Cabela’s Slowed by Cooler Weather in Q1…

Cabela's Inc. said cooler than normal weather put the chill on sales gains during the first quarter. The outdoor retailer said it expects results to be above its long-term, mid-teens growth objectives for the remaining three quarters of the year, enabling the company to still hit its revenue and earnings growth targets for the full year.

The retail sales gain for the quarter reflects four new store openings in 2006. Same-store sales declined just under one percent, and were negatively impacted by severe weather that led to road closures primarily in its Northern stores. On a conference call with analysts, Pat Snyder, SVP of merchandising, said both its apparel and firearms categories were “very strong” in the quarter, although fishing was “a little soft” due to colder weather in the latest quarter versus a year ago.

“Mother Nature wasn't very good to us in the first quarter,” Dennis Highby, CEO and president, said on the call.

In the Direct segment, circulation of catalog pages increased modestly and Internet business increased nearly 27%. Catalog costs as a percent of direct revenue were 14.9% in the quarter compared to 14.5% in the year-ago period.

The bottom line decline reflects additional fixed costs, such as increased depreciation, timing differences in recording incentive compensation expense, incremental pre-opening costs related to its Hazelwood, Mo. store and increased interest expense. Cabela's said the results were consistent with its targets, and it feels very comfortable with its mid-teens growth profit target for 2007.

Overall gross margin, like the merchandise margin, dipped slightly to 39.8% from 40.1% in the same quarter a year ago. Cabela's attributed the declines in net income to lower gross margins in its direct segment, higher equipment and software expense, and higher catalog costs as a percent of revenue. These increased costs were partially offset by increases in the marketing fee paid to the direct segment from its financial services segment and reduced professional fees.

Cabela's said it remains on track to open a total of eight new stores in 2007, including its 19th store in Hazelwood, Mo., a suburb of St. Louis, which opened on April 13. Hoffman Estates, Ill., is slated to open late in the third quarter, followed by East Hartford, Conn.; Gonzalez, La.; Hammond, Ind. and Reno, Nev. – all expected to open early in the fourth quarter. Post Falls, Ida.; and Lacey, Wash. are expected to open in the middle of the fourth quarter.

On the call, Highby was particularly enthusiastic about several moves beginning in January of 2008 to further integrate the retailer’s multi-channels. These plans include enabling catalog and Internet customers to order merchandise off-site and pick up at a store, as well as installing catalog order desks and Internet order kiosks in stores.

“From an operational and merchandising prospective we're excited about the changes, as we believe they represent a significant opportunity to increase store productivity and create additional growth in our direct sales channel,” said Highby. “Plus this initiative will help us further meet our customers' convenience and service expectations.”

Snyder also said Cabela's finished its replenishment initiative and has gone live with the DC-to-store phase, the vendor-to-the-store phase and vendor-to-the-DC phase.

“We will start to see the benefits of that towards the end of the [Q4] of this year and then probably more into next year,” said Snyder.