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We maintain our long-term “Outperform” recommendation on Cabela's Inc. (CAB - Analyst Report), one of the leading specialty retailers and direct marketers of hunting, fishing, camping, and related outdoor merchandise, with a price target of $58.00.

The Drivers

Cabela’s next generation store format, multi-channel strategy and seasonal product assortments enable it to focus on increasing its stores’ productivity and sales per square foot while lowering labor costs.

Cabela’s multi-channel model facilitates consumers to purchase directly from retail stores or order products through catalog and Internet channels, and have them delivered to the retail store of their choice, without incurring shipping costs. This multi-channel approach gives the company an advantage over its competitors.

Cabela’s remains confident regarding its improving balance sheet with the long-term return on invested capital expected to range from 12% to 14%. The new store model of a standard size requires less capital investment and enhances store productivity.

The company’s Financial Services Business segment plays an integral part in supporting the merchandising business by encouraging customers through a loyalty rewards program. Eventually, it leads to increases in revenues, profitability and customer retention at its Retail and Direct businesses, and in turn overall growth in sales and earnings.

Store Expansion

In order to capitalize on the under-penetrated markets, the company unveiled its new ‘Outpost’ store format spanning 40,000 square feet that adopts a "core-flex" merchandise strategy (selected core assortment of products and flexible seasonal merchandise).

Cabela’s opened 3 retail outlets during the first-half of fiscal 2012. The company also opened 3 next-generation stores during the same time frame in Wichita, Kansas; Tulalip, Washington; and in Saskatoon, Saskatchewan, Canada. The company plans to open two more next-generation stores in Rogers, Arkansas and Charleston, West Virginia, along with its first ‘Outpost’ store, in Union Gap, Washington. This increases the retail square footage by approximately 10%.Moreover, the company also announced its plans to open six domestic next generation stores in Columbus, Ohio; Grandville, Michigan; Louisville, Kentucky; Thornton, Colorado; Lone Tree, Colorado; and Green Bay, Wisconsin; and 2 Outpost stores in fiscal 2013. In fiscal 2014, the company plans to open a next-generation store in Anchorage, Alaska.

Impressive Results

Cabela’s Inc. delivered solid second-quarter 2012 results, backed by robust comps growth, healthy performance of retail stores, strong growth at financial services division, elevated merchandise and operating margins and lower expenses.

The quarterly earnings of 47 cents a share exceeded the Zacks Consensus Estimate of 39 cents, and jumped 46.9% from 32 cents earned in the comparable prior-year quarter. Total revenue, comprising retail, direct and financial services revenues, increased 11.6% year over year to $627.3 million, ahead of the Zacks Consensus Estimate of $603 million.

Closing Comment

The above analysis supports our unbiased view, and advocates our bullish stance on the stock, which is well defined through our Zacks #2 Rank that translates into a short-term “Buy” rating. Boasting of a sturdy balance sheet, feasible strategy and operating efficiencies, Cabela’s, which competes with Wal-Mart Stores Inc. (WMT - Analyst Report) and Target Corporation (TGT - Analyst Report), offers investors one of the strongest growth profiles.

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