“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”- Warren Buffett.
At the moment, the quote perfectly fits Cabela's Incorporated as the company’s future looks bleak after two successive quarters of earnings miss. Investors need to exercise extreme caution when it comes to the stock as it is unlikely to show any major improvement in the near future. Let’s delve deeper and try to find out what might take this Zacks Rank #5 (Strong Sell) company down the hill.
Cabela’s reported an earnings miss for the second consecutive quarter in third-quarter 2016. The company recorded earnings per share of 53 cents, which came way below the Zacks Consensus Estimate of 80 cents and slumped 25.4% year over year. On the other hand, the top line came in at $929.9 million, lagging the Zacks Consensus Estimate of $1,014 million.
Moreover, consolidated comparable store sales (comps) dipped 2.3% in the quarter primarily due to weakness in the company’s apparel categories which offset the gains in powersports, firearms, shooting, camping and optical categories. In the previous quarter, the company had reported positive comps for the first time since third-quarter 2013. Moreover, U.S. comps slipped 1.8% in the quarter under review.
Let’s look at Cabela's earnings estimate revisions in order to get a clear picture of what analysts are thinking about the company. In the past 30 days, the company’s earnings estimates for 2016 have declined by 8.9% to $2.87. On the other hand, over the same time frame, its earnings estimates for fourth-quarter 2016 have moved down to 8 cents from $1.24.
Cabela's has been exploring strategic alternatives, including a potential sale, after it came under pressure from an activist fund. Recently, it accepted the buyout offer of Bass Pro Shops in all-cash deal valued at $5.5 billion. Soft economic recovery, deceleration in the sale of sporting goods and stiff competition from both brick & mortar and e-commerce have made things tough for Cabela’s. Moreover, the company’s expansion in the geographies where it already serves has boomeranged, by cannibalizing sales and leading to lower traffic count at existing stores. The acquisition will result in a retail giant that will control over 20% of the U.S. hunting, camping and fishing market and help withstand competitive pressure.
Other Stocks to Consider
Better-ranked stocks worth considering in the retail sector include Big 5 Sporting Goods Corp. (BGFV - Free Report) , Dick's Sporting Goods Inc. (DKS - Free Report) and Tilly's, Inc. (TLYS - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Big 5 Sporting Goods shares have increased more than 40% in the past three months and the company’s earnings have surpassed the Zacks Consensus Estimate in the trailing four quarters, with an average surprise of 4.8%.
Dick's Sporting Goods has a long-term earnings growth rate of 12.3%.
Tilly's shares have surged nearly 60% in the past three months and have a long-term earnings growth rate of 15.5%.
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