Cabela’s Q1 Earnings Soar on Improved Comps

For the quarter, Retail store revenue increased 14.4 percent to $345.3 million; Direct revenue decreased 8.3 percent to $190.2 million; and Financial Services revenue increased 15.3 percent to $83.5 million.

“This strong performance gives us confidence our growth strategy is working and working well,” said Tommy Millner, Cabela's Chief Executive Officer. “Virtually all the lines on the income statement are moving in the right direction: revenue is up, merchandise margin increased, expenses as a percentage of revenue are down, earnings are up and after-tax return on invested capital rose nicely.”

“Merchandise margin increased 150 basis points in the quarter, primarily due to continued improvements in pre-season planning, in-season management and the performance of Cabela's branded product,” Millner said. “Increases in merchandise margin were broad based as margin increased in 10 of 13 merchandise sub-categories and improved in both our Direct and Retail segments. These improvements combined with greater vendor collaboration allowed us to avoid significant end of season markdowns as we transitioned from fall to spring merchandise. We are confident that our initiatives to increase merchandise margin will continue to generate positive improvements through the remainder of 2012 and beyond.”

“In addition to merchandise margin improvements, we realized acceleration in total revenue growth and comparable store sales,” Millner said. “Comparable store sales increased 4.2 percent, which is especially pleasing given that we were up against an 8.9 percent comparable store sales increase in the first quarter last year. In our retail stores, demand for firearms, ammunition and fishing equipment was very strong.”

“In our Direct segment, we are not satisfied that revenue declined 8.3 percent in the quarter, down more than planned,” Millner said. “January was well below last year while February and March each improved sequentially. In January, many competitors reduced prices sharply as they liquidated excess winter inventory, which we did not need to do. Despite the revenue performance, we realized improvements in fill rates, Internet traffic and profitability.”

“As we have previously outlined, retail store expansion is a critical component of our growth strategy,” Millner said. “So far this year, we have opened two next-generation stores located in Wichita, Kansas, and Tulalip, Washington. I personally attended both openings and am delighted to report that both stores have exceeded our expectations. The success of our next-generation stores validates our strategy to accelerate retail expansion.”

“We also continued our focus on managing operating expenses,” Millner said. “This is the second consecutive quarter operating expenses have grown at a slower rate than revenue. We continue to focus on getting the maximum benefit out of every operating expense dollar and will continue to tightly manage expenses for the remainder of the year. For the full year, we expect operating expense growth to be less than revenue growth.”

“As a result of strong revenue growth, higher merchandise margin and a focus on expense management, we realized significant increases in Retail and Direct contribution margin,” Millner said. “For the quarter, Retail segment operating margin expanded for the twelfth consecutive quarter increasing 120 basis points to 12.8 percent. Direct segment operating margin expanded for the sixth consecutive quarter, increasing 70 basis points to 18.0 percent. Margins in both of our merchandising segments are new first quarter records.”

“These strong results led to further increases in after-tax return on invested capital, which increased 100 basis points,” Millner said. “This important measure reflects continuing effort on balance sheet management and increasing profitability. With our focus on continuous improvement throughout the enterprise, we remain confident in our ability to further increase return on invested capital.”

The Cabela's CLUB® Visa program also posted record results in the quarter. For the quarter, net charge-offs decreased 74 basis points to 2.00 percent compared to 2.74 percent in the prior year quarter. This is the lowest level of net charge-offs in more than four years. Primarily due to higher interest and fee income and reduced interest expense, Financial Services revenue increased 15.3 percent in the quarter to $83.5 million. For the quarter, the allowance for loan losses was reduced by $6.3 million compared to an $8.1 million reduction in the first quarter last year.

“We are extremely pleased with the progress on our strategic initiatives and our increasing profitability,” Millner said. “It is clear our strategies are working, and our retail stores are achieving superior results. Accordingly, we continue to expect strong full year 2012 results with a meaningful portion of our first quarter over performance carrying through to our full year bottom line results.”