Cabela’s Fires on All Cylinders in Q2, Lauds Next-Gen Stores

The company saw improvements in Retail and Direct channel revenue, merchandise margin, operating margin, expenses as a percentage of revenue, inventory turns, earnings per share and return on capital.

Total revenue increased 11.6 percent to $627.3 million. Retail store revenue increased 16.9 percent to $384.7 million; Direct revenue decreased 0.7 percent to $158.5 million; and Financial Services revenue increased 12.8 percent to $79.3 million. Comparable-store sales accelerated, growing 4.7 percent with increases coming in 25 of 30 stores, and in 12 of 13 merchandising subcategories. Excluding guns and ammo, comps still grew 4.2 percent.

The strong top-line performance and continued cost cutting drove a 56.2 percent increase in earnings, which grew reached $33.9 million, or 47 cents a share, up 56.2 and 51.6 percent respectively from a year earlier. Merchandise margin increased 70 points (b.p.) to 37.4 percent, the highest level in more than five years.

 

Cabela’s branded products, improved in-season and pre-season planning, and greater vendor collaboration more than offset a 24 b.p. negative impact from higher sales of lower margin firearms, ammunition and power sports products.

Retail segment operating margin increased 230 basis points to 18.5 percent, a new second-quarter record. Transactions increased for the first time in five quarters. CAB also continued to drive down operating expenses, which declined to 26.5 percent of revenues, down 170 basis points from a year earlier. The company expects expenses to continue growing slower than revenue for the balance of the year. 

The credit profile of Cabela’s credit card holders also continued to improve as net charge-offs reached a five-year low of 1.86 percent of average credit card loans, down 48 basis points from a year earlier. Thirty-, 60 and 90-day delinquencies also declined during the quarter even as the company grew accounts 8 percent. That pace should grow to the low double-digits in coming years as Cabela’s accelerates store openings. Financial Services operations accounted for 12.6 percent of CAB’s revenue in the quarter.
Sales per square foot in the company’s six new, next-generation stores, continued to come in meaningfully higher than in the company’s hulking legacy stores.

“What's happening in the new stores is this lack of necessity to triplicate assortments, then have to deal with the markdown of those product categories because we had to duplicate,” said CEO Tommy Millner.

For the remainder of 2012, CAB plans to open next-generation stores in Rogers, AR and Charleston, WV and its first 40,000-square-foot Outpost store in Union Gap, WA.

The Outpost stores are key to CAB’s growth plans because they allow it to enter smaller markets. Last week, the company announced it would open its first outpost story in 2013 in Saginaw, MI and open its first store in Alaska – “a hugely lucrative market” – in Anchorage in 2014. Business has been so good at the company’s new store in Tulalip, WA that it is already considering opening a store closer to Seattle.

Average ticket increased 4 percent in the quarter, thanks in part to cross merchandizing. In the Northeast, for example, CAB has hung more bug repellants on clip strips throughout its stores in response to an explosion in the flea, tick and mosquito population. Placing tactical clothing near firearms and ammunition pads has similarly boosted apparel sales.

“Ticket being up, believe me, is not an accident,” said Millner.
He also called out the performance of the company’s three stores in Canada, including its newest, which opened in Saskatoon in May. The company thinks it can open 20 such stores, which measure 50,000-to-70,000 square feet, in Canada.

“Canada is proving to be a great market for Cabela's,” Millner said. “We have strong brand recognition, significant participation in outdoor activities, and because of the climate, a very favorable merchandise mix.”

Millner said CAB, like many gun dealers, has seen an uptick in gun sales in the wake of the July 20 shooting attack that took 12 lives in an Aurora, CO theater. He said CAB is well positioned to take market share in the gun business, because its balance sheet puts it at the front of the line when suppliers struggle to meet demand.
On the balance sheet, inventory decreased 4 percent to $577 million during the quarter, while inventory turns improved slightly to 2.9 times on a trailing four-quarter basis.

“We're transitioning to fall merchandise as clean as we've ever been,” said Millner.”Carry-overs of inventories from spring and summer to fall are going to be as low as we can remember.”