Cabela’s Hits Q1 Earnings Guidance Amid Plummeting Gun and Ammo Sales

The company said total revenue decreased 9.6 percent to $725.8 million; Retail store revenue decreased 9.4 percent to $440.9 million; Direct revenue decreased 20.3 percent to $179.4 million; and Financial Services revenue increased 14.9 percent to $98.6 million. During the period, comparable store sales decreased 21.7 percent. Net income was $25.7 million compared to $49.8 million in the year ago quarter, and earnings per diluted share were $0.36 compared to $0.70 in the year ago quarter.

 

“In the first quarter, we anniversary the most difficult comparisons versus the firearms and ammunition surge last year,” said Tommy Millner, Cabela’s Chief Executive Officer. “As we cycle through the unprecedented comparisons from 2013, we are encouraged by our strong fundamentals. Specifically, these include: excellent new store performance, increased penetration of Cabela’s branded softgoods and growth in our Cabela’s Club loyalty program. First quarter profits were within our guidance as tight expense management and strong profits from Cabela’s Club offset weaker revenue and lower merchandise margin.”

 

New stores continue to perform at high levels, and for the trailing 12 months, the 14 new stores opened for the full period averaged sales per square foot of $497. With continued strong new store performance, retail store expansion remains on track with plans to open approximately one million square feet per year for the next several years.

 

“Another important aspect of achieving our 2014 targets is tightly managing growth in operating expenses,” Millner said. “As we expand into our national footprint, expense control will be vitally important, and we are pleased to see first quarter operating expenses less than our internal plan. In the first quarter, we kept operating expense growth to just 4.7 percent as we grew retail square footage 14 percent. The initiatives already in place will continue to yield benefits for the remainder of 2014 as we expect mid to high single-digit expense growth for each of the remaining quarters in 2014.”

 

Cabela’s branded product penetration in softgoods and footwear accelerated in the quarter increasing 470 basis points from 54.0 percent to 58.7 percent. Cabela’s branded products continue to be a core focus of the Company. Early reaction to XPGTM (Extreme Performance Gear) softgoods and footwear, Cabela’s Guidewear®, and Wildlife and Land Management products has been very positive. These results provide confidence in the prospects for future growth in Cabela’s branded products.

 

“Merchandise margin was down 120 basis points,” Millner said. “This drop was primarily due to lower margins in firearms, ammunition and shooting, which are returning to pre-surge levels. Margin rate in these categories declined versus last year as a result of improved supply and testing of certain promotions within specific categories of firearms and ammunition. We expect improvement in merchandise margin in the second half of the year due to new product performance in softgoods and more normalized firearm and ammunition promotions.”

 

“Comparable store sales for the quarter decreased 21.7 percent as firearms and ammunition declined 39 percent and 32 percent, respectively,” Millner said. “Through the first six weeks of the quarter, comparable store sales were down 25 percent to 30 percent. Comparable store sales improved each month through the quarter, and we expect this trend to continue throughout the second quarter.”

 

Direct revenue declined 20.3 percent for the quarter as a result of the sharp decline in ammunition and other shooting related categories compared to the unprecedented levels from the same quarter a year ago. Direct sales of hunting equipment, hunting apparel and footwear were encouraging. For the quarter, conversion rates from both desktop and mobile devices increased.

 

The Cabela's Club Visa program had another solid quarter. During the quarter, growth in average active credit card accounts was 7.9 percent due to new customer acquisitions in our Retail and Internet channels. For the quarter, net charge-offs remained at historically low levels of 1.80 percent compared to 1.86 percent in the prior year quarter. Additionally, greater than 30-day delinquencies continued to improve and were just 0.68 percent compared to 0.73 percent in the year ago quarter. Increased Financial Services revenue was driven by increases in interest and fee income as well as interchange income. Growth in average balance per active credit card account was 4.0 percent, and growth in average credit card loans was 12.3 percent.

 

“Expense initiatives already in place together with strong new store performance, increases in Cabela’s branded products and growth in Cabela’s Club will drive earnings growth for full year 2014,” Millner said. “As a result, we reaffirm our previous full year guidance and continue to expect 2014 earnings per diluted share to increase at a high single-digit to low double-digit rate versus 2013 adjusted earnings per diluted share of $3.32. Furthermore, we expect full year 2014 revenue to increase at a mid to high single-digit rate. Due to carryover in the surge in firearms and ammunition sales from a year ago, we expect second quarter 2014 revenue to grow at a low single-digit rate and earnings per diluted share to be between $0.45 and $0.55. For the third quarter, we expect revenue to increase at a low double-digit rate and earnings per diluted share to be between $0.85 and $0.95.”

CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Earnings Per Share)
(Unaudited)
				Three Months Ended
				March 29, 2014					March 30, 2013
Revenue:
Merchandise sales				$	620,197				$	711,713
Financial Services revenue					98,578					85,772
Other revenue					7,048					5,012
Total revenue					725,823					802,497
Cost of revenue:
Merchandise costs (exclusive of depreciation and amortization)					406,643					458,627
Cost of other revenue					1,322					68
Total cost of revenue (exclusive of depreciation and amortization)					407,965					458,695
Selling, distribution, and administrative expenses					277,005					264,687
Operating income					40,853					79,115
Interest expense, net					(3,685	)				(5,356	)
Other non-operating income, net					2,102					1,539
Income before provision for income taxes					39,270					75,298
Provision for income taxes					13,521					25,451
Net income				$	25,749				$	49,847
Earnings per basic share				$	0.36				$	0.71
Earnings per diluted share				$	0.36				$	0.70
Basic weighted average shares outstanding					70,766,568					70,157,744
Diluted weighted average shares outstanding					71,758,033					71,372,824