Cabela's Inc. reported that for the third quarter, total revenue increased 9.2 percent to $741.2 million; Retail store revenue increased 15.8 percent to $456.0 million; Direct revenue decreased 6.7 percent to $196.8 million; and Financial Services revenue increased 20.3 percent to $85.9 million. For the quarter, comparable store sales increased 3.9 percent. Net income increased 28.5 percent to $42.8 million compared to $33.3 million and earnings per diluted share were $0.60 compared to $0.47, each compared to the year ago quarter.
“The highlight of the quarter was the excellent performance of our new next-generation stores, which bodes well for our future,” said Tommy Millner, Cabela's Chief Executive Officer. “The eight next-generation stores open for the full quarter outperformed our existing legacy store base in sales and profit per square foot by a wide margin. Additionally, same store sales from our next-generation stores exceeded the performance of our existing stores by several hundred basis points.”
“Recently, we opened two next-generation stores in Charleston, West Virginia, and Rogers, Arkansas, and our first, even smaller, Outpost store in Union Gap, Washington,” Millner said. “These stores generated the same great customer enthusiasm we experienced in our previous store openings and are performing at the same high level as our other next-generation stores. Of our 40 stores open today, eleven are either next-generation or Outpost stores, and all future stores will be in one of these formats.”
“As a result of the strong performance of our new stores, we are accelerating square footage growth as we move into 2014,” Millner said. “We now expect to open eight domestic next-generation stores in 2014. Of these eight stores, three have been previously announced, four new locations were approved at or prior to the October Board of Directors meeting and one is expected to be approved shortly.”
Merchandise gross margin increased 130 basis points to 37.2 percent. This is the sixth consecutive quarter of merchandise margin improvement. Ongoing focus on Cabela's branded products, improved in-season and pre-season planning, and greater vendor collaboration contributed to the strong performance. These positives more than overcame strong sales of firearms and ammunition, which had a 60 basis point negative impact on merchandise gross margin.
“The one area that did not meet our expectations was revenue in our Direct segment,” Millner said. “The entire decline in Direct revenue for the quarter was attributable to weaker demand for clothing and footwear, and a 300 basis point reduction in Direct revenue from the absence of shipping income due to our CLUB Visa free shipping offer. In September, we responded with increased levels of advertising, which we will continue through the holiday season. As a result, Direct revenue has improved in the first few weeks of the fourth quarter.”
The Cabela's CLUB Visa program also posted very strong results in the quarter. For the quarter, net charge-offs as a percentage of average credit card loans decreased 52 basis points to 1.71 percent compared to 2.23 percent in the prior year quarter. This is the lowest level of net charge-offs in five years. Primarily due to higher interest and fee income and reduced interest expense, Financial Services revenue increased 20.3 percent in the quarter to $85.9 million.
“Our strong results led to another quarter of improvement in return on invested capital, a vital measurement,” Millner said. “Return on invested capital improved 150 basis points. Key operational improvements and the strong performance of our new stores give us confidence in our ability to increase return on capital going forward.”
“We are optimistic about our prospects for the remainder of 2012 and 2013,” Millner said. “The 28 percent increase in earnings per share and 25 percent increase in operating profit both exceeded our internal budget. At the end of the second quarter, we said externally that we expected earnings per share for 2012 to be 1-3 percent ahead of then current expectations of $2.60, or a range of $2.63 to $2.68. We now feel strongly that full year 2012 earnings per share will be at the high end of this range. While our 2013 budget is not yet finalized, we expect 2013 earnings per share to grow at least at a low double-digit rate.”