Cabela’s Inc. said it will shift more toward branded apparel and swap out seasonal inventory quicker to combat a 5.9% slide in same-store sales in the fourth quarter that it attributed largely to less traffic in its stores. But the retailer said comp store sales remained down in the mid-single-digits in the first quarter and indicated that it's unlikely they will rebound before the fourth quarter this year due to a tough economy in the first half of the year and a robust third quarter last year. EPS growth could rebound sooner.

Cabela's reported that fourth quarter revenues rose 13.9% to $889.5 million, compared to $781.0 million for the fourth quarter of 2006.  Retail store revenue increased 31.8% to $401.8 million, reflecting the addition of eight new stores that expanded its retail footprint by 49% during the year. Direct-to-consumer revenues increased 3.3% to $446.9 million, reflecting a 30% rise in visits to Cabela's Website and five new catalogues.   Financial services revenue decreased 1.7% to $37.8 million even as the company surpassed one million active accounts and over $2 billion in total credit card loans outstanding.


SG&A improved 90 basis points to 31.2% of total revenue for the quarter and gross margins rose 20 basis points to 34.9% of revenue.  Net income increased 5.4% to $56.2 million, or 84 cents per diluted share, compared to $53.4 million, or 80 cents per diluted share, for the fourth fiscal quarter of 2006.


Inventories at the end of the year were 25% higher than a year earlier, reflecting the eight new stores, six of which were opened in the fourth quarter. Still, the company acknowledged inventory was above plan due to lower than expected sales.


“We were clearly disappointed in the performance of our retail segment in the fourth quarter,” said CEO Dennis Highby. “Three new stores that opened in 2007 fell short of our expectations, while five stores either met or exceeded our expectations.”


Cabela's announced last month that it would slash its store openings to 2 from 8 in 2008 and shift its focus to improving operations at existing stores and building catalogue and e-commerce sales.


“I think just based on how retail is at the moment, I think it's very prudent for us to slow down, clean up what we have and get things back on track,” Highby told analysts in an earnings conference call.


Highby noted that the company had brought in new executives in advertising, store operations and merchandizing who have been charged with improving retail profitability and same-store sales by increasing average tickets, improving overall productivity, enhancing outfitter training and addressing underperforming stores. Most prominent among those hires is Michael Copeland as VP of retail operations. Copeland has more than 20 years of retail experience, most recently with a major home retailer, Highby said.


Cabela's will begin refreshing its apparel assortment every 12 weeks, with a greater emphasis on branded vs. its own private label brand. Highby said that shift will be noticeable in stores by spring.


The company is also deploying taller and wider fixtures that will bear lifestyle pictures and bullet points of text that tell the consumer the benefit of buying a product.  Much of the company's emphasis on “self-service” visual merchandising will be focused around Cabela's private label apparel, said Brain Linneman, SVP, global supply chain and operations.


Cabela's will also focus on swapping out its seasonal inventory more quickly with casual lifestyle clothing and other product.  “We have not done as good of [a] job as we are going to in the future in what we call like a seasonal flex for the store,” said Highby. “When the fishing season is nearing its end this year, that's going to shrink more significantly than it ever has.”


Cabela's will also modify minimum order quantities and execute an open-to-buy process to improve its inventory turns.  Rolling out its in-store pickup and Internet kiosks to the remainder of its stores in 2008 should also help boost sales per square foot.


Highby said the hunting equipment, camping, automotive and footwear categories performed well in the fourth quarter, but that hunting clothing and marine suffered. The bulk of Cabela's overstock at quarter's end was in hardgoods, said Linneman.


“We expect, between now and mid-year, that we'll be able to reduce that inventory and get that closer to back on plan,” said Linneman.


Highby said he is as excited as ever about Cabela's next generation of 80,000 sf to 125,000 sf stores. Because they are smaller, Cabela's will be able to put more of them in a single market. The first one will open in Rapid City, SD in the third quarter of 2008.