Following the flurry of year-end financial reports in the public sector of the Bicycle, Outdoor, and SnowSports industries, many companies headed for New York to attend several different investor conferences. These events give analysts, individual investors, and the media a more complete picture of not only each companys financials, but also the bigger picture of strategy, growth opportunities, and new initiatives. Of particular note was the Stephens Inc. Consumer Conference, which was held at the Waldorf Astoria in New York City and hosted three different outdoor retailers, marking the first time a Wall Street firm placed such an emphasis on the outdoor retail sector.
Cabelas CFO Ralph Casstner laid out the retailers plans for growth over the next several years, which relies heavily on its multi-channel positioning; direct, brick & mortar, and financial services, represented by its credit card business. Since 1961, Cabelas has seen its top-line grow every year, primarily due to its successful catalog business, and more recently, its Internet business. The new focus for CAB is on brick & mortar expansion. On several occasions, Casstner emphasized the multi-channel advantage that Cabelas has over its competition. In August, Cabelas won a court battle against Gander Mountain regarding a Trademark License Agreement between Gander Mountain and Cabelas. The agreement effectively prevents Gander Mountain from using many of its own trademarks, including the Gander Mountain name and logo, in any direct marketing business.
Cabelas reported over $1 billion in direct sales last year. The company claims that more men between the ages of 35 to 45 read their catalog than any other direct merchandising piece in the country. The company is leveraging this large audience to help in their planning for new stores. By looking at direct retail buying habits, Cabelas management is able to target the size of a potential Brick & Mortar market down to the zip code. This lets them know the demand for the store location, product assortment, merchandising and even the potential profitability of the store before it even opens. The company will continue to leverage its direct retail assets to open more brick & mortar locations, expanding into Canada and all regions of the U.S.
Gander Mountain CEO Mark Baker came off of an impressive quarter, which he called “one in a row” and explained the companys prospects for future growth. Over the past five years, Gander has grown from a $240 million company to an $800 million company. While it is seeing some impact from competition in its larger markets, it has been quite successful with its smaller “second and third tier” market locations.
Baker said that in these locations, it is seeing almost no outside competition. “We are able to go into markets that have two or three mom & pops stores that do maybe $3 million in business combined and open a Gander Mountain location that does $10 million a year.”
The company has just fewer than 100 stores today and sees the opportunity to triple that number. As it expands, its vulnerability to local weather patterns will decrease due to geographic diversity, and, according to Baker, the company should be able to support single digit comp-store sales increases.
Sport Chalet was able to tell a very different story from Cabelas and Gander Mountain. Four and a half years ago, Sport Chalet began expanding outside of California for the first time, and they continue this initiative today.
While Cabelas is able to leverage its direct marketing data for store expansions, Sport Chalet uses a two pronged approach to open locations in new markets. The company spends nearly a year to research the market, but it also is able to react very quickly to change its assortment in reaction to market needs.
Sport Chalet also takes a very different approach towards product assortment at all of its locations. While many retailers are trying to boost the percentage of their private label offering, Sport Chalet does not offer any private label except tee shirts and hats. Because of the companys focus on supporting national brands, it is able to carry many brands that are traditionally only found in specialty retailers.
Sport Chalet taught over 200 climbing classes last year and chartered over 300 boats for S.C.U.B.A. instruction. The company uses these services to sell merchandise. SPCH CEO, Craig Levra said, “Some people ask me how we compete with a retail giant big enough to have climbing walls inside its stores. Well, we take people outside and teach them how to climb for real.”
Looking forward, the company has several new initiatives underway. Sport Chalet will implement its new “Action Pass” Customer Relationship Management program that rewards its best customers with discounts and first access to new gear. At the same time it allows the company to monitor buying habits and brand loyalty. They are also launching a car rack installation shop at all stores. Last year the company tested a ski lease program for youth skiers and it was so successful that they are rolling it out to all locations and expanding the program to include adults. Customers who take advantage of the program will be able to trade in their skis up to three times throughout the year.
Dicks Sporting Goods believes it can “nearly double” in size in the currently existing footprint with 15% store growth each year, reaching 800 stores after 8+ years of organic growth, most of it coming from backfilling existing markets. DKS doesnt expect square footage growth to be as impactful as in past years.
DKS sees improving its 6.5% operating margin 30 basis points each year by leveraging the companys buying power and by increasing the private label sales in the store. DKS sees private label accounting for 11.9% of the companys total business, up from 8.6% last year, with a goal of 15% over the next couple years. For the company, private label has margin rates that are 500 to 600 basis points higher than similar second tier vendors. The retailer posted an 11.3% Return on Invested Capital in 2005, a number which it expects to improve as the integration of the acquired Galyans chain is completed. Management said they take a four cents per share charge on relocations related to the GLYN acquisition.
Management said that guidance of 3% to 5% is on the “higher end of any guidance we have given.” Management made a comment that they “dont see ourselves as recession proof; but rather recession resistant.”
DKS said they took a “very granular look at TSA.” They said they decided that based on who they want to be and how they want to grow the business, they did not think it was an appropriate direction for them. “You cant fix bad real estate” was the key for them based on the geographic overlap of the stores.
In addition to the retailers, three vendors in the industry gave presentations in New York this week. Nautilus talked about their strategy to help baby boomers “add life to their years and years to their lives.” The company continues to diversify away from its traditional direct retail sales. Previously, the companys revenue was 80% direct, now it is 40% with specialty retail, sporting goods retail, international, and apparel sales making up the balance.
VF Corp. presented their current strategic plan transitioning from an apparel manufacturing company to a brand builder. With The North Face, the company continues to pursue its owned-retail expansion. While, the rumors of a massive 300+ location expansion are not likely to be true for TNF, VF Corp. does plan to grow the store count for the brand in order to “give the consumer a better look at the total line and the lifestyle presence of the brand.” According to Mackey Macdonald, VFCs chairman and CEO, TNF reported 18% operating margins in 2005. In comparison, VFs Nautica brand reported a 16% operating margin, up from 7% before VFC acquired the brand. Vans reported a 13% OM, up from 3% before the acquisition. VFC has expanded its lifestyle offering from only 15% of its total line five years ago to over 40% of its line today and they plan to take it to 60% over time.
Jarden is continuing with its cost savings initiative, a program that began shortly after its acquisition of Coleman and Camping Gaz and is expected to generate $75 million to $110 million program in saving. The two brands are now housed in the companys Outdoor Solutions segment, which is roughly 25% of Jardens $3 billion in annual sales. Management feels that Coleman has a 20% to 30% market share in outdoor equipment, with the next closest competitor in the single-digits. Part of Jardens Buy vs. Build strategy calls for the company to continue to pursue “tuck-in” acquisitions, particularly in outdoor.