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Cabela's Incorporated (NYSE:CAB)

Q4 2013 Earnings Call

February 13, 2014 11:00 am ET

Executives

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

Analysts

Reed Alan Anderson - Northland Capital Markets, Research Division

Seth Sigman - Crédit Suisse AG, Research Division

N. Richard Nelson - Stephens Inc., Research Division

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

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

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

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

Charles Edward Cerankosky - Northcoast Research

Sean P. Naughton - Piper Jaffray Companies, Research Division

Mark R. Miller - William Blair & Company L.L.C., Research Division

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

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cabela's Incorporated Fourth Quarter and Full Fiscal 2013 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference is being recorded.

I would now like to turn the conference over to Chris Gay, Director, Treasury and Investor Relations. Please go ahead.

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 bases 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 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

Thank you, Chris, and good morning, everyone. Our fourth quarter financial results reflect a superior performance of our new stores and a dominant omni-channel model that continues to improve.

While we're pleased with the performance we saw in various areas of our business for the quarter, we encountered several factors that kept us from meeting our expectations. Primarily, the sharp decline in ammunition sales, as compared to the surge we experienced in the year-ago quarter, was more significant than we planned. The fourth quarter represents the first of 3 quarters, in which we will lap the surge in firearms and ammunition we realized a year ago.

For the quarter, consolidated comp store sales decreased 10.1%. The decrease in comp store sales was primarily due to the significant decline in firearms and ammunition sales. Comp store sales, excluding firearms and ammunition, were down 3.5%.

As expected, with the slowdown in firearms and ammunition, we saw other product categories improve. During the quarter, we saw positive comp store sales in hunting apparel, footwear, men's casual apparel and non-shooting hunting equipment. Going forward, we expect sales to shift out of firearms and ammunition and into our other higher-margin categories.

20 of our new format stores were opened for the full quarter and outperformed our legacy store base by more than 50% in sales per square foot and more than 60% in profit per square foot. During the quarter, we opened new stores in Waco, Texas and Kalispell, Montana, both of which are performing very well. Each new store we opened continues to perform significantly better than our legacy stores, reinforcing our retail growth strategy.

During the quarter, we had 2 new stores enter the comp base, bringing the total to 10 new stores in the comp base at the end of the year. As these new stores enter the comp base, they continue to outperform. For the quarter, comp store sales for the 10 new stores in the comp base were 200 basis points better than the consolidated comp. These new stores give us great confidence about the cadence of store openings we've announced for 2014 and for 2015.

For the quarter, merchandise gross margin increased to 36.6% from 36.2% in the year-ago quarter. This improvement was led by favorable merchandise mix as a result of the steep decline in firearms and ammunition sales. We also saw improvement in softgoods margins, which were partially offset by small margin declines in our hunting and general outdoors categories. Continued shift of wallet share out of firearms and ammunition and into categories with deeper Cabela's branded penetration and higher margins are expected to provide modest margin improvement throughout 2014.

During the quarter, we were able to improve the penetration of Cabela's branded products in all 3 of our major merchandise categories. Specifically, for the quarter, Cabela's branded product as a percent of total merchandise sales increased from 28% to 33%. The positive response we've received from our customers related to the introduction of new Cabela's branded products has been extremely encouraging. The innovation and quality of our new Cabela's branded products will continue to have a meaningful impact on the growth of our company.

For the quarter, Direct revenue decreased 4.1%, which was better than our expectations. Direct revenue was impacted by a significant deceleration in ammunition sales, which was partially offset by record traffic to our cabelas.com website and higher conversion rates.

During the quarter, we rolled out our enhanced mobile platform, providing a more enjoyable experience for our Direct customers who prefer to shop using a mobile device. During the quarter, we continue to realize benefits of our omni-channel fulfillment program, which we began implementing in the third quarter. The benefits we've seen from our ability to fulfill customer direct orders with inventory from our retail channel are very encouraging.

Now let's take a look at our Cabela's CLUB, which had another exceptional quarter. Cabela's CLUB revenue increased approximately 23% to $102.7 million, excluding the Visa settlement adjustment in the prior period. The increase was primarily attributable to interest and fee income, as well as interchange income. This represents the first quarter of Financial Services revenue in excess of $100 million in the history of our company.

We continued to see favorable delinquency and charge-off trends. Charge-offs remained at extremely low levels and were just 1.76% in the quarter.

