest level of charge-offs in the last four years. Financial services revenue increased 15.3% to $83.5 million, reflecting higher interest and fee income as well as reduced interest expense.
Operating expenses, as a percentage of sales, decreased 30 basis points to 36.3% during the quarter, whereas operating income jumped 50.8% to $46.6 million compared with $30.9 million in the prior-year quarter.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $157.2 million, long-term debt of $331.9 million and shareholders’ equity of $1,235.5 million.
Our Take
Boasting a sturdy balance sheet, feasible strategy and operating efficiencies, Cabela’s offers its investors one of the strongest growth profiles. The company registered a 100 basis points rise in return on invested capital while remaining on course to increase it further in the coming quarters.
Cabela’s next generation store format, multi-channel strategy and seasonal product assortments enable it to focus on increasing stores productivity and sales per square foot while lowering its labor costs.
In addition, the company aims to capitalize on the under-penetrated markets and unveiled its new ‘Outpost’ store format. The relatively smaller size store will provide shoppers with Cabela’s retail experience. The company opened two next generation stores during the quarter, one each in Wichita, Kansas and Tulalip, Washington. In a separate story, the company also announced its plans to open two stores in Denver market in fiscal 2013.
Further, Cabela’s CLUB Visa program continues to register strong growth, reflecting increase in average active accounts with enhancements in delinquencies and net charge-offs along with lower funding cost.
However, the outdoor recreation and casual apparel and footwear markets are highly fragmented and competitive. Cabela’s faces stiff competition from discount stores, such as Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT).
Currently, we maintain a long-term ‘Outperform’ rating on Cabela’s. However, the company holds a Zacks #2 Rank, which translates into a short-term ‘Buy’ recommendation.
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