Cabela’s Inc. exceeded its first quarter guidance thanks in part to a late March surge in sales across most categories that produced some of the strongest comparable-store sales gains in years and record operating margins. The company said comps continued to grow in the mid-teens range into April.



The hook-and-bullet retailer reported revenue increased 28.7 percent to $802.5 million as comparable store sales surged 24.0 percent. Retail store revenue increased 41.0 percent to $486.7 million; Direct revenue increased 18.4 percent to $225.2 million; and Financial Services revenue increased 2.8 percent to $85.8 million.

Comp store sales increased in all stores, but were boosted by the exceptional performance of the companys next-generation stores and occurred across 10 of 13 merchandise subcategories. CEO Tommy Millner attributed a decline in comparable sales of fishing, camping and marine gear to colder March weather. Still, even after excluding firearms and ammunition, comp store sales increased 9 percent. Firearms and ammunition sales helped lift the number of transactions during the quarter by 14 percent and the average ticket size by 8 percent.
Revenue increases in the latter part of March were stronger than anticipated, which allowed us to outperform our March 12th earnings pre-announcement,” said Millner.

Merchandise gross margin increased 110 Basis Points to 35.6 percent during the quarter, when they usually reach their lowest point of the year. Retail operating income jump 460 points to 17.4 percent of Retail revenues while Direct operating income rose 190 basis points to 19.9 percent of Direct revenues. 


Operating expenses as a percent of revenue dropped 330 basis points compared to the prior year quarter. The lower expenses combined with higher gross margin to increase operating margin by 238 basis points to 9.9 percent, a new first quarter record.

Net income jumped 72.9 percent in the first quarter, to $49.8 million, or 70 cents a share, compared to $28.8 million, or 40 cents, in the year ago quarter.

While demand for firearms and ammunition drove many new customers into its stores and boosted sale of hunting clothing and optics during the quarter, sales were also strong in unrelated categories, including womens and kids apparel and archery.


 
Women’s and children…has nothing to do with the firearm and ammunition purchase, said Millner. Archery was a double digit contributor in comp performance in the quarter. That has nothing to do with guns and ammunition.

For competitive reasons, Cabelas will not break out comp store sales or direct revenue growth excluding ammunition until the extraordinary demand for ammunition normalizes. Millner said that given the lead times for expanding production, supplies of ammunition are likely to remain tight. He added, however, that because it began diversifying ammunition suppliers four years ago, Cabelas has relatively good access to supplies.

Cabelas top line growth was powered by the opening of its next-generation stores, which are generating sales and profits per square foot 30 to 40 percent higher than its legacy stores. Three next-gen stores will enter Cabelas comp base in the third quarter and three  opened in the first quarter are exceeding expectations and are not cannibalizing nearby legacy stores.

Cabelas plans to open three more next-generation stores in the third quarter, including one in a suburb of Green Bay, WI and two in suburbs of Denver, CO. Fourth quarter plans call for opening small-format Outpost stores in Waco, Texas and Collinsville, MT. Last week, the company announced plans to open a 50,000-square-foot store in Edmonton, Alberta in Spring 2014 and a 100,000-square-foot next-gen store in Tualatin, OR in Fall 2014.

Millner said that while gun legislation could impact growth in the United States, comp store growth at its Connecticut store had not slowed since state lawmakers banned the sale of hundreds of types of guns and higher-capacity clips in early April.

Millner attributed the strong performance in the Direct channel to the companys new Its In Your Nature advertising campaign, which he said generated tremendous customer response across all aspects of our business and has created a strong, emotional connection with our customers. The campaign has driven more traffic to cabelas.com, where the number of orders placed online in the first quarter increased 12 percent and the average value of orders rose 6 percent.

The growth was especially encouraging given that every new store Cabelas opens has historically cannibalized $2-$3 million in Direct sales, which have traditionally come from catalog customers.

Cabelas Financial Services revenue rose 27.8 percent to $85.8 million as growth in the average number of active credit card accounts accelerated to 10.2 percent due to retail store expansion and increases in new customers in all channels. For the quarter, net charge-offs as a percentage of average credit card loans decreased 14 basis points to 1.86 percent compared to 2.00 percent in the prior year quarter.

Millner said Cabelas expects the outperformance seen in the first quarter to flow through to full year results.