Cabela's Inc. reported that on a like calendar basis, adjusted for divestitures, total revenue during the fourth quarter increased 8.4% to $934 million. Retail store revenue increased 11.4% to $479 million; direct revenue increased 0.5% to $386 million; and financial services revenue increased 27.8% to $58 million. For the quarter, comparable store sales increased 7.3%.
On a reported basis, total revenue increased 1.7%, retail store revenue increased 3.2% and direct revenue decreased 5.1%.
For the quarter, net income was $59.9 million, or 86 cents a share, compared to $52.4 million, or 77 cents, in the year ago quarter, each excluding impairment and other special items. That represents a gain of 14.3%.
For the quarter, the company reported GAAP net income of $66.3 million and diluted earnings per share of 95 cents as compared to GAAP net income of $16.6 million and diluted earnings per share of 24 cents in the year ago quarter.
“With this quarter's performance, it is clear our strategies are working and we are gaining momentum,” said Tommy Millner, Cabela's Chief Executive Officer. “We saw improvements in every important financial metric. Revenue, margins, operating income, net income and return on capital were all strong. Our strategy to use Cabela's CLUB Visa program to generate higher profits while deepening customer loyalty produced strong results as well.”
“Our strategic imperatives are merchandise margin expansion, retail profitability improvements, increasing ROIC and growth in our Cabela's CLUB Visa program,” Millner said. “We are pleased with the momentum in each of these areas and are working to build on this momentum in the future. Retail profitability has improved for seven consecutive quarters with the strongest growth realized in the most recent quarter. Significant effort was applied to the Black Friday through Christmas period with a deeper commitment to key item inventories, better in-season management, a sharper focus on advertising effectiveness and a planned increase in store labor to serve our customers. This resulted in excellent comparable store sales growth and significantly increased retail profitability.”
“Our 70 basis point improvement in merchandise margins in the fourth quarter represents our third consecutive quarter of expansion,” Millner said. “Margin expansion was broad based in the quarter as 10 of 13 merchandise sub-categories saw growth. Ongoing work on pre-season plans, in-season management and inventory quality will continue to support future margin improvement.”
“Another important accelerating trend is expansion of return on invested capital, which increased 210 basis points to 13.1% in 2010 based upon adjusted earnings,” Millner said. “This important measure reflects continuing effort on balance sheet management and strong cash flows. We remain optimistic in our ability to further increase return on invested capital.”
Subsequent to the quarter, World's Foremost Bank and the Federal Deposit Insurance Corporation (FDIC) agreed in principle to settle all matters related to the 2009 compliance examination. The company now expects the net impact of restitution and penalties to be $8 million pre-tax. The company recorded an $18 million pre-tax liability in the first quarter of 2010 related to this matter; therefore, the company reduced that liability in the fourth quarter by $10 million pre-tax. The liability reduction had a favorable $0.09 impact to reported earnings per share of $0.95 in the quarter. Excluding this item, earnings per share were $0.86 in the quarter.
During the quarter, the company completed the $150 million recapitalization plan for its wholly-owned banking subsidiary by making a final capital contribution of $75 million. This allowed the company's banking subsidiary to remain well-capitalized pursuant to FDIC regulations.
“The Cabela's CLUB Visa program also had a very good quarter and year,” Millner said. “Throughout the year, we realized significant improvements in delinquencies and charge-offs, which remain well below industry averages. We continue to maintain our strict credit standards and are focused on finding new ways to use the Cabela's CLUB Visa program to drive greater customer loyalty and additional customer spending through all of our channels. For the year, average active accounts increased nearly 6% and the average active account balance increased 1%. For the year, charge-offs improved 83 basis points to 4.23% compared to 5.06% last year and managed financial services revenue as a percentage of average managed credit card loans increased 180 basis points; all of which led to a 33% increase in financial services revenue.”
Due to the company's international activities, a portion of income was generated in foreign jurisdictions which have a lower effective tax rate. As a result, the effective tax rate for the quarter was 30.8%. This was entirely offset by an increase in interest expense due to a change in the timing of prior tax deductions.
“We are very pleased with the progress we have made related to our strategic initiatives for the quarter and year,” Millner said. “It is clear we are gaining momentum, and as result, we expect our full year 2011 earnings per share to meet or exceed current analyst expectations.”