Return on invested capital improved by 30 basis points to 16.2% for 2013. With a strong belief in continuous improvement, we feel that the ability to grow return on invested capital is a meaningful indicator of the future performance of our company. The primary driver of improvements to return on capital will be the strong performance of our new, more profitable new retail stores.

Before turning to guidance, with the difficult comparisons we face in the first half of the year, we believe it is important to provide additional intra-quarter and more specific category performance to help investors better understand business trends. Following this unprecedented period, we intend to revert back to previous guidance disclosure.

Based on our fourth quarter and year-to-date results, the surge in firearms and ammunition is clearly winding down. Recall, in the fourth quarter of 2012, comp store sales were up 12%. Although comp store sales declined 10.1% in the quarter, due primarily to firearms and ammunition each being down roughly 25% to 30%, we did generate positive comps in hunting apparel, footwear, casual men's apparel and non-shooting hunting equipment.

So far, through the first 6 weeks of 2014, comp store sales are down 25% to 30% as compared to being up 35% to 40% for the same 6-week period a year ago. And through the first 6 weeks of 2014, firearms and ammunition are down roughly 50% on a comp basis. Accordingly, we expect first quarter comp store sales to be down roughly 20% on the heels of significant declines in firearms and ammunition sales.

Despite the 50% comp decline in firearms and ammo to date, as customers shift wallet share to other categories, we expect most softgoods categories and some hardgoods categories to comp positively for the quarter.

Now turning to earnings guidance. We believe that our operational improvements, combined with new store performance, will continue to deliver outstanding returns to shareholders. At the same time, in the next 2 quarters, we expect moderation in both comp store sales and in the Direct business due to the stronger-than-expected falloff from last year's firearms and ammunition surge. We expect first quarter 2014 earnings per share to be between $0.32 and $0.42 and full year 2014 earnings per share to increase at a high single-digit or low double-digit rate versus 2013 adjusted earnings per share of $3.32.

Now I'll turn the call over to Ralph Castner to review in more detail, among other things, performance of our Cabela's CLUB.

Ralph W. Castner

Thanks, Tommy. For the quarter, we realized strong growth in Financial Services revenue, exceptional performance from our new stores, improved merchandise margin and outstanding performance of Cabela's branded products, all of which led to further increases in return on capital.

We opened 2 new stores during the quarter and, as Tommy mentioned, have been very pleased with their performance. Looking forward to 2014, we plan to open stores in: Augusta, Georgia; Greenville, South Carolina; and Anchorage, Alaska in the first quarter. For the second quarter, we plan to open stores in: Christiana, Delaware; Woodbury, Minnesota; Edmonton, Alberta; Missoula, Montana, and Lavon, Texas. In the third quarter, we plan to open stores in Barrie, Ontario; Acworth, Georgia; Cheektowaga, New York; Tualatin, Oregon; Nanaimo, British Columbia and Bowling Green, Kentucky, which will replace the opening of our Bristol, Virginia store, which has been postponed to 2015. These 14 stores represent approximately 1 million new square feet of retail space or 17% square footage growth in 2014.

Today, we announced plans to open 3 domestic new stores for 2015. These include location in: Ammon, Idaho near Idaho Falls; Fort Oglethorpe, Georgia near Chattanooga, Tennessee; and Short Pump, Virginia, northwest of Richmond. This brings the total to 9 announced stores scheduled to open in 2015. We're continuing to evaluate new sites for 2015 and even 2016 and expect to announce additional locations in the future.

For the quarter, Financial Services revenue increased approximately 23% to $102.7 million, excluding the Visa settlement adjustment in the prior period. The increase in Financial Services revenue is primarily due to an 8.6% increase in average active accounts. This account growth helped drive higher interest in fee income, as well as interchange income.

For the quarter, average credit card loans increased by 13.1%. Net charge-offs as a percentage of average credit card loans decreased 15 basis points from a year-ago quarter and were just 1.76%.

Additionally, we continue to see improvements in delinquencies. Greater than 30-day delinquencies were just 0.69% as compared to 0.72% a year ago. Greater than 60-day delinquencies were 0.42% as compared to 0.46% a year ago. And greater than 90-day delinquencies were 0.22% as compared to 0.24% a year ago.

For the quarter, we reduced our allowance for loan losses by $4.1 million compared to $250,000 reduction in the year-ago quarter. This reduction was mostly a result of declining loan balances, as well as improvements in charge-offs and recoveries of restructuring credit card loans.

