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Cabela's Q1 Earnings Miss Estimates

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In spite of a strong performance by the company’s next-generation stores and sustained growth at its CLUB Visa program, Cabela’s Incorporated posted lower-than-anticipated results yesterday. First-quarter 2014 earnings of 36 cents per share missed the Zacks Consensus Estimate by a penny and declined nearly 48.6% from the year-ago quarter figure of 70 cents. Persistent decline in firearms and ammunitions sales were the primary reasons behind the year-over-year fall.

However, quarterly earnings were within the company’s guidance range of 32 cents to 42 cents per share, which boosted investors’ confidence in the stock as evident from a rise of 3.4% in the share price. Moreover, Cabela’s impressive guidance for the second and third quarters as well as full-year 2014 have also generated positive investor sentiment as well.

For the second and third quarter of 2014, management expects earnings in the range of 45–55 cents and 85–95 cents per share, respectively, while for the full year 2014, it reaffirmed earnings growth in the high single-digit/low double-digit rate as against $3.32 recorded in 2013. Further, Cabela’s expects its revenues to grow in the low single-digit range for second quarter and low double-digit range for third quarter.

Total revenue comprising retail, direct and financial services revenues decreased 9.6% from the year-ago quarter to $725.8 million but fell short of the Zacks Consensus Estimate of $733.0 million. The year-over-year decline in top line was mainly due to decreased sales of ammunition, firearms and other shooting related categories.

Quarterly Details

Total merchandise revenue, including retail and direct revenues, declined 12.9% to $620.2 million in the quarter due to weak performance of firearms, ammunition and other shooting-related categories. Merchandise margins contracted 120 basis points (bps) to 34.4% due to margin decline at firearms and ammunitions, which resulted from enhanced supply and heavy promotions.

Cabela’s retail store revenues decreased 9.4% to $440.9 million due to decline in comparable-store sales (comps). Retail profitability (as a percentage of segment revenues) contracted 550 bps to 11.9%. Comps decreased 21.7% due to a decline of 39% and 32% in the comps of firearms and ammunition, respectively. Looking ahead, the company expects comps to decline in the range of 10%–13% in the second quarter of 2014 due to waning arms and ammunition sales.

Direct business revenues fell 20.3% year over year to $179.4 million. Also, segment margin (as a percentage of segment revenues) contracted 140 bps to 18.5%.

Financial services revenues rose 14.9% to $98.6 million, driven by increase in number of average active accounts. Credit card charge-offs as a percentage of average credit card loans for the quarter fell to 1.8%. Moreover, delinquencies improved while active average credit card accounts increased 7.9%.

Other revenues rose substantially year over year to approximately $6.9 million.

Total operating income declined 48.4% to $40.9 million while operating margin contracted 430 bps to 5.6%.

Store Update

In the reported quarter, Cabela’s opened 1 store in Augusta, GA while in the second quarter to date, it has opened one each store at Greenville, SC and Anchorage, AK. For the remainder of 2014, the company has plans to open 11 additional stores.

In the remainder of second quarter, the company intends to open five more stores at Christiana, DE; Woodbury, MN; Edmonton in Alberta, Canada; Missoula, MT; and Lovett, TX. Of these, Christiana, Woodbury and Edmonton locations are expected to open in May while Missoula and Lovett locations will be opened in June.

For the third quarter, the company plans to open stores in Acworth, GA; Barrie in Ontario, Canada; Cheektowaga, NY; Nanaimo, British Columbia in Canada; Tualatin, OR; and Bowling Green, KY.

The above-mentioned 14 new stores will represent 17% growth in square footage area in 2014.

Other Financial Aspects

Cabela’s ended the quarter with cash and cash equivalents of $484.6 million, long-term debt (excluding current maturities) of $540.6 million and shareholders’ equity of $1,631.9 million. During the quarter, the company’s cash flow from operations was negative $56 million as compared with $122 million at the year-ago comparable quarter end.

For 2014, management expects to incur capital expenditures in the range of $400–$450 million owing to its store expansion plans. Further, cash flow from operations is expected to be approximately $300–$350 million.

Other Stocks to Consider

Currently, Cabela’s has a Zacks Rank #4 (Sell). However, other better-ranked stocks worth considering in the retail sector include Barnes & Noble Inc. , American Apparel Inc. and Foot Locker Inc. (FL - Free Report) . While Barnes & Noble sports a Zacks Rank #1 (Strong Buy), American Apparel and Foot Locker carry a Zacks Rank #2 (Buy).

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