We reiterate our long-term Outperform recommendation on
), one of the leading specialty retailers and direct marketers of
hunting, fishing, camping, and related outdoor merchandise, with a
price target of $40.00.
The Company Counts Upon
Cabela's next generation store format, multi-channel strategy
and seasonal product assortments enable it to focus on increasing
its stores' productivity and sales per square foot while lowering
Cabela's multi-channel model facilitates consumers to purchase
directly from retail stores or order products through catalog and
Internet channels, and have them delivered to the retail store of
their choice, without incurring shipping costs. This multi-channel
approach gives the company an advantage over its competitors.
Cabela's remains confident about its improving balance sheet
with the long-term return on invested capital expected to range
from 12% to 14%. The new store model of standard sizes requires
less capital investment and enhances store productivity.
The company's Financial Services Business segment plays an
integral part in supporting the merchandising business by
encouraging customers through a loyalty rewards program.
Eventually, it leads to increases in revenues, profitability and
customer retention at its Retail and Direct businesses, and in turn
overall growth in sales and earnings.
Store Expansion Strategy
In order to capitalize on the under-penetrated markets, the
company unveiled its new 'Outpost' store format spanning 40,000
square feet that adopts a "core-flex" merchandise strategy
(selected core assortment of products and flexible seasonal
The company also expects to accelerate its retail square footage
growth plans by opening 5 next generation stores (4 in the U.S. and
1 in Canada) during fiscal 2012, along with its first 'Outpost'
store, in Union Gap, Washington. This increases the retail square
footage by approximately 10%.
The company has already opened two next-generation stores in
Wichita, Kansas and Tulalip, Washington, and will open three more
next-generation stores in Rogers, Arkansas; Charleston, West
Virginia; and Saskatoon, Saskatchewan.
In fiscal 2013, the company expects to open next generation
stores and Outpost stores, which will result in retail square
footage growth of 11% to 13%. During fiscal 2011, the company
opened 3 next generation stores (2 in the U.S. and 1 in
Efforts Reaping Results
Cabela's delivered solid first-quarter 2012 results, backed by
healthy performance at retail stores, strong growth at the
financial services division, elevated merchandise gross margin and
lower expenses. The quarterly earnings of 40 cents a share exceeded
the Zacks Consensus Estimate of 33 cents and jumped 60% from 25
cents earned in the prior-year quarter.
Total revenue, comprising retail, direct and financial services
revenues, increased 6.3% year over year to $623.5 million,
surpassing the Zacks Consensus Estimate of $621 million.
Merchandise gross margin expanded 150 basis points to 34.5%
during the quarter. Management reiterated its long-term goal of
increasing the margin by 200-300 basis points.
The above analysis supports our unbiased view, and advocates our
bullish stance on the stock, which is well defined through our
Zacks #2 Rank that translates into a short-term Buy rating.
Boasting of a sturdy balance sheet, feasible strategy and operating
efficiencies, Cabela's, which competes with
Wal-Mart Stores Inc.
), offers investors one of the strongest growth profiles.
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