Cabela's Incorporated reported mixed second-quarter 2016 numbers, with revenues surpassing the Zacks Consensus Estimate while earnings missed the same. The company recorded earnings per share of 59 cents which lagged the Zacks Consensus Estimate of 61 cents but increased 5.4% from the prior-year quarter.

Including one-time items, the company’s second-quarter earnings came in at 55 cents per share, down 1.8% year over year.

On the other hand, the top line came in at $929.9 million, outpacing the Zacks Consensus Estimate of $912 million and rising 11.2% year over year. The improvement was backed by a surge in revenues from retail stores, Internet and catalogs, and Financial Services.

Consolidated comparable store sales (comps) increased 1.5% in the quarter, thereby marking the first quarter of positive comps since third-quarter 2013. The rise was mainly driven by positive comparable sales in the powersports, firearms, shooting, camping and fishing categories. Moreover, U.S. comps improved 2.0% in the quarter.

Merchandise gross margin contracted 290 basis points (bps) to 32.9% in the quarter. The decline was mainly due to an increase in transaction trends, positive comps and proper inventory levels.

The company’s total operating income for the quarter rose 6.8% to $67.7 million and the effective tax rate was 39.3%.

Segment Details

Total Merchandise sales, which include revenues from retail stores as well as internet and catalogs, went up 11.3% to $786.2 million in the second quarter. Retail store revenues rose 13.3% to $644.9 million while Internet and catalog revenues improved 3.3% to $141.3 million. Further, the segment’s operating margin (as a percentage of segment revenues) was down 8% to 2.3%.

Financial services revenues went up 8.1% to $135.1 million, reflecting a 25% surge in interest and fee income as well as a 6.4% rise in interchange income, partly offset by an increase in the provisional losses for loans. The average number of active credit card accounts grew 7.3%, while average balance of credit card loans of $5.0 billion increased 15.5%. Also, the average balance per active credit card account rose 7.7%. Further, the segment’s operating margin  remained flat at 38.3%.

Other Financial Aspects

Cabela’s ended the quarter with cash and cash equivalents of $542.1 million, long-term debt (excluding current maturities) of roughly $842.7 million, and shareholders’ equity of $1,925.1 million.

Looking Ahead

Management reiterated its guidance for 2016. The company expects revenues to improve at a high-single-digit rate. It envisions 2016 earnings per share to grow in the range of high-single-digits or low-double-digits in comparison with adjusted earnings per share of $2.88 in 2015.

Recently, the company adopted several cost-saving initiatives to improve its operational performance. The company expects these efforts to lower operating expenses, as a percentage of total revenue, by 75 bps to 150 bps over the coming three years. The cost-saving endeavors include an improvement in IT process, optimum utilization of retail labor, indirect procurement, merchandise sourcing, along with retail support functions and supply chain efficiencies.

Zacks Rank & Key Picks

Cabela’s currently carries a Zacks Rank #2 (Buy). Other favorably ranked stocks in the retail space include Marinemax Inc. (HZO Quick QuoteHZO - Free Report) , Barnes & Noble, Inc. and Five Below, Inc. (FIVE Quick QuoteFIVE - Free Report) . All these stocks hold a Zacks Rank #2.

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