Of all the rumors swirling around Cabela’s Inc., D.A. Davidson & Company analyst Andrew Burns sees the least reported as making the most sense.

As a research analyst, Burns is not privy to confidential information DADCO’s investment bankers may have and relies on a mix of public information, including filings with the Securities & Exchange Commission, press reports, earnings calls and his own research.

During a 30-minute conversation Friday, he outlined the pros and cons of three possible scenarios Cabela’s is, or is reported to be, evaluating. In order of likelihood, he lists those as: a sale of World’s Foremost Bank, which issues and manages its Cabela’s Club Visa credit card loyalty program; an acquisition by rival Bass Pro; and a sale to the investment firm KKR, which already owns Texas-based Academy Sports + Outdoor.

Selling WFB
Burns said transactions by department stores indicate Cabela’s could potentially receive $400 million-plus from selling the credit card business while still retaining the majority of earnings it derives from the Cabela’s Club Visa program. That would enable it to free up capital on the WFB balance sheet and pay for stock buybacks sought by affiliates of Elliot Capital Management, a hedge fund firm that took an 11 percent stake in the retailer last fall. Burns, however, sees that as a short-sighted approach that could eliminate one of Cabela’s biggest competitive advantages.

“The inherent problem with that is that you are talking about the secret sauce of their success, which is issuing new credit cards to consumers during a firearms purchase” Burns said. “When you put that in someone else’s hands, whose attitude toward financing guns might change, you put that secret sauce in jeopardy. What happens if political sentiment changes and the underwriter no longer wants to do that? That’s why they have been so reluctant to do that.”

Selling To Bass Pro
Burns also sees significant obstacles to a merger with privately owned rival Bass Pro Shops, although he said consolidation among the nation’s five national hook and bullet retailers – Cabela’s, Bass Pro, Sportsman’s Warehouse, Gander Mountain, Dick’s Sporting Goods (Field & Stream) – is inevitable.

“Cabela’s has to push into Bass Pro territory to grow, so at a high level it makes sense,” Burns said of published reports this spring that Bass Pro had teamed with Goldman Sachs to prepare a bid for Cabela’s. “The problem with that scenario is, first, Cabela’s family has to be comfortable with the negative impact this merger would have on Sidney, NE. Second, they have up to 10 stores where Bass Pro / Cabela’s store proximity would be an issue.

Selling To KKR
A sale to KKR makes more sense to Burns. In that scenario, which has also been rumored, both chains would continue to operate separately but pool purchasing, distribution, IT and other back-end functions to drive down costs just as Vestis Retail Group LLC sought to do with Sports Chalet, Eastern Mountain Sports (EMS) and Bob’s Stores.

While Sport Chalet is now being liquidated under court supervision, Vestis Retail expects to exit bankruptcy court this summer with EMS and Bob’s Stores largely intact.

“That one makes sense to me as most logical buyer,” said Burns. “Although given the Sports Authority liquidation, one wonders if that makes sense.”

In the end, nothing much could change, Burns noted.

“I do think there is a potential that the strategic review leaves the business largely unchanged given the pros and cons of each scenario.”

Photo courtesy Cabela’s