Cabela's Inc. reported revenues grew 5.5 percent to $678.6 million in the third quarter. Net income jumped 64.8 percent to $35.6 million, or 50 cents a share, from $21.6 million, or 31 cents, in the year ago quarter. The results exclude impairment charges of approximately $3.0 million pre-tax in each of the third quarters of 2011 and 2010.
The company reported GAAP net income of $33.3 million and earnings per diluted share of 47 cents as compared to GAAP net income of $19.7 million and earnings per diluted share of 29 cents in the year ago quarter.
For the quarter, adjusted for divestitures, total revenue increased 6.2 percent to $678.6 million; Retail store revenue increased 6.8 percent to $393.8 million; Direct revenue decreased 1.7 percent to $210.9 million; and Financial Services revenue increased 33.7 percent to $71.4 million. For the quarter, comparable store sales decreased 1.6 percent. On a reported basis, total revenue increased 5.5 percent and Direct revenue decreased 3.5 percent.
“We have made further significant improvements in areas of our strategic focus,” said Tommy Millner, Cabela's chief executive officer. “These include strong third quarter results in merchandise margin, Retail segment operating margin, Direct channel revenue and Direct channel operating margin. Additionally, our new next-generation stores continue to perform extremely well, thus increasing our confidence to accelerate future retail expansion in the United States and Canada. And finally, our most important metric, after-tax return on invested capital, increased 210 basis points in the quarter marking the tenth consecutive quarterly increase.”
“A key component of our strategy is to improve merchandise performance and profitability of our retail operations,” Millner said. “Consistent with that strategy, we deliberately reduced promotional discounts in the quarter through the elimination of unprofitable retail store promotions. While the elimination of these promotions caused a modest decline in comparable store sales, merchandise margins increased 140 basis points and Retail segment operating margin increased 270 basis points. Using each promotion dollar more effectively is critical over the long term to maximize our growth and profitability.”
“During the quarter, the company opened a new store in Edmonton, Alberta, Canada, and the initial results have exceeded our expectations,” Millner said. “The success of Edmonton matches the success of our next-generation stores opened since 2009. These stores outperformed our legacy stores on a sales per square foot and profit per square foot basis by more than 30 percent. Additionally, the next-generation stores have meaningfully higher return on capital than our legacy stores. Accordingly, we expect to accelerate retail expansion in the United States and Canada in 2013 beyond the 2012 level of five stores. This would increase retail square footage by approximately 10 percent in both 2012 and 2013.”
Direct revenues were unaffected by retail promotion decisions and showed solid improvement compared to the prior several quarters. Improved results were due to better in-stock levels, higher average order size, increase in customer conversion and early stage successes in mobile and social marketing. For the quarter, Direct segment operating margin increased 320 basis points to 17.6 percent.
“The significant improvement in retail gross margin allowed us to make additional investments in retail business-building advertising,” Millner said. “As a result of this additional advertising spend, operating expenses as a percent of total revenue increased 40 basis points compared to the prior year quarter. While operating expenses were up, they increased at a slower rate than in the first half of the year, a trend we expect to continue into the fourth quarter.”
The Cabela's CLUB(R) Visa program also posted very strong results in the quarter. For the quarter, net charge-offs decreased 162 basis points to 2.23 percent compared to 3.85 percent in the prior year quarter. This is the lowest level of net charge-offs in more than three years. Primarily due to lower charge-offs, Financial Services revenue increased 33.7 percent in the quarter to $71.4 million.
The company also announced that its Board of Directors recently approved a share repurchase program designed primarily to offset shareholder dilution resulting from the granting of equity-based compensation awards. As a result, the Company intends to repurchase up to 800,000 shares in open market transactions through February 2012.
“Our strategies are working,” Millner said. “We are pleased with our third quarter results and are confident that our outperformance in the third quarter will carry through to the full year. We therefore expect 2011 earnings per share to exceed current external expectations by the amount of the third quarter outperformance. Additionally, as we look forward to 2012, we currently expect earnings per share to grow at a low double-digit rate.”
| Three Months Ended | Nine Months Ended | ||||||||||||||||
October 1, 2011 | October 2, 2010 | October 1, 2011 | October 2, 2010 | ||||||||||||||
| Revenue: | |||||||||||||||||
| Merchandise sales | $ | 604,288 | $ | 587,263 | $ | 1,601,807 | $ | 1,546,790 | |||||||||
| Financial Services revenue | 71,438 | 53,443 | 214,086 | 169,915 | |||||||||||||
| Other revenue | 2,884 | 2,545 | 11,528 | 12,126 | |||||||||||||
| Total revenue | 678,610 | 643,251 | 1,827,421 | 1,728,831 | |||||||||||||
| Cost of revenue: | |||||||||||||||||
| Merchandise cost | |||||||||||||||||
| (exclusive of depreciation and amortization) | 387,520 | 384,451 | 1,037,963 | 1,012,408 | |||||||||||||
| Cost of other revenue | 5 | 42 | 8 | 1,169 | |||||||||||||
| Total cost of revenue | |||||||||||||||||
| (exclusive of depreciation and amortization) | 387,525 | 384,493 | 1,037,971 | 1,013,577 | |||||||||||||
| Selling, distribution, and administrative expenses | 234,108 | 219,120 | 663,322 | 627,174 | |||||||||||||
| Impairment and restructuring charges | 3,488 | 2,997 | 4,443 | 4,831 | |||||||||||||
| Operating income | 53,489 | 36,641 | 121,685 | 83,249 | |||||||||||||
| Interest expense, net | (6,177 | ) | (6,669 | ) | (18,322 | ) | (17,794 | ) | |||||||||
| Other non-operating income, net | 1,699 | 1,821 | 5,656 | 5,345 | |||||||||||||
| Income before provision for income taxes | 49,011 | 31,793 | 109,019 | 70,800 | |||||||||||||
| Provision for income taxes | 15,704 | 12,051 | 36,227 | 24,943 | |||||||||||||
| Net income | $ | 33,307 | $ | 19,742 | $ | 72,792 | $ | 45,857 | |||||||||
| Earnings per basic share | $ | 0.48 | $ | 0.29 | $ | 1.05 | $ | 0.68 | |||||||||
| Earnings per diluted share | $ | 0.47 | $ | 0.29 | $ | 1.02 | $ | 0.67 | |||||||||
