Cabela’s Incorporated reported record second quarter fiscal 2010 earnings. The retailer said consolidated operating income increased 62% to $30.7 million compared to $18.9 million in the second quarter of 2009.

Operating margins increased 240 basis points to 5.8% compared to 3.4% in the second quarter of 2009. Increases in operating profit were due to the strong performance of World’s Foremost Bank, higher merchandise gross margins and lower impairment and restructuring charges. For the quarter, net income increased 98% to $18.0 million, or $0.26 per diluted share, compared to $9.1 million, or $0.14 per diluted share, in the second quarter of 2009.

For the quarter, adjusted for divestitures, total revenue decreased 3.3% to $526 million; retail store revenue decreased 2.5% to $294 million; direct revenue decreased 11.7% to $172 million; and comparable store sales decreased 4.6%. Financial services revenue increased 28% to $56 million.

“We are pleased that our strong focus on improving return on capital is working,” said Tommy Millner, Cabela’s Chief Executive Officer. “This success is a result of our efforts to improve inventory productivity, expand the profitability of our retail stores and increase merchandise gross margins. While the number of transactions at retail was lower than our expectations during the quarter, we are pleased that average ticket in our retail business was up nearly 5%. For the quarter, retail profitability improved 270 basis points, return on invested capital improved 120 basis points and overall Company operating margin expanded 240 basis points. We expect these positive trends to continue for the remainder of the year.”

“Merchandise margins expanded 80 basis points to 35.9% in the quarter, the biggest increase we have seen in recent years,” Millner said. “It is particularly pleasing that margins increased in 4 of our 5 merchandise categories during the quarter. Three ongoing initiatives contributed significantly to margin expansion in the quarter: better inventory management, which reduced the need to mark down product, improvements in vendor collaboration and advancements in price optimization during the season. These broad-based improvements give us confidence that margin expansion will continue throughout this year and next.”

“We are less pleased with the revenue decrease we experienced in our direct segment, since this was primarily of our own doing,” Millner said. “We went a bit too far in our inventory reduction initiatives, which resulted in fill rates in our direct business being significantly lower than prior year. Additionally, we mailed fewer clearance catalogs in the quarter due to reduced levels of problematic inventory. Also, our direct business was impacted by a decrease in the sale of ammunition and reloading supplies. We expect the impact of these factors to largely disappear by the fall selling season.”

Exclusive of impairment and other special charges, for the quarter, net income was $19.4 million compared to $11.2 million in the second quarter of 2009 and diluted earnings per share were $0.28 compared to $0.17 in the second quarter of 2009. A detailed reconciliation is provided at the end of this release.

For the quarter, managed financial services revenue as a percentage of managed credit card loans improved 160 basis points primarily due to lower provision for loan losses, higher interchange, interest, and fee income and lower interest expense. For the quarter, average net charge-offs were 4.78% compared to 5.24% in the second quarter of 2009. This is the lowest absolute charge-off rate realized in the past year. As a result of continued favorable charge-off trends and a more favorable outlook for charge-offs for the remainder of the year, provision for loan losses for the quarter was $16.6 million. Given continued favorable trends related to charge-offs, average net charge-offs at World’s Foremost Bank are expected to be between 5.0 and 5.5% for 2010 as compared to previous guidance of 5.25 to 5.75%.

As of July 3, 2010, inventories totaled $513 million, a decrease of 13% compared to inventories of $587 million as of June 27, 2009. For the year to date period, cash flow from operations improved $73 million. Total debt as of July 3, 2010, was $383 million compared to $490 million as of June 27, 2009, a decrease of $107 million or 22%.

“We are pleased with our continued progress controlling costs, driving operational excellence, strengthening our balance sheet and increasing Cabela’s brand loyalty through the operations of World’s Foremost Bank,” Millner said. “Given our strong second quarter results, we expect earnings per share for 2010, exclusive of impairment and other special charges, to meet or exceed current expectations.”



(Dollars in Thousands Except Earnings Per Share)



Three Months Ended Six Months Ended
July 3, June 27, July 3, June 27,
2010 2009 2010 2009
Merchandise sales $ 465,491 $ 501,145 $ 959,527 $ 1,002,023
Financial services revenue 56,488 44,129 116,472 78,023
Other revenue   3,991     3,962     9,581     8,730  
Total revenue   525,970     549,236     1,085,580     1,088,776  
Total cost of revenue (exclusive of depreciation and amortization) 299,649 326,060 629,084 652,374
Selling, distribution, and administrative expenses 193,818 192,536 408,054 391,758
Impairment and restructuring charges   1,834     11,692     1,834     13,370  
Operating income 30,669 18,948 46,608 31,274
Interest expense, net (5,671 ) (6,054 ) (11,125 ) (11,888 )
Other non-operating income, net   1,786     1,654     3,524     3,700  
Income before provision for income taxes 26,784 14,548 39,007 23,086
Provision for income taxes   8,760     5,425     12,892     8,835  
Net income $ 18,024   $ 9,123   $ 26,115   $ 14,251  
Basic earnings per share $ 0.27   $ 0.14   $ 0.39   $ 0.21  
Diluted earnings per share $ 0.26  

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