Cabela's (CAB) Q3 Earnings & Revenues Miss, Trims '15 View

Cabela's IncorporatedCAB has disappointed investors yet again with dismal quarterly numbers for the second consecutive quarter. The company reported third-quarter 2015 earnings per share of 71 cents that missed the Zacks Consensus Estimate by a couple of cents and fell 12.3% from the prior-year quarter. Following, the results the company's shares tumbled 17.3% yesterday and touched a 52-week low of $33.75 before closing at $34.48.

Cabela's Inc. - Earnings Surprise | FindTheBest

The company's lower-than expected quarterly numbers were primarily due to weakness in its fall apparel and footwear business which overshadowed robust performances of the merchandise and Cabela's CLUB businesses. Performance of the new U.S. stores, opened this year, was also disappointing. As a result, the company will slow down new store openings in the U.S. in the next two years. The company now intends to open 7 stores in 2016, sharply down from its initial forecast of 14 stores.

Nevertheless, the company has taken several cost saving initiatives to improve operational performance. These efforts will lower the operating expenses as percentage of total revenue by 75 basis points to 150 basis points in the coming three years. The cost saving endeavors includes improvement in IT process, optimum utilization of retail labor, indirect procurement, merchandise sourcing along with retail support functions and supply chain efficiencies.

The company reported total revenue of $926.5 million that also fell short of the Zacks Consensus Estimate of $975 million. However, the figure advanced about 4.6% year over year, driven primarily by retail store revenue and Financial Services revenue.

Quarterly Details

Total merchandise sales escalated 3.2% to $798.5 million in the quarter, while merchandise gross margin contracted 70 basis points (bps) owing to sluggish performance in soft goods. However, sturdy performance was witnessed in hardline categories such as powersports, firearms, and ammunition.

Cabela's retail store revenue surged 6.5% to $637.8 million, while consolidated comps dropped 4.2% owing to weakness in fall apparel, footwear and hunting categories. Moreover, U.S. comps declined 3.3% after increasing for the first time since third-quarter 2013 in the previous quarter.

Retail operating margin (as a percentage of segment revenues) contracted 170 bps to 16.4%.

Direct business revenue descended 7.9% year over year to $161.6 million owing to shift in ammunition sales to the Retail channel from the Direct channel, and weakness in apparel and footwear categories.

The segment's operating margin (as a percentage of segment revenues) contracted 130 bps to 9.1%.

Financial services revenue increased 13.3% to $123.6 million, reflecting a 20.9% jump in interest and fee income, and a 7.9% rise in interchange income. Average number of active credit card accounts increased 6.9%, while net charge-offs, as a percentage of average credit card loans, were 1.68%.

Further, segment operating margin (as a percentage of segment revenues) shot up to 34.2% in the quarter under review from 27% in the year-ago quarter.

The company's total operating income plunged 22.3% to $72.9 million, whereas operating margin contracted 270 bps to 7.9%.

Other Financial Aspects

Cabela's ended the reported quarter with cash and cash equivalents of $83.2 million, long-term debt (excluding current maturities) of roughly $787.9 million, and shareholders' equity of $1,811.8 million.

Management projected capital expenditures in the band of $425-$475 million for the full year, and cash flows from operations in the range of $275-$325 million.

By the end of the quarter under review, the company had repurchased 170,000 shares for $8 million as a part of the company's $500 million share repurchase plan.

Looking Ahead

After reporting dismal quarterly numbers, the company has revised its guidance for 2015. The company now expects revenues to improve at a high-single-digit rate, down from its previous estimate of low double-digit rate. The company envisions 2015 earnings per share will remain flat with that of 2014 of $2.88, down from the company's previous estimate of earnings growth in the high single-digit to low double-digit range.

Zacks Rank

Cabela's currently has a Zacks rank #3 (Hold). Some better-ranked stocks in the retail space are NIKE, Inc. NKE , ULTA Salon, Cosmetics & Fragrance, Inc. ULTA and Skechers U.S.A., Inc. SKX . NIKE sports a Zacks Rank #1 (Strong Buy), while ULTA Salon, Cosmetics & Fragrance and Skechers hold a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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