Cabela’s Inc. (CAB), one of the leading specialty retailers of hunting, fishing, camping, and related outdoor merchandise, delivered better-than-expected fourth-quarter 2011 results. The results were backed by healthy performance of retail stores, strong growth at financial services division and elevated merchandise gross margin.
The quarterly earnings of $1.06 a share surpassed the Zacks Consensus Estimate of 99 cents a share and jumped 23.3% from 86 cents delivered in the prior-year quarter.
However, including one-time items, quarterly earnings came in at 99 cents a share compared with 95 cents in the prior-year quarter.
Quarterly Performance
Total revenue, comprising retail, direct and financial services revenues, increased 5.3% year over year to $983.7 million, exceeding the Zacks Consensus Estimate of $965 million. However, adjusted for divestitures, total revenue increased 5.4%.
Total merchandise revenue, including retail and direct revenue, increased 4.4% to $903.9 million. Merchandise gross margin expanded 40 basis points to 36.4% during the quarter, reflecting strong sales in the firearms and shooting categories.
Cabela’s witnessed retail revenue of $525.6 million, up 9.8% year over year. Cabela’sstrategic merchandising and inventory planning, strong advertising and excellent in-store customer service facilitated the company to register a 1.7% increase in comparable store sales.
Direct revenue dropped 2.1% to $378.9 million. However, adjusted for divestitures, direct revenue inched down 1.9%. Other revenue declined sharply during the quarter to $1.5 million compared with $11 million in the prior-year quarter.
Credit card charge-offs for the quarter contracted 126 basis points to 2.12% from 3.38% in the prior-year quarter. The decrease also marks the lowest level of charge-offs in the last four years. Financial services revenue jumped 34.5% to $77.7 million, reflecting higher interest and fee income as well as reduced interest expense.
During the reported quarter, adjusted operating income increased 24.8% to $117.7 million compared with $94.3 million in the prior-year quarter.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $304.7 million, long-term debt of $336.5 million and shareholders’ equity of $1,181.3 million.
Expansion on the Palate
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 120 basis points rise in return on invested capital to 14.3% and remains on course to increase it further in the coming quarters.
Going ahead, Cabela’s expects to repurchase 800,000 shares to balance shareholder dilution arising out of equity based compensation awards. The company plans to repurchase shares from open market through February 2013.
Cabela’s next generation store format, multi-channel strategy and seasonal product assortments enable it to focus on increasing stores 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. The company expects to open its first Outpost store in Union Gap, Washington in the fall of 2012.
The company expects to accelerate its retail square footage growth plans by opening 5 stores during fiscal 2012 along with its first ‘Outpost’ store. In fiscal 2013, the company expects to open six next generation stores and three additional Outpost stores.
Further, 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).
Currently, we maintain a long-term ‘Outperform’ rating on Cabela's. However, the company holds a Zacks #4 Rank, which translates into a short-term ‘Sell’ recommendation.
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