New Stores Boost Cabela’s First Quarter…

Cabela’s Inc.’s increased retail presence more than offset declines in its direct business during the first quarter of 2006 bringing double-digit revenue increases and strong earnings gains in spite of a slight comp store sales decline. The four new stores opened in 2005 were said to be performing well, including the two Texas locations that were called out as slow in Q4 last year. Management said the Texas stores are improving and they are “excited” about the Rogers, Minn. store, and the Lehigh, Utah store is taking market share.

Nearly Cabela’s entire comp store sales decline was caused by the company’s Owatonna, Minn. store, which is being cannibalized by the strong grand opening of the Rogers location. Without Owatonna in the mix, Cabela’s comps would have increased 1.9%. The shift in the Easter weekend, which moved to Q1 this year from Q2 in 2005, had roughly a positive 1% impact to comparable store sales in the first quarter of 2006 due to the extra day of operation on Easter Sunday.

Cabela’s has implemented several initiatives that include steps to improve comp store sales with aggressive internal goals. These initiatives include continuing to increase the average ticket, increase sales training, improve advertising, and improve retail in stock position.

Direct revenue declined primarily because of a particularly successful promotion that took place during the first quarter of last year that had driven Q1 revenues up 11% versus the prior year. This year was less promotional, pushing margins up but negatively impacting the top-line. In spite of the margin gains, CAB was not able to able to leverage catalog costs to the same degree as last year. Catalog costs as a percent of direct revenue were 14.5% in the first quarter of 2006 compared to 13.7% in the year-ago period. CAB management said they have been reviewing the Q1 results carefully, and their internal projections continue to call for 5% growth in the direct business. Gross margins increased slightly, due primarily to less promotional activity in the quarter.

Cabela’s made three changes in the way it records revenues in its credit card subsidiary, World’s Foremost Bank. The first is that WFB will increase the amount it pays to merchandising business for merchandise purchased by its customers using reward points. This change has the effect of reducing revenue in the financial services segment and increasing revenue in the merchandising segments. The other two changes involve fees paid between WFB and CAB merchandising. Both of these changes do not impact revenue, but have the effect of increasing operating expenses in the financial services segment and decreasing operating expenses in the merchandising segment.

Inventories rose 20% as a result of the four new stores. Due to the implementation of a new replenishment system, the company expects to see inventory growth slow relative to revenue growth.

Cab said it is seeing some impact from the recent increase in gas prices. Management said that in-store traffic has been slightly lower, but this is more than offset by increased average transaction totals. Nonetheless, Cabela’s management said that they remain “very confident” that the company will achieve the mid teens growth objectives for both revenue and earnings per share.

Cabela’s will be opening four stores in 2006 and eight in 2007. Glendale, Ariz. will be the first store to open this year in late July or early August, followed by Boise, Ida. in late August. Richfield, Wisc. will open in October followed by La Vista, Neb. which is expected to open in time for Thanksgiving.