Cabela's Misses on Q4 Earnings - Analyst Blog

In spite of a strong performance by the company's next-generation stores and sustained growth at its CLUB Visa program, Cabela's Incorporated (CAB) posted lower-than-anticipated results. The fourth quarter 2013 adjusted earnings of $1.32 per share missed the Zacks Consensus Estimate of $1.41 but rose 5.6% year over year. Shares declined nearly 8%.

Including one-time items, earnings per share came in at $1.12, up nearly 18% year over year.

For the full year 2013, earnings per share came in at $3.32, missing the Zacks Consensus Estimate of $3.42 but up 22.1% year over year. Including one-time items, earnings came in at $3.13 per share, up 29.3% year over year.

Persistent declines in firearms and ammunitions sales, along with the weak holiday season, were the primary reasons behind the miss.

Adjusted total revenue comprising retail, direct and financial services revenues increased 4.9% year over year to $1,189.1 million but fell short of the Zacks Consensus Estimate of $1,206 million. For the full year, adjusted revenues came in at $3,596.4 million, up 15.1% year over year but fell short of the Zacks Consensus Estimate of $3,613 million.

For the first quarter of 2014, management expects earnings to be in the range of 32–42 cents while for the full year 2014 earnings are expected to grow at high single-digit/low double-digit rate as against $3.32 recorded in 2013. For full year, the tax rate is anticipated to be in the band of 33.0%-34.0%.

Quarterly Highlights

Total merchandise revenue, including retail and direct revenues, rose 3.1% to $1,081.1 million in the quarter, while merchandise margins expanded 40 basis points (bps) to 36.6%. The growth was primarily driven by favorable shift in product mix on account of lower sale of arms and ammunition and increased sale of soft goods.

Cabela's retail store revenues increased 7.3% to $711.8 million, driven by strong performance of the company's new next-generation stores along with strategic merchandise and inventory planning. Retail profitability (as a percentage of segment revenues) contracted 80 bps to 20.9%.

Comparable-store sales (comps) decreased 10.1%. Comps are expected to decline 20% in the first quarter of 2014 due to waning arms and ammunition sale.

Direct business revenues fell 4.1% year over year to $369.7 million. Also, segment margin (as a percentage of segment revenue) contracted 190 bps to 14.1%.

Adjusted Financial services revenues rose 23.4% to $102.7 million, crossing the first $100 million mark for the first time, 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 1.76% from prior year quarter figure of 1.91%. Moreover, delinquencies improved while active average credit card accounts increased 8.6%. Other revenues increased substantially year over year to approximately $4,882 million.

Total operating income rose 33.1% to $138.7 million while operating margin expanded 240 bps to 11.7%.

Stores Update

In the reported quarter, Cabela's opened 2 new stores in Waco, Texas and Kalispell, Montana. For 2014, it has plans to open 14 new stores.

In the first quarter of 2014, the company expects to open stores in Greenville, South Carolina; Augusta, Georgia; and Anchorage, Alaska

For the second quarter, it plans to open stores in Woodbury, Minnesota; Christiana, Delaware; Missoula, Montana; Edmonton, Alberta; and Lavon, Texas

For the third quarter, it plans to open stores in Acworth, Georgia; Barrie, Ontario; Cheektowaga, New York; Nanaimo, British Columbia; Tualatin, Oregon; and Bowling Green, Kentucky,

The above-mentioned 14 new stores will represent 17% growth in square footage area in 2014.

For 2015, the company has plans to open 3 outlets in Fort Oglethorpe, Georgia; Ammon, Idaho; and Short Pump, Virginia, bringing the total count of stores to be opened in 2015 to 9.

Other Financial Aspects

The company ended the quarter with cash and cash equivalents of $199.1 million, long-term debt (excluding current maturities) of $322.6 million and shareholders' equity of $1,606.3 million. The company registered a 30 bps rise in return on invested capital for the full year to $16.2%. The company remains focused on increasing  the return further, going forward.

During the year, Cabela's generated $345 million in cash flow from operations. For 2014, management expects to incur 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). Some other stocks worth considering in the retail sector include KAR Auction Services, Inc. (KAR), Coastal Contacts Inc. (COA) and ITOCHU Corp. (ITOCY). While Coastal Contacts and ITOCHU Corp. carry a Zacks Rank #1 (Strong Buy), KAR Auction has a Zacks Rank #2 (Buy).