Cabela’s Q1 Comp Sales Decline Leads to Decrease in Net Income…

Cabela's saw first quarter comp store sales decline 6.3%, due primarily to the last year’s grand opening of Cabela’s retail store in Penn., which brought this quarter’s comps down by 4.5 percentage points. The remainder of the comp-store decline was due to the shift in the Easter holiday and several stores closing early due to weather-related issues. Management said that this comp-sales decline was expected. Looking forward, the company believes that comps will continue to be challenging, mainly because of the slow economic environment in the mid-west. However, the company continues to remain positive about their direct business. (Click Here to View Chart)

Management feels that Cabela’s multi-channel strategy is making up for any sales shortfalls in their more mature brick and mortar stores. Direct sales within a 150 mile radius of Cabela’s Penn. store were up 12.4%. Also, the 11.4% total direct sales increase was achieved with a 7.1% increase in catalog expenses.

Cabela’s is continuing their retail expansion with four new stores scheduled to open during the remainder of this year and a total of eight scheduled to open by the end of 2007. The company will add at least 1.4 million square feet of retail space in the next three years, more than doubling their current footprint. Management said that this was the main reason for the shortfall in net income for the quarter. Without pre-store opening expenses, net income would have been $9.8 million.

One of Cabela’s main objectives for the year was to decrease SG&A expenses in the company’s shared services segment – distribution, merchandising and corporate overhead. These expenses dropped 120 basis points to 9.9% of sales compares to 11.1% last year.

The company has also opened their first permanent office in Hong Kong. During a conference call, Dennis Highby, Cabela’s president and CEO, told analysts and the media that this new office will improve vendor oversight, strengthen vendor relations, expand private label sourcing opportunities, and improve quality. Currently, Cabela’s private label program makes up roughly 30% of their overall sales and Highby sees that expanding, not only in apparel and footwear, but also into hardgoods.

Cabela’s is also seeing some impact of holiday gift cards carrying over into the first quarter. Between the end of 2004 and the end of Q1 2005, the dollar value of outstanding gift certificates fell by $7 million.
The decline in gross margin was said to be attributable to liquidation of some seasonal inventory and some aggressive markdowns as a result of a warm fall/winter.

Looking ahead, Cabela’s reaffirmed their guidance for the fiscal year, stating that sales are expected to increase in the mid-teens.