For the quarter, Financial Services interest expense increased 23.7% to $17 million as compared to $13.7 million in the same quarter a year ago. As discussed in our third quarter call, the increase in interest expense is mostly due to our efforts to lengthen our maturities and lock in historically low fixed rates. We expect to complete our next term securitization in either late Q1 or early Q2 2014.

During the quarter, we recognized an impairment loss of $4.9 million as a result of a reduction in deferred grants related to one of our retail stores. Additionally, we reserved $9.3 million for potential adjustments to provision for income taxes that may result from audits currently in progress. We've also recognized $3.6 million of interest expense related to these matters. For 2014, we expect effective tax rate to be due -- be between 33% and 34%.

Now let's turn to inventory. Inventory increased by 16.7% or $19.3 million year-over-year to $645 million. Over the same period, we've grown retail square footage by 15% with 10 new stores opening since Q4 2012. Inventory turns for both 2013 and 2012 were 3.1x. Additionally, we're very comfortable with the quality of our inventory as we prepare to transition into our spring assortment over the upcoming months.

For the year, cash flow from operations was $345 million compared to $235 million in the same period a year ago. With our accelerating store growth plans, we expect full year 2014 capital expenditures to be between $400 million and $450 million. Cash flow from operations is expected to be between $300 million and $350 million. Accordingly, we expect to complete a small financing transaction in 2014 to fund future growth, and we may renegotiate our existing credit agreement later this year to increase capacity and extend the maturity.

Now let me turn the call back over to Tommy for some closing comments.

Thomas L. Millner

Thanks, Ralph. Despite the near-term challenging comparisons from the surge in firearms and ammunition we experienced a year ago, we continue to be very pleased with our new store productivity, meaningful improvements on our omni-channel model and exceptional performance of Cabela's branded products. As a result, we're very excited about our future growth opportunities.

As we close another record year for Cabela's, I'd like to take a moment to thank all of our outfitters for their passion and commitment to cherish and delight every customer every day.

With that, operator, let's open the call up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Reed Anderson with Northland Securities.

Reed Alan Anderson - Northland Capital Markets, Research Division

Tommy, from my standpoint, I mean, the retail business, if you stripped out the tough compares and everything, I mean, you're really executing well there. So I'm going to focus my couple of questions on the Direct and the -- just the brand side. Your Direct, I thought, was actually a bright spot. Obviously, you'd rather be up than down. But -- so my question is as you look at that, you've taken some steps in that business the last several quarters, do you feel like that is reflected in better-than-expected results? Or do you think there was an element that happened late in the fourth quarter where people basically were not wanting to go outside and so rather than go to your store, maybe they shop a little more online? Curious to hear your thoughts.

Thomas L. Millner

Well, as we've talked, Reed, for several quarters, probably going back almost a year, we've made some significant investments in technology in our Direct business. And it started with this realization over a year ago that we had to have mobile device interfaces for our customers that were on par with desktop functionality. So we made those investments and we saw an enormous shift in traffic to mobile devices. I can't even imagine where a company would be, us or anyone else, if they did not have that robust user experience on mobile devices. And look, it was expensive and we did it. And it made a really big difference in our business because we captured that traffic and were able to provide a great experience on mobile devices. Additionally, as we've talked, we added the functionality of store-to-door capability. We did that flawlessly without spending a lot of money. And it made a difference in our business in the quarter, and I think it will continue to. If not, just -- we didn't tell people no when we had inventory. And we're probably not going to disclose the impact of that on Direct revenue for competitive reasons. But I would tell you, it was real. It was important. So I think we were really pleased, notwithstanding the big downdraft as ammo fell off far sharper than we expected and, of course, the impact in Direct is significant. But I think we were really pleased because we demonstrated to ourselves that we can launch and sell Cabela's and national branded softgoods and other products on cabelas.com. And that was encouraging to us.

Reed Alan Anderson - Northland Capital Markets, Research Division

And a follow-up, Tommy. On the mobile side, are you actually -- is it -- are you seeing the transaction be actually completed a lot on mobile beyond what you thought, or is it more just having that aspect involved in the activity?

Thomas L. Millner

No, it's the transaction, Reed. And as we look -- and we'll keep you guys updated as we dig through '14. But we've got a couple of things coming. Personalization is a really big deal on mobile devices. We've got that yet to come later this year and also 2-click checkout, which just makes it even easier, and that's coming later in the year. So a little more to come. But what we've done made a big difference as consumers are moving off their desktops and on to mobile devices to transact.

