Cabela’s Inc. (CAB), one of the leading specialty retailers of hunting, fishing, camping, and related outdoor merchandise, recently posted solid second-quarter 2011 results.
Strong performance at its retail stores, healthy growth at financial services division and elevated merchandise gross margin enabled the company to deliver quarterly earnings of 32 cents a share, up 14.3% from 28 cents delivered in the prior-year quarter. The quarterly earnings also came ahead of the Zacks Consensus Estimate of 27 cents a share.
On a reported basis, including one-time items, quarterly earnings came in at 31 cents a share compared with 26 cents in the prior-year quarter.
Quarterly Performance
Total revenue, which comprises retail, direct and financial services revenue, increased 6.9% year over year to $562.1 million but fell marginally short of the Zacks Consensus Revenue Estimate of $563 million. However, adjusted for divestitures, total revenue jumped 7.7%.
Adjusted operating income jumped 17.7% to $38.3 million during the quarter.
Total merchandise revenue, which comprises retail and direct revenue, increased 4.9% to $488.4 million, with a 4.4% jump in comparable-store sales. Merchandise gross margin expanded 80 basis points to 36.7% during the reported quarter, reflecting margin expansion from pre-season planning and vendor collaboration.
Cabela’s witnessed retail revenue of $329.2 million, up 12% year over year, whereas direct revenue fell 7% to $159.6 million. Other revenue dropped 23.3% to $3.1 million from $4 million in the prior-year quarter.
Credit card charge-offs for the quarter contracted 244 basis points to 2.34% from 4.78% in the prior-year quarter. The decrease also marks the lowest level of charge-offs in the last three years. Financial services revenue jumped 24.4% to $70.3 million, reflecting lower charge-offs.
Buoyed by the improving trends, the company expects 2011 earnings per share to meet or exceed the expectation of the analysts.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $385.3 million, long-term debt of $345.3 million and shareholders’ equity of $1,087.0 million.
Investment Rationale
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 180 basis points rise in return on invested capital and remains on course to increase it further in the coming quarters.
Next generation store format, multi-channel strategy and seasonal product assortments enable the company to focus on increasing stores productivity and sales per square foot, lowering its labor costs. In a separate story, the company announced the opening of a store both in Charleston, West Virginia and Rogers, Arkansas in 2012 and further plans to open 5 stores during fiscal 2012, including the above two.
Further, in a move to supplement its Financial Services Segment, Cabela’s concluded the sale of secured Notes worth $300 million. The company’s Financial Services Business segment plays an integral part in supporting the merchandising business by encouraging customer loyalty rewards program, resulting in an increase in revenue, profitability and customer retention at its Retail and Direct businesses, and leading to overall growth in sales and earnings.
Moreover, Cabela's CLUB Visa program continues to register strong growth, reflecting increase in average active accounts with enhancements in delinquencies and net charge-offs along with lower funding cost.
However, the outdoor recreation and casual apparel and footwear markets are highly fragmented and competitive. Cabela’s faces stiff competition from discount stores, such as Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT).
Thus, we maintain a long-term Neutral rating on Cabela's. Moreover, the company holds a Zacks #2 Rank, which translates into a short-term Buy recommendation.
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