Cabela’s Delivers Robust Fourth Quarter Results…

Driven by a strong performance at its retail stores, Cabela's Inc. reported fourth-quarter earnings rose 26%. The outdoor retailer also announced plans to open eight stores in 2007.

In the quarter ended December 31, revenue grew 16% to $781 million from $675.4 million last year, paced by gains in all three segments: direct, retail and financial services. Gross margins improved to 41.6% of sales from 40.9%, although merchandise margins dipped slightly to 37.1% from 37.3%.

On a consolidated basis, operating margins improved to 11.3% from 10.2%. Cabela’s said a series of initiatives increased efficiencies, including enhancing its in-store merchandising, improving its retail stock position, installing a new warehouse management system in its distribution centers, and implementing phase one of the JDA merchandise management system.

Quarterly earnings totaled $53.4 million, or 80 cents per share, up from $42.5 million, or 64 cents, during the same period a year ago.

Direct revenue in the quarter increased 6.2%, to $432.4 million from $407.2 million, driven by e-commerce. On a conference call, Cabela’s management said Internet visits increased 32% over 2006 and its website was the most visited sport and fitness website in 2006, according to Hitwise Inc. Over the full year, active new customers in its catalogs increased 4.6%. Operating margins in the direct business improved to 18.9% from 18.6%. Higher gross margins as well as increased marketing fees from the financial services segment offset slightly higher catalog costs.

Brick & Mortar revenues for the quarter climbed 27.3% to $304.9 million from $239.5 million, reflecting the opening of four stores last year and a 1.7% same-store gain. Retail operating margins improved to 21.4% from 20.2% due to increased marketing fees from the financial services segment and various expense reductions.

The quarter marked the second straight quarter of comp store increases. The October 2005 opening of a store in Rogers, MN, which hurt the comp performance of its Owatonna, MN store, had been dragging down comps.

Regarding merchandise categories, Cabela’s said hunting was the strongest category this past fall, with ammunition particularly strong. Camping was “also very good.” In the fourth quarter, camo clothing performed well, as did women’s and kids. Asked by an analyst specifically about Under Armour, Pat Snyder, SVP of merchandising, said, “Under Armor is certainly a strong brand when a customer comes into our stores and shops that merchandise. We’ve continued to expand that line this spring and it’s a very successful brand for us.”

Financial services revenue in the quarter increased 33.1% to $38.5 million from $28.9 million while the segment’s operating income improved to $8.3 million from $6.6 million. Looking ahead, Cabela’s said it expects first quarter earnings to be a few cents below 2006 results due to pre-opening costs related to its Hazelwood store and nearly $7 million in additional fixed cots such as interest, depreciation and incentive compensation.

For the full year, Cabela’s still expects to reach its long-term objective of growing revenue and profits in the mid-teens. Continuing operating margin expansion and improved store performance are expected to offset higher interest expense due to higher debt levels.