Cabela's Inc (CAB)

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Cabela's (CAB)

Q3 2012 Earnings Call

October 25, 2012 11:00 am ET


Chris Gay - Director of Treasury & Investor Relations and Treasurer

Thomas L. Millner - Chief Executive Officer, President and Director

Ralph W. Castner - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Reed Alan Anderson - Northland Capital Markets, Research Division

N. Richard Nelson - Stephens Inc., Research Division

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

Seth Sigman - Crédit Suisse AG, Research Division

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

James Andrew Chartier - Monness, Crespi, Hardt & Co., Inc., Research Division

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

Lee J. Giordano - Imperial Capital, LLC, Research Division

Mark E. Smith - Feltl and Company, Inc., Research Division

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Aaron Goldstein - JP Morgan Chase & Co, Research Division



Good morning, ladies and gentlemen, Welcome to the Cabela's Inc. Third Quarter Fiscal 2012 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

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 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 may include certain non-GAAP financial measures. Please refer to our 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 L. Millner

Thanks, Chris, and good morning, everyone. Our record third quarter financial results validate that our growth strategy is working well, and our new next-generation stores are performing well above our legacy destination store base.

For the quarter, we realized strong growth in comp store sales, higher merchandise and operating margins, strong growth in our Cabela's CLUB Visa program and very strong performance from our next-generation stores. This strong performance led to record third quarter earnings and further increases in return on invested capital.

We are particularly pleased with the very strong performance we're seeing from our next-generation stores. Several quarters ago, we noted that our next-generation stores at that time were outperforming our legacy stores on a sales per square foot and profit per square foot basis by 30% to 40%. As we continue to open additional next-generation stores, this outperformance has only improved.

For the 8 next-generation stores that were open for the entire quarter, sales and profit per square foot are meaningfully better than the 30% to 40% we noted last year. This is extremely encouraging as we continue to accelerate retail store expansion.

Additionally, our next-generation stores are performing better than our legacy stores as they enter the comp base. In the quarter, our next-generation stores had comp store sales several hundred basis points higher than our existing store base.

For 2013, we expect to open 6 domestic next-generation stores, one Canadian next-generation store and 2 Outpost stores. Additionally, we will be relocating our existing 45,000 square foot Winnipeg store to a more desirable location and have increased the size to 70,000 square feet. We have announced all our next-generation store locations for 2013.

Our scheduled store openings for 2013 represent a 13% growth rate in Retail square footage. Current plans call for opening 2 next generation and one Outpost store in the first quarter, one next generation and the Winnipeg relocation in the second quarter and 4 next-generation stores and one Outpost store in the second half of the year.

As a result of the strong new store performance, we are accelerating square footage growth as we plan for 2014. For 2014, we now expect to open 8 domestic next-generation stores. We have already announced 3 of these sites: Anchorage, Alaska; Bristol, Virginia; and Christiana, Delaware. Four new locations were approved at or prior to this month's board meeting, and we intend to publicly announce the specific locations over the next several months. The final location is still being reviewed and is expected to be approved shortly.

In addition to our domestic next-generation stores, we are also pursuing additional opportunities in Canada. Canada is proving to be a great market for Cabela's. Our 3 Canadian stores continue to be some of our best-performing new stores. For 2014, we are searching for new locations for our next-generation stores.

Three weeks ago, we opened our first Outpost store in Union Gap, Washington, which was a huge success, with thousands of people waiting to shop the store on grand opening day. While still early, the results from this store are extremely encouraging. We are particularly pleased that due to the emphasis on softgoods and Cabela's branded products, merchandise margin is several hundred basis points higher than consolidated merchandise gross margin. Customer feedback has been overwhelmingly positive, and we are already planning enhancements for our future Outpost stores.

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