Cabela's Q2 Earnings Beat on Cost Cuts and Next Gen Stores - Analyst Blog

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A continued robust performance by the company's next-generation stores, effective cost management and sustained growth at its CLUB Visa program helped Cabela's Incorporated ( CAB ) post better-than-anticipated results yesterday. Second-quarter 2014 earnings of 61 cents per share came way ahead of the Zacks Consensus Estimate of 51 cents a share but fell a penny below the prior-year quarter earnings figure.

Cabela's Incorporated - Earnings Surprise | FindTheBest

Moreover, the quarterly earnings came above the company's guidance range of 45-55 cents per share. Share price rose 2.2% on the index following the announcement.

Going forward, the company expects the momentum witnessed in the quarter to continue, although it might get marred by the sluggish macroeconomic environment. As a result, Cabela's reiterated its full-year guidance. For the third quarter of 2014, management expects earnings in the range of 80-90 cents per share, while for the full year 2014 it reaffirmed earnings growth in the high single-digit/low double-digit rate as against $3.32 recorded in 2013.

Total revenue comprising retail, direct and financial services revenues increased 0.6% from the year-ago quarter to $761.2 million but fell short of the Zacks Consensus Estimate of $772.0 million. Weakness in sales of ammunition, firearms and other shooting related categories has started to normalize and it is expected to continue in 2014. As a result, Cabela's expects its revenues to grow in the high-single-digit to low-double-digit rate in the third quarter.

Quarterly Details

Total merchandise revenue, including retail and direct revenues, declined 2.5% to $646.9 million in the quarters. Merchandise margins contracted 70 basis points (bps) to 37.0% due to an adjustment pertaining to segmental reimbursement of operating and promotional costs.

Cabela's retail store revenues increased 3.4% to $500.4 million while comparable-store sales (comps) declined 14.2%. Retail profitability (as a percentage of segment revenues) expanded 110 bps to 19.9%.

Direct business revenues fell 18.3% year over year to $147.1 million. Also, segment margin (as a percentage of segment revenues) contracted 70 bps to 16.4%.

Financial services revenues rose 23.5% to $109.4 million, driven by increase in number of average active accounts. Credit card charge-offs as a percentage of average credit card loans for the quarter fell to 1.7%. Moreover, delinquencies improved while active average credit card accounts increased 7.7%.

Other revenues rose 2.5% year over year to approximately $4.3 million.

Total operating income increased 7.6% to $72.0 million while operating margin expanded 70 bps to 9.5%.

Store Update

In the reported quarter, Cabela's opened 7 stores, one each in Greenville, SC; Anchorage, ALK; Christiana, DE; Woodbury, MN; Lubbock, TX; Missoula, MT; and Manning, Alberta. For the rest of 2014, the company has plans to open 6 additional stores, of which, the one in Barrie, Ontario was opened 2 weeks ago. Rest of the stores are to open in Acworth, GA; Cheektowaga, NY; Tualatin, OR; Nanaimo, British Colombia; and Bowling Green, KY.

Over the long-run, the company sees possibility of opening 200 stores across North America.

Other Financial Aspects

Cabela's ended the quarter with cash and cash equivalents of $133.8 million, long-term debt (excluding current maturities) of $547.7 million and shareholders' equity of $1,684.4 million. During the quarter, the company's cash flow from operations was $47 million as compared with $183 million in the year-ago quarter end.

For 2014, management expects capital expenditures in the range of $400-$450 million owing to its store expansion plans. Further, cash flow from operations is expected to be approximately $300-$350 million.

Other Stocks to Consider

Currently, Cabela's has a Zacks Rank #3 (Hold). Better-ranked retail stocks worth considering include Barnes & Noble Inc. ( BKS ), Five Below, Inc. ( FIVE ) and Marinemax Inc. ( HZO ). All these carry 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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