Cabela's Inc (CAB)

CAB 
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Cabela's (CAB)

Q1 2011 Earnings Call

April 28, 2011 11:00 am ET

Executives

Chris Gay - Director of Treasury & Investor Relations and Treasurer

Thomas Millner - Chief Executive Officer, President and Director

Ralph Castner - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Chairman of World's Foremost Bank

Analysts

Reed Anderson - D. A. Davidson

David Magee - SunTrust Robinson Humphrey, Inc.

Rick Nelson - Stephens Inc.

Christian Buss - ThinkEquity LLC

Jonathon Grassi - Longbow Research LLC

Mark Smith - Feltl and Company, Inc.

Jim Duffy - Stifel, Nicolaus & Co., Inc.

Presentation

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cabela's Inc. First Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Chris Gay, Director, Treasury and Investor Relations. Please go ahead, sir.

Chris Gay

Thank you. 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 www.cabelas.com. With me on today's call are Tommy Millner, Cabela's Chief Executive Officer; and Ralph Castner, Cabela's Executive Vice President and Chief Financial Officer.

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.

Additionally, this conference call will include certain non-GAAP financial measures. Please refer to our earnings release and website to find reconciliations of these non-GAAP financial measures to GAAP. Now I will turn the call over to Tommy Millner, Cabela's Chief Executive Officer.

Thomas Millner

Thank you, Chris, and good morning, everyone. We're pleased to report our strong first quarter financial results which validates that our strategies are working, as we realized exceptional results in retail revenue growth and segment profitability, record performance at our Cabela's CLUB Visa program, strong consolidated gross margin results and increases in market share, all of which led to further increases in one of our vitally important metrics, after-tax return on invested capital.

During the quarter, we made investments in our business to include additional outfitters in our retail stores, technology infrastructure in IT, new store preopening investments in the United States and Canada and existing store remodels. These investments continue a trend which began in the fall of last year. We are very pleased these investments are driving improvements in customer satisfaction, accelerating comparable store sales increases and growing market share.

In addition to our 8.9% comparable store sales increase in the quarter, every store in our comp base showed sales increases in the quarter, a first for our company. Additionally, we realized gains in 12 of 13 product categories during the quarter, with the strongest growth coming from firearms, women's and children's, and hunting apparel. We are particularly pleased with the results in women's and children apparel. And I'd like to provide a little color on what we've done with this category.

As you may recall, last year, we integrated our customer personas into our merchandise assortment strategies and totally revamped our women's and children's category. We refined the assortment, focusing on our core customer base and eliminated periphery product that did not fit in our core assortment, and the results have been very strong.

Another example of investments we've made is at our firearms counter. With the recent remodel in our Owatonna store, we developed a new innovative display for certain firearms, which do not require as much outfitter interaction. We brought these firearms out from behind the counter, providing more of a self-service aspect, allowing an outfitter to serve multiple customers at a time. And it provides our outfitters behind the counter a greater ability to spend more time with customers on higher end or specialty firearms. Again, this has had a dramatic impact on sales.

We are very pleased that Retail segment profitability increased for the eighth consecutive quarter to 11.6%. Again, a first quarter record. Our unique integrated business model with the Cabela's CLUB Visa program continues to attract loyal customers and provide Cabela's with a segment profit expansion.

Subsequent to the quarter, we opened our first store of 2011 in Allen, Texas to a crowd of several thousand customers. This 100,000 square-foot next-generation store will significantly increase our market share in the important Dallas/Fort Worth market. We're also looking forward to opening our second store of the year in Springfield, Oregon next week. This store, our first in Oregon will anchor the West side of Gateway Mall and is also one of our next-generation store formats. We are very excited to open a store in this great market.

Now let's look at our Cabela's CLUB Visa program which had an exceptional quarter, as we saw acceleration in account growth, lower funding cost and significant improvements in delinquencies and net charge-offs. For the quarter, average active accounts increased nearly 8%. This is the largest increase we've seen in the past 6 quarters.

In addition to accelerating account growth, we also realized significant improvements in net charge-offs, which are at the lowest levels we've seen in 3 years. These favorable performance metrics, combined with improved funding cost, boost our confidence that our Cabela's CLUB Visa program will continue to have a great year.

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