Cabela’s Inc., which has reached an agreement to merge with Bass Pro, reported earnings 16.5 percent on an adjusted basis in its fourth quarter ended December 31 as sales fell 4.9 percent. U.S. comparable-store sales decreased 6.4 percent.
As previously disclosed, the company’s fourth fiscal quarter and fiscal year ended December 31, 2016, included 13 weeks and 52 weeks, respectively, while its fourth fiscal quarter and fiscal year ended January 2, 2016, included 14 weeks and 53 weeks, respectively.
For the quarter, on a GAAP basis, total revenue decreased 4.9 percent to $1.3 billion, revenue from retail store sales decreased 4.3 percent to $888.2 million, internet and catalog sales decreased 12.4 percent to $307.8 million and financial services revenue increased 1.2 percent to $132.7 million. For the quarter, adjusted for the shift in weeks, U.S. comparable-store sales decreased 6.4 percent and consolidated comparable-store sales decreased 6.5 percent. Adjusted for the 53rd week in the fourth quarter of 2015, total revenue increased 1 percent, retail store sales increased 4.9 percent, and Internet and catalog sales decreased 4.7 percent.
For the quarter, net income decreased 26.3 percent to $58.1 million compared to $78.8 million in the year-ago quarter, and earnings per diluted share were 84 cents compared to $1.14 in the year-ago quarter. Adjusted for certain items, the company reported fourth-quarter net income of $72.5 million and earnings per diluted share of $1.05 as compared to net income of $86.8 million and earnings per diluted share of $1.26 in the year-ago quarter. Wall Street’s consensus target had been $1.22 per share.
Fourth-quarter 2016 GAAP results included impairment and restructuring charges and other items totaling a reduction of 21 cents in earnings per diluted share.
For fiscal 2016, net income decreased 22.4 percent to $146.9 million compared to $189.3 million, and earnings per diluted share were $2.13 compared to $2.67 a year ago. Adjusted for certain items, the company reported fiscal 2016 net income of $179.7 million and earnings per diluted share of $2.60, as compared to net income of $204.7 million and earnings per diluted share of $2.88 a year ago. Fiscal 2016 GAAP results included impairment and restructuring charges and other items totaling a reduction of 47 cents in earnings per diluted share.
“We were clearly disappointed with the fourth quarter results,” said Tommy Millner, Cabela’s chief executive officer. “Consistent with other retailers, we experienced challenging traffic patterns in the quarter. Our increase in average ticket was not enough to make up for a decrease in transactions. Similar to industry trends, we experienced strength in firearms and shooting-related categories primarily early in the quarter. Later in the quarter, firearms and shooting-related categories became challenging as we faced the headwind of lapping the impact that the San Bernardino tragedy had on these categories a year ago. We saw improved trends in apparel and other softgoods categories in the latter part of the quarter. We continue to be pleased with the performance and growth of our Cabela’s CLUB Visa program.”
For the quarter, consolidated comparable-store sales decreased 6.5 percent and U.S. comparable-store sales decreased 6.4 percent as compared to the same quarter a year ago. Comparable-store sales strength in firearms and shooting-related categories through the first half of the quarter was more than offset by softness in these categories due to challenging comparisons from the year-ago period.
Merchandise gross margin decreased by 118 basis points in the quarter to 32.2 percent, compared to 33.3 percent in the same quarter a year ago. This decrease was primarily attributable to the impacts of merchandise mix, promotional activity, and efforts to right size inventory levels. The negative impact of merchandise mix was attributable to the first two months of the quarter with increased firearms and shooting-related category penetration and decreased penetration in apparel categories. This negative impact was slightly offset in the month of December with lower penetration of firearms and shooting-related categories and higher penetration of apparel categories. The overall merchandise mix impact was approximately 70 basis points of the overall decrease for the quarter. Promotional activity was responsible for approximately 30 basis points of the decrease and efforts to right size inventory levels were responsible for approximately 20 basis points of the overall decrease.
Expense management initiatives continued to generate meaningful contributions to profitability. For the quarter, GAAP basis SD&A expenses as a percentage of total revenue increased 10 basis points to 29.8 percent as compared to 29.7 percent in the same quarter a year ago. On a non-GAAP basis SD&A expenses as a percentage of total revenue decreased 20 basis points to 29.3 percent as compared to 29.5 percent in the same quarter a year ago.
“We continue to be very pleased with the results of our expense and process improvement initiatives, which have continued to make meaningful contributions to profitability,” Millner said. “It is important to note that non-GAAP fourth quarter results reflect expense leverage for the fifth consecutive quarter. These efforts span across the entire organization, and I commend our teams for executing the implementation of these profitability enhancing improvements throughout the business.”
Cabela’s CLUB had an excellent quarter despite an increase in the loan loss reserve. The reserve for loan losses increased by $15.8 million in the quarter due to higher delinquency rates and, to a lesser extent, an increase in credit card loan balances. For the quarter, growth in the average number of active credit card accounts was 4.2 percent and growth in average balance per active credit card account was 8.7 percent as compared to the same period a year ago. The average balance of credit card loans grew 13.3 percent to approximately $5.4 billion as compared to $4.8 billion in the year-ago quarter. For the quarter, net charge-offs were 2.79 percent. Fourth-quarter financial services revenue increased 1.2 percent over the year-ago quarter. This increase was primarily driven by increases in interest and fee income, which was largely offset by increases in the provision for loan losses as well as interest expense.
The fourth-quarter effective tax rate was 44.9 percent compared to 36.1 percent in the same quarter a year-ago on a GAAP basis and 39.5 percent compared to 36.1 percent on a non-GAAP basis. Effective tax rate increased comparing the respective periods primarily due to increases in nondeductible expenses to facilitate the acquisition of the company ($5 million net impact to the provision for income taxes), tax adjustments attributable to changes in the mix of taxable income between the United States and foreign tax jurisdictions, and state income taxes.
Cabela’s will not host a conference call with analysts and investors or provide guidance in connection with the results and does not plan to do so for future quarters while the acquisition of the company by Bass Pro Shops is pending.
Photo courtesy Cabela’s