Cabela's Inc (CAB)

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Cabela's Incorporated (CAB)

Q2 2009 Earnings Call Transcript

July 30, 2009 11:00 am ET


Chris Gay – Treasurer and IR Manager

Tom Millner – President and CEO

Ralph Castner – VP and CFO

Pat Snyder – SVP Merchandising, Marketing, and Retail Operations


Rick Nelson – Stephen's

Reed Anderson – D.A. Davidson

Jim Duffy – Thomas Weisel Partners

Kristine Koerber – JMP Securities

Mark Smith – Feltl and Company

Paul Lejuez – Credit Suisse



Good morning, ladies and gentlemen, thank you for standing by. Welcome to the Cabela's Incorporated Second Quarter Fiscal 2009 Earnings Call. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. (Operator instructions). I will now like to remind everyone that this conference call is being recorded.

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

Chris Gay

Good morning. 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

With me on today's call are Tommy Millner, Cabela's Chief Executive Officer, and Ralph Castner, Cabela's Vice President and Chief Financial Officer. Tommy and Ralph, each have prepared comments related to second quarter operating results. Additionally Pat Snyder, Senior Vice President of Merchandising and Marketing and Brian Linneman, Senior Vice President of Global Supply Chain and Operations will be available during the question and answer portion of the call.

This conference call will include forward-looking statements. These statements are made on the 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 report on Form 10-K and quarterly reports on Form 10-Q filed with 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 on to the financial results. Consolidated revenues increased 4.4% in the quarter to $549 million. Retail revenue increased 10.2% to $302 million as compared to $273 million in the year-ago period. The increase in retail revenue was primarily due to a comparable store sales increase of 6.1%. Direct revenue decreased 3.6% to $200 million as compared to $207 million in the year ago quarter. As you know, we measure the growth in direct sales relative to direct marketing costs.

During the quarter we reduced direct marketing costs 10.1%. Direct marketing costs as a percent of direct revenue decreased to 13.0% as compared to 14.0% in the year ago quarter. Revenue increases were driven by continued strength in our hunting category as we continue to see significant demand for hunting equipment. Financial services revenue increased 15.4% to $44 million as compared to $38 million in the year ago quarter. The increase in financial services revenue was due to higher interest and other fee income and by an increase in the evaluation of our residual interest in credit card receivables.

During the quarter, we recorded $11.7 million pretax non-cash charge related to the write-down of land. This was partially offset by an $8.5 million pre-tax benefit and an increase in the evaluation of our residual interest in credit card receivables. Diluted earnings per share for the quarter increased 27% to $0.14 as compared to $0.11 in the year ago quarter. I would like to point out that due to a restructuring of legal entities in the second quarter last year, the effective income tax in the second quarter of 2008 was 17.8% compared to the 37.3% tax rate expense in the second quarter of this year.

Now I'll turn the call over to Tom Millner, Cabela's Chief Executive Officer.

Tom Millner

Thank you, Chris, and good morning, everyone. Since joining Cabela's as CEO nearly four months ago, we have continued to re-emphasize our ongoing efforts to improve operating efficiencies, control costs, and strengthen our balance sheet, the results of which are evident over the last three quarters. We're pleased with the comparable store sales increase of 6.1%. This is our third consecutive quarter of positive comparable store sales, an encouraging trend after a very challenging 2008. For the quarter, in our comp stores, average ticket increased 3.3% and transactions increased 2.6%.

Operating margins in our retail segment increased 310 basis points to 11.3% as compared to 8.2% in the same quarter a year about as we reduced labor costs and improved advertising efficiency. For the quarter, labor as a percent of retail revenue decreased 140 basis points. Improvements in labor productivity have been driven by enhancements in several areas, including more streamlined flow of goods to our retail stores and better management of retail staffing levels. Our customer surveys scores, which we call voice of the customer, continue to improve with customer satisfaction consistently coming in and more than 90%.

Additionally, retail advertising as a percent of retail revenue improved 50 basis points as we significantly improved advertising sales lift. Improvements in advertising were due to better targeting of ad flyer distribution, more effective broadcast placement, and improvements in print advertising contracts. And there are many more opportunities to continue to improve operating efficiencies in our retail stores. Let me name just a few.

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