Cabela’s Inc. (CAB) third-quarter fiscal 2014 earnings left investors disappointed resulting in a massive sell off, which brought stock price as much as 15% down in a single trading session. Adjusted earnings per share of 81 cents fell short of the Zacks Consensus Estimate of 86 cents, while revenues of $886 million also missed the Zacks’ expectation of $927 million.
Slower-than-expected recovery in sales of firearms and ammunition ran down the persistent robust performance of new stores, effective cost management and sustained growth at its CLUB Visa program. Even a 100 basis points (bps) rise in branded products sales penetration could not help Cabela’s quarterly results.
However, what came as a little respite was top and bottom-line growth of 17.4% and 4.1% year over year, respectively.
Including certain one-time items, earnings per share came in at 75 cents, up 7.1% year over year.
As firearms sales remain comparatively weak, Cabela’s expect comps in the fourth quarter to decrease at a mid-single digit and revenues to increase at a high-single digit rate taking the full-year adjusted earnings forecast to $3.10–$3.20. Earlier, earnings were projected to grow in the high-single-digit/low-double-digit rate, as against $3.32 recorded in 2013. The Zacks consensus estimate for the fourth-quarter stands at $3.56 per share and likely to be revised downwards.
Management pointed out that preliminary budget reflects that earnings and revenues would return to low double digits growth rate in 2015.
Quarterly Details
Total merchandise revenue, including retail and direct revenues, increased 3.2% to $773.4 million in the quarter. Merchandise margins contracted 100 basis points (bps) to 36.3% due to an adjustment pertaining to segmental reimbursement of operating and promotional costs.
Cabela’s retail store revenues increased 8.7% to $598.7 million while comparable-store sales (comps) declined 11.2%. Retail operating margin (as a percentage of segment revenues) contracted 70 bps to 18.1%.
Direct business revenues fell 11.7% year over year to $175.3 million. Also, segment operating margin (as a percentage of segment revenues) contracted 430 bps to 10.4%.
Financial services revenues rose 10.9% to $109.1 million, driven by 7.5% increase in number of average active accounts. Credit card charge-offs as a percentage of average credit card loans for the quarter fell 16 bps to 1.6%.
Other revenues rose 4.5% year over year to approximately $3.4 million.
Adjusted operating income increased 25.7% to $94.8 million, while operating margin expanded 170 bps to 10.7%.
Store Update
In the reported quarter, Cabela’s opened 6 stores including markets of Buffalo, NY; Atlanta, GA; Portland, OR; Ontario and British Columbia in Canada.
Given the robust performance of its new stores, the company remains on track to open 13-15 outlets per year in the future. For 2015, the company has plans to open 14 stores, of which 2 will be opened in the first quarter, 5 in the second, 4 in the third and remaining 3 in the final quarter.
Other Financial Aspects
Cabela’s ended the quarter with cash and cash equivalents of $365.1 million, long-term debt (excluding current maturities) of $657.6 million and shareholders’ equity of $1,739 million.
For 2014, management expects 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 $225–$275 million.
Other Stocks to Consider
Currently, Cabela’s has a Zacks Rank #3 (Hold). Better-ranked retail stocks worth considering include Barnes & Noble Inc. (BKS), Bed Bath & Beyond Inc. (BBBY) and CST Brands, Inc. (CST). Barnes & Noble is a Zacks Rank #1 (Strong Buy) stock whereas Bed Bath & Beyond and CST Brands carry a Zacks Rank #2 (Buy).
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