Cabela’s Announces Positive Earnings Surprise on Eve of Annual Investor Day

CAB now expects first-quarter, comparable store sales will increase at least at a high-teens rate while direct revenue will increase at a low to mid-teens rate, despite the cannibalization effect of new stores. CAB estimates every new store it opens cannibalizes up to $3 million in annual direct sales via its catalog and online operations. About half the online growth this quarter has come from online ammo sales, but all categories were up with Womens and Childrens performing particularly strong.

At its annual investor day presentation, executives urged analysts not to let the surge in ammo sales obscure the growing contributions from the companys next generation stores. CFO Ralf Castner said those stores are generating sales of $480 per square foot and profits of $91 per square foot, or 38 and 62 percent more respectively than CABs sprawling legacy stores. He predicted same-store sales would be lumpy over the next 24 months as more new stores enter the comp base, but that CAB expects same-store sales to grow in the 2-4 percent range long term.  Gross margin gains will slow to double digits going forward following the last two years of triple digit gains.

Cabela’s-branded products sales
EVP and Chief Merchandising Officer Brian Linneman said that sales of Cabelas-branded products reached $800 million in 2012, or more than ten times the next most popular brand sold by its stores. They offer 800-to-1,200-basis-point margin advantage over national brands and CAB will introduce several hundred new Cabelas branded products just this year in its quest to break the $1 billion mark by 2015.

Linneman said a big focus in 2013 will be partnering more closely with top vendors to develop exclusive products for Cabelas. CAB will begin implementing price optimization technology to take price actions across its 160,000 plus SKUs in the third quarter.

The future of legacy stores
Cabelas has begun vacating or converting space at its gigantic legacy stores to enhance their performance. In Hoffman Estates, IL,  it closed the entire second floor, moved all the inventory downstairs and found sales were not affected. In Hammond, IN a manager converted a section of the store to an archery range to reduce inventory and staffing costs.  Castner said that because all the legacy stores are cash flow positive, Cabelas is in no hurry to close even lower performers, but is open to selling the underlying real estate. In which case you probably just fill a next-generation store three miles away and move all the employees over, he said.

Store expansion plans
Cabelas plan to expand square footage between 13 and 15 percent, or 695,000 square feet in 2013, and by 16 to 18 percent, or about 1 million a square feet in 2014. So far, it has announced plans to open six 80,000-square foot next-generation stores and two 40,000-square-foot Outpost stores in 2013 as well as two stores in Canada.  It has tentatively slated construction of a new distribution center for the Western U.S. in the 2014-15 time frame. CAB will also begin retrofitting stores this year to boost their wireless capacity as part of a plan to equip more of its outfitters to mobile devices that will enable them to help customers not only by accessing online resources from the aisle, but by networking with colleagues in other markets where the customer may be headed. 

Dialing in locally appropriate assortments are key to success and why the company is not opening stores faster.

When I hear companies say theyre going to roll out 30 of these and 20 of those and 40 of those, Ive been in the outdoor industry long enough to know, that’s an easy thing to say, it is a really hard thing to do, said CEO Tommy Millner. In fact, I would argue, it’s probably not doable because the second that customer walks in and he knows on Lake what-chama-call-it 10 miles from his house, everybody fishes with a wooly booger and that store doesnt have it, theyre dead. They will never go back. It’s that simple and yet, that difficult.

Market share estimates
A slide presented by CFO Ralf Castner estimated independent specialty retailers still control about 70 percent of the $50 billion hunt, fish and camp market compared to 3.55 percent for Cabelas, 15 percent for Walmart, 7.39 percent for full line sporting goods stores such as Dicks Sporting Gods and Academy Sports + Outdoors, 3.81 percent for Bass Pro, 1.88 percent for Gander Mountain, 1.42 percent for Sportsmans Warehouse, 1.19 for Wholesale Sports, and 0.56 for Scheels.

There is still an enormous amount of money spent on hunt, fish, camp at small independent dealers around the US, said Castner. And that’s really what the story is about. It’s about consolidating that market share in a handful of players like youve seen in a lot of other industries.

Targeting women customers and employees
In 2013, CAB will continue its focus on boosting participation by women at both the customer and the employee level. In 2012, 40 percent of the events, the retailer sponsored – including handgun classes – focused on women.  Internally, Millner has charged a Womens Leadership Council to identify for CABs all-male executive group what obstacles, either real or perceived, are preventing women from rising to the very top of the company. 

Millner asked female leaders to form the group last summer as part of his plans to prepare potential successors and had them shadow CABs executive team as they prepared for the event. He presented members of the council in his opening remarks during the investor day.
For an old established outdoor retail company to start thinking that way is a bigger step than any of you can imagine, because the whole industry has been kind of a guy’s club for decades and decades and decades, Millner said.

CAB has more female directors and vice presidents than at any time in its history.

These ladies are doing amazing work,  Millner said of the council. They are making a huge difference and they are helping me, as the CEO, understand all the things that we do that make it more difficult for them to bust through.