Cabela's Inc (CAB)

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Cabela's Incorporated (CAB)

Q3 2009 Earnings Call Transcript

October 27, 2009 11:00 am ET


Chris Gay – Treasurer and IR Manager

Tommy Millner – President and CEO

Ralph Castner – VP and CFO, and Chairman of World’s Foremost Bank


Tracy Kogan – Credit Suisse

Reed Anderson – D.A. Davidson

Chris Horvers – J.P. Morgan

David Magee – SunTrust Robinson Humphrey

Peter Keith – Piper Jaffray

Jim Duffy – Thomas Weisel Partners

Mark Smith – Feltl and Company

Kristine Koerber – JMP Securities

Derek Leckow – Barrington Research



Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cabela's Incorporated third 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 would now like to remind everyone that today’s conference is being recorded.

At this time, for opening remarks and introductions, I’ll turn the conference over to Mr. Chris Gay, Treasurer and Investor Relations Manager. Please go ahead.

Chris Gay

Good morning. I welcome everyone listening today, both on the conference call and by webcast. 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 had prepared comments related to third quarter operating results. Also joining us on the call today are Pat Snyder, Senior Vice President of Merchandising and Marketing, and Brian Linneman, Senior Vice President of Global Supply Chain and Operations.

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. For the quarter, consolidated revenues increased 2% to $624 million. Retail revenue increased 6.1% to $348 million that’s compared to $328 million in the year-ago quarter. The increase in retail revenue was primarily due to a comparable store sales increase of 3.5%. Direct revenue decreased 6.2% to $226 million as compared to $241 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 15.1%. Direct marketing costs as a percent of direct revenue decreased to 13.6% as compared to 15.1% in the year-ago quarter. Financial services revenue increased 15% to $48 million as compared to $42 million in the year-ago quarter. The increase in financial services revenue was due to higher interest and other fee income.

For the quarter, consolidated operating income increased 53.1% to $32 million as compared to $21 million in the year-ago quarter. (inaudible) consolidated operating income were a result of improvements in direct marketing expenditures, better utilization of labor and improved advertising performance. When compared to the prior year quarter, these three items combined accounted for $13 million of expense savings in the quarter. Diluted earnings per share for the quarter increased 86.7% to $0.28 as compared to $0.15 in the year-ago quarter.

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

Tommy Millner

Thank you, Chris. And good morning, everyone. We are pleased to report record third quarter results, which reflect the progress we are making in our areas of strategic focus. These areas of strategic focus are, first, improve retail profitability; second, increase returns on capital through increased profitability and a keen focus on improving our balance sheet; and finally, increase profitability at World’s Foremost Bank while preserving brand loyalty of our cardholders.

We are encouraged with the improvements we realized in these initiatives during the quarter. It is important to note we will have many more opportunities to streamline our operations and better manage our balance sheet to further improve results for years to come. With regard to improving retail profitability, we are pleased with our comp store sales increase of 3.5%. This is our fourth consecutive quarter of positive comparable store sales. For the quarter, average ticket increased 3.4% in our comp stores.

Operating margins in our retail segment increased 240 basis points to 11.6% as compared to 9.2% in the same quarter a year ago, as we improved labor utilization and advertising efficiency. Improvements in labor productivity are due to more streamlined flow of goods to our retail stores and better management of retail staffing levels among other things. These enhancements have allowed us to better allocate labor in our stores.

Our percentage of non-selling labor to selling labor continued its favorable trend, and we have been improving our full-time to part-time labor mix as well. The result is that labor as a percent of retail revenue decreased 120 basis points in the quarter. Improvements in advertising were due to better targeting of ad flyer distribution and increased advertising efficiency. Retail advertising as a percent of retail revenue improved 110 basis points as we significantly improved advertising sales lift.

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