Despite a low-teens increase in third quarter revenues, diminishing customer traffic and a volatile retail environment kept comps for Cabela’s Inc. in the red for the third quarter ended Sept. 27. The outdoor retailer reported comps were down 9% for the quarter, while total revenue increased 11.9% to $611.8 million. Increased sales were largely due to new revenue generated by two new stores.



 

 

Management for Cabela’s said that while customers had clearly “traded down” for lower-priced value items and merchandise, average ticket totals at comp stores were consistent with the year-ago period.

Despite the introduction of four new catalogs during the quarter, direct sales for the third quarter dipped 0.3% to $241.1 million from $241.9 million reported in the year-ago period.  Management said sales held up in the Central and Northeast regions of the country, but that direct sales suffered in areas where the company had recently opened new stores. 


Management remains very optimistic about the company’s e-commerce site, which generated twice as much traffic as the company’s closest competitor. Revenue reports specific to Internet sales are not supplied by Cabela’s.


The retail business, which the company said is the “largest and fastest growing segment,” generated $328 million for the quarter, a 27.5% increase from last year’s third quarter.  As mentioned, the third quarter increase was generated by the addition of two new stores. Cabela’s has plans to open two more stores during fiscal 2009.


To boost retail sales, Cabela management said the company was improving labor productivity by streamlining the flow of goods into stores and managing store staffing levels. In early October, Cabela’s cut approximately 140 jobs in its corporate HQ located in Sydney, NE.


Financial services revenue, impacted by higher charge offs and lower net interest spreads, were down 6.4% from the year-ago period. Management said the company would continue to closely monitor delinquencies and charge offs, but maintained that Cabela’s only saw a slight increase in bad debts for the quarter.


SG&A expenses declined 140 basis points as a percentage of net sales to 35.1% for the quarter from 36.6% last year. Operating income for the quarter was $20.8 million, a 14% decrease from $24.3 million reported in the year ago period.


Inventories decreased $20.4 million from the year-ago quarter and management expects to show “significant improvements” in inventory levels as the anniversaries of 2007 store openings approach. Despite the opening of two new stores in 2008, Cabela’s expects to end the year with slightly less inventory than at the end of 2007.


Citing economic weakness, Cabela’s adjusted its guidance for 2008. The company is now expecting high-single-digit revenue growth as compared to previous guidance for mid-teens growth. Comp declines, originally projected to be -5% to -7%, have been adjusted to a decline of -7% to -10%.  Bad debt levels are expected to be between 2.9% and 3%, as opposed to the original projection of 2.7% to 2.9%.


“We head into the fourth quarter fully cognizant of the current environment and its potential impact on the upcoming holiday selling season,” said Dennis Highby, president and CEO. “Therefore, we believe it is prudent to adopt a more conservative outlook.”