Cabela's Inc (CAB)

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Cabela’s Inc. (CAB)

Q4 2008 Earnings Call

February 19, 2009 4:30 p.m. ET


Chris Gay – Treasurer and IR Manager

Dennis Highby – President and CEO

Ralph W. Castner – VP and CFO

Patrick A. Snyder – SVP of Merchandising, Marketing and Retail Operations

Brian J. Linneman – SVP of Global Supply Chain and Operations


Rick Nelson – Stephens Incorporated

Reed Anderson – D. A. Davidson

Mitch Kaiser – Piper Jaffray

Paul Lejuez – Credit Suisse

Reed Anderson – D. A. Davidson

Jim Duffy – Thomas Weisel Partners

David Cumberland – Robert Baird

Bob Simonson – William Blair



Good afternoon, ladies and gentlemen and thank you for standing by. Welcome to the Cabela's Incorporated fourth quarter and fiscal 2008 year’s end earnings conference call. (Operator instructions).

I will now like turn the conference over to Mr. Chris Gay, Treasurer and Investor Relations Manager. Please go ahead sir.

Chris Gay

Thanks, good afternoon. I welcome everyone listening today both on the conference call and by web cast. A replay of today’s call will be archived on our website at Leading our call today will be Dennis Highby, our President and Chief Executive Officer. Also joining us this afternoon is Ralph Castner, our Vice President and Chief Financial Officer; Pat Snyder, Senior Vice President of Merchandising, Marketing and Retail Operations and Brian Linneman, Senior Vice President of Global Supply Chain Operations.

This conference call will include forward-looking statements. Statements are made on a basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from those statements. For information about certain factors that could cause such differences, investors should consult our annual reports on Form 10-K and quarterly reports on Form 10-Q filed at the Securities and Exchange Commission and available on our website including the information set forth under the captions “Risk Factors” and special note regarding forward-looking statements. Now let me provide a summary of our fourth quarter results.

Consolidated revenues for the quarter were $879.4 million as compared to $889.5 million in the year ago quarter. For the quarter, retail revenue increased 6.9% to $429.5 million. For the quarter, comparable store sales increased 2.2%. For the quarter, direct revenue was $410.4 million compared to $446.9 million in the year ago quarter. For the quarter, financial services revenue increased 0.7% to $38.1 million, and diluted earnings per share for the quarter was $0.74.

Fourth quarter results benefitted by $8.7 million from a change in accounting for breakage of gift instruments, this was partially offset by $5.8 million of charges related to severance cost, goodwill and other asset impairments and a pre-payment penalty associated with our pre-payment of $26 million of debt.

Now I'll turn the call over to Dennis Highby, our President and Chief Executive Officer.

Dennis Highby

Thanks Chris. Our fourth quarter results demonstrate the power of our profitable multi-channeled model. The strength of Cabela’s brand and our ability to capture market share in a considerable traction we’re realizing and our efforts to reduce cost and carefully manage inventory levels. During the quarter our merchandise strategy was to take market share, increase inventory turns, and improve cash flow. The strategy put a particular focus on firearms and related accessories, which resulted in a 2.2% increase in same store sales for the quarter. Ralph will provide a comprehensive review of our fourth quarter results shortly; however we’re very pleased with our ability to guide positive accounts to our sales, tightly controlled inventory levels, generate record cash flow from operations, reduced debt levels and further streamline our retail operations during the quarter.

I’ll now highlight some of the many accomplishments we had during the year, which provide a strong foundation for future growth.

First was our focus on tightly managing inventory levels. Inventory levels decreased 15% or $90 million to $518 million at the end of 2008 as compared to $608 million at the end of 2007. We believe this improvement is sustainable and there continues to be opportunity to inventory levels in 2009.

Second, cash flow from operations improved significantly in 2008. During the year on a consolidated basis we generated cash flow from operations of $155 million as compared to $32 million in 2007. We believe this is a sustainable level of cash flow from operations well into the future.

Because of our exceedingly strong cash flows, we prepaid $26 million of outstanding debt at the end of the fourth quarter. This debt repayment along with a lower outstanding balance in our revolving line of credit, allowed us to exit 2008 with less debt than we had a year ago. After this debt repayment, our lease adjusted debt to total capital is 32%. This gives us one of the strongest balance sheet in the retail industry, making us much better prepared to weather this economy storm than most of our competitors.

Third, visits to our internet website increased 32% in 2008 and our website was once again the most visited e-commerce website in the sporting goods industry. For 2008 Cabela’s had more than twice the traffic of our next closest competitor. In fact of America’s largest retail websites, Cabela’s ranks in the Top 40 in annual sales regardless of the industry. For 2008, internet revenue increased 8.2%.

Fourth, we have several improvements in our retail operations including high leverage ticket in our customer base, improved customer service levels across our entire store base and improve labor as a percent of sales.

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