Cabela’s Earnings Rises

Cabela’s Inc. (CAB), one of the leading specialty retailers of hunting, fishing, camping, and related outdoor merchandise, recently posted better-than-expected second-quarter 2010 results. The quarterly earnings of 28 cents a share beats the Zacks Consensus Estimate of 22 cents, and rose 64.7% from 17 cents delivered in the prior-year quarter.
 
On a reported basis, including one-time items, quarterly earnings were 26 cents a share, up nearly twofold from 14 cents delivered in the year-ago quarter.
 
Quarterly Performance
 
Total revenue, which comprises retail, direct and financial services revenue, climbed 4.2% year over year to $526 million. Total adjusted operating income surged 46.8% to $32.5 million.
 
Total merchandise revenue, which comprises retail and direct revenue, slid 7.1% to $465.5 million due to a 4.6% decline in comparable-store sales. However, merchandise gross margin expanded 80 basis points to 35.9% in the quarter due to lower markdowns and effective inventory management. Management aims to increase the merchandise gross margin by 200 to 300 basis points by the end of 2012.
 
Retail revenue dropped 2.5% to $294 million, whereas direct revenue fell 14% to $171.5 million. Other revenue climbed marginally by 0.7% to $4 million.
 
Financial services revenue jumped 28% to $56.5 million due to the increase in interest and fee income, rise in interchange income, fall in interest expense and lower provision for loan losses. Credit card charge-offs for the quarter contracted to 4.8% from 5.2% in the previous year quarter.
 
Given the improving trends related to charge-offs, Cabela’s at present expects charge-offs for fiscal year 2010 between 5% and 5.5%, down from 5.3% to 5.8% previously anticipated.
 
Financial Aspects
 
The company ended the quarter with cash and cash equivalents of $274.4 million, total long-term debt of $383.5 million and shareholders’ equity of $928.4 million. The company has lowered its debt-load by $106.9 million from the prior-year quarter.
 
Stores Update
 
The company in 2011 plans to open two new stores in the United States – one in Allen, Texas, and one in Springfield, Oregon. In Canada, the company plans to open one store in 2011 with another slated for 2012, also in Canada .
 
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.

Read the full analyst report on CAB