Reed Alan Anderson - Northland Capital Markets, Research Division

That's great. I have one more question then. And that is you talked about and referenced in the press release the penetration of the Cabela's brands from, call it, 28% to 33%. When you look at that, obviously, it definitely reflects what you've done and kind of taking the -- you've elevated the status of the merchandise or you brought up -- you have a lot of innovation to product, price points have gone up. Is that kind of 500-basis-point move, is that reflective more of what's happening with ASPs on the Cabela's side, or is it just overall kind of a more holistic growth for your Cabela's brand across-the-board?

Thomas L. Millner

No, it's more holistic. And it's not a function of just putting our brand on lots of other products. It was -- and you can look at it by category and subcategory. Customers really liked Zonz camo, ColorPhase technology, OutfitHer, BOA boots, our Meindl Cabela's program. They just reacted to the product. And you shop our stores. I know you just see better merchandise in there. And I'd be remiss if I didn't call out as well our strategic national branded partners, and they know who they are. They continue to help us drive success, not just in Cabela's branded products but improved assortments from these strategic national branded products, and it's making a big difference in our business.

Operator

Our next question comes from Seth Sigman with Crédit Suisse.

Seth Sigman - Crédit Suisse AG, Research Division

First, a question on the ammo being weaker in the quarter. I think in the past, you discussed that business potentially holding up in 2014. And just trying to understand, at what point did that business turned negative in the quarter? And any more color on what changed there? And I guess related to that, what's the supply situation like? Is that a factor at all?

Ralph W. Castner

Yes, this is Ralph Castner. I mean, ammo did fall off in the quarter more than what we thought. But I would tell you, we're still pretty optimistic in camo. If you are -- I'm sorry, ammo. If you look at the 2-year comp at ammo, even so far -- whether you look in the fourth quarter of last year or so far in the first 6 weeks of this year, it's up pretty significantly, double digits on a 2-year basis in the fourth quarter of last year and it's up high single digits in the first quarter of this year on a 2-year basis. So we -- and that's despite the 2-year trend on guns being flat to down. So we're pretty optimistic that ammo is going to have a water tail. I just think it was so hot in Q4, and particularly in Q4 last year and, to some extent, in Q1 of this year, that it fell off more than we thought. But we're still really optimistic about ammo as we move through 2014. And with respect to supply, there have been -- in certain rimfire categories, there have been some supply constraints.

Seth Sigman - Crédit Suisse AG, Research Division

Okay. That's helpful. And I guess just in general, in light of the uncertainty this year, I guess what gives you confidence in the earnings growth that you're projecting? I mean, can you walk us through some of the things that you feel like are a little bit more within your control that you're working on to kind of help get to that earnings growth that you're projecting? Maybe any specific levers you can pull on the expense side, some of the margin drivers that you briefly touched on earlier?

Thomas L. Millner

Well, Seth, I think as we commented in the last call, we started working on expense frugality starting in August of next year. And that's an ongoing continuous process that we believe we've reflected in our guidance. I think what gives us great confidence, I've seen our spring and fall assortments for this year. They're really, really good. And at the end of the day, we often forget we're in the merchandise selling business. So I think the wallet share shift to a more profitable product categories, both Cabela's branded and our strategic branded partners, gives us confidence. New stores, I mean, we just keep opening one new store after another, and they're performing at very high levels. And then you look at the Direct business, and we just continue to make operational improvements there. We're getting better at omni-channel marketing, and now with omni-channel fulfillment as a capability, you kind of add all those things up. And look, we'll see where guns and ammo end up. The first 2 quarters will be challenging, but we ought to return to more normal trends later this year. So I think we tried to put our guidance in those terms of positives, yet the downdraft of guns and ammo.

Ralph W. Castner

Seth, let me add a couple of things just to Tommy's comments. First of all, one thing that's really lost on people is our card business is still growing at 13%. That's a great business with -- that's going to continue to add profitability. We did roll out net SKU profitability this year, which we think is going to help us manage some of the expenses that Tommy talked about. And just one thing that's really lost on people. Our preopening cost this year went from $12 million to $22 million in '13. Now obviously, they're going to keep going up from there as we open more stores in '14, but it shouldn't be at nearly the rate that we saw last year. All of which is going to help us continue to get to those earning targets that we've put out there.

Seth Sigman - Crédit Suisse AG, Research Division

That's really helpful. And to follow up on the expenses. So I think last year and in '13, you also saw some big increases in labor cost, both at the store level and maybe corporate, and then I think marketing was also higher. I mean, are there specific buckets within there that can be trimmed to help manage that?

Ralph W. Castner

Yes, Seth. We're continuing to look all across the company to find all sorts of areas for expense cuts. And I can give you a bunch of individual examples, but it's just a lot of hard work that we're finding it $1 million at a time. And the whole organization's working on it, and it's amazing some of the suggestions that some of our outfitters have given us for opportunities going forward.

Operator

Our next question comes from Rick Nelson with Stephens.

N. Richard Nelson - Stephens Inc., Research Division

I'd like to ask you about the non-gun ammo part of the business. Last quarter, you talked about non-gun comps being up 5.3%. This quarter non-gun ammo comps were down 3.5%. I'm curious how we should think about that. And is that losing the attachment to the firearm sales, or is it something else that the environment sort of...

Thomas L. Millner

Well, Rick, I think it's probably a couple of things. The holiday season environment, I think we encountered probably a macro softer holiday season by a little bit. But don't forget, we started lapping the surge in early November, which lapped election day a year ago when all these kind of started, and then it accelerated through mid-December. I think what encouraged us a little bit when we looked at new to file customers, while they -- we weren't adding new to file customers at the same pace we did in the first quarter, for obvious reasons, just the volume of traffic coming into our website and our stores, we continue to have healthy increases in Q4. And those customers behaved pretty similarly in their baskets and attachment rates as they have been performing. So I think the down 3.5% comp was just probably purely a function across our enterprise of a little less traffic coming into the stores and a slightly tougher holiday season as it compressed from 5 weeks to 4.

Ralph W. Castner

Just -- I've taken a thousand questions in the last 12 months about the impact of product categories and traffic and all that kind of stuff. And I think we try to make it really clear in the release. I think there's enough data out there to really show how people behaving in the fourth quarter when guns and ammo were down mid-20% kind of range. We saw almost every single clothing category comp up. The only other category that comped down anywhere near double digits was optics, which does make some sense because of the high attachment rate between optics and guns. But no other category comped down more than double digits. Some of the hardgoods categories did comp down, although hunting equipment outside of firearms and ammunition comped up, which we're encouraged about. As we look forward to the first quarter, and as we've talked about, we -- it's really sort of more of the same thing, where we expect most of the softgoods categories to comp up for the quarter, as well as some of the hardgoods categories. Those things like guns, firearms, optics and, to some extent, ammunition are going to be tough, but the rest of the categories are hanging in there pretty well, about like we expected, where we'd see a shift out of firearms and ammunition into some of these categories. And we're pretty pleased about it.

N. Richard Nelson - Stephens Inc., Research Division

You mentioned the first quarter, Ralph, carryouts with a negative 20 comp. You're seeing pretty big deleverage that would appear on SG&A. If you could comment there.

Ralph W. Castner

Well, I think there's no question, we are -- obviously, as we're thinking about making profit targets for 2014, we're putting in a lot -- we're identifying expenses throughout the entirety of the year. So yes, I would expect to deleverage in the first quarter. And we're putting in a lot of cost-savings initiatives which when we -- which we will benefit from over the entirety of 2014.

Thomas L. Millner

And we think we've reflected that, Rick, in our guidance. Hence, the reason to give clarity for Q1 more specifically than we've ever done.

Ralph W. Castner

Rick, back to the store performance or the kind of category performance commentation, my takeaway from all of that is this, which is really over the last 2 -- or if you look -- and the same applies, by the way, if you look at the first quarter of '14 or the fourth quarter of '13, but our comp store sales were basically at the same level they were 2 years ago, which, in the case of the first quarter of '14, when guns are off 50%. So I think we feel reasonably good about that. Would we like them to be up on a 2-year basis? Absolutely. But the fact that we're comping near flat on a 2-year basis depends -- actually, we're -- I think we're up a little bit in the fourth quarter, down a little bit in the first. But the fact that we're flat on a 2-year basis with the kind of change we've seen in firearms and ammunition, we think, is pretty encouraging.

N. Richard Nelson - Stephens Inc., Research Division

Yes. Also, interested on what's happening in the margins with guns and ammos as demand has been impacted. Have you seen pressures there?

Thomas L. Millner

Yes, a little bit of pressure, Rick, