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Cabela's Reports Strong 1Q Earnings

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Cabela’s Incorporated’s earnings for first-quarter 2013 came in at 70 cents a share, handily surpassing the Zacks Consensus Estimate of 59 cents and surging 75% year over year.

A significant rise in comparable-store sales, strong performance by the company’s new next-generation stores and growth at its CLUB Visa program facilitated Cabela’s to come up with the stronger-than-anticipated results.

Total revenue comprising retail, direct and financial services revenues, jumped 28.7% year over year to $802.5 million and surpassed the Zacks Consensus Estimate of $779 million.

Quarter in Detail

Total merchandise revenues, including retail and direct revenues, escalated 33% to $711.7 million during the quarter on account of strong sales of firearms and ammunition. Merchandise margins expanded 110 basis points to 35.6%, reflecting increased sales of higher margin products like soft goods and footwear.

Cabela’s posted retail store revenues of $486.7 million, up 41% year over year. Strong performance at the company’s new next-generation stores and strategic merchandise and inventory planning facilitated it to register a 24% increase in comparable-store sales. The company marked a 10% increase in average ticket, while retail transactions jumped 14%. Retail profitabilty remained strong, expanding 460 basis points to 17.4% on account of higher merchandise margin and reduced expenses.

Direct business revenues escalated 18.4% year over year to $225.2 million, reflecting higher traffic at its .com business and a 6% rise in average order size.Direct operating margin expanded 190 basis points to 19.9%.

Financial services revenue augmented 2.8% to $85.8 million. Credit card charge-offs as a percentage of average credit card loans for the quarter rose 14 basis points to 1.86%. The improvement in charge-offs was observed on the back of solid growth in active credit card accounts and improved delinquencies. Other revenues increased 6.5% year over year to $4.8 million.

Total operating income jumped 69.9% to $79.1 million compared with $46.6 million in the prior-year quarter, whereas adjusted operating margin expanded 240 basis points to 9.9%.

Other Financial Aspects

The company ended the quarter with cash and cash equivalents of $363.7 million, long-term debt of $319.9 million and shareholders’ equity of $1,428.6 million.

Cabela’s generated $123 million in cash flow from operations and incurred capital expenditures of $65 million during the quarter. For 2013, management anticipates to incurr capital expenditures in the range of $300 million – $325 million, attributable to its store expansion plans. The company repurchased 72,200 shares during the quarter.

Our Take

Boasting a sturdy balance sheet, feasible strategy and operating efficiencies, Cabela’s offers its investors one of the strongest growth profiles. The company registered a 210 basis points rise in return on invested capital while remaining on course to increase it further in the coming quarters.

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

In addition, the company aims to capitalize on the under-penetrated markets and unveiled its new ‘Outpost’ store format. The relatively smaller size store will provide shoppers with Cabela's retail experience.

Cabela’s also announced the opening of 2 more next-generation stores in 2014, one each in Edmonton, Canada and Tualatin, Ore. Cabela’s announced the opening of 6 domestic next-generation stores. Moreover, the company plans to further increase it by 2. It plans to open 2 additional stores in Canada, besides the earlier announced Edmonton store. It also plans to open 3 new Outpost stores in 2014.

Cabela's CLUB Visa program continues to register strong growth, reflecting rise in average active accounts with improvement in delinquencies and net charge-offs along with lower funding costs.

Consequently, Cabela’s carries a favorable Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Beside Cabela’s, other stocks worth considering in the non-food retail, wholesale sector include Macy’s Inc. (M - Free Report) , Sears Holdings Corporation and Big 5 Sporting Goods Corp. (BGFV - Free Report) , all of which hold a Zacks Rank #1 (Strong Buy) and are expected to continue with their upbeat performance.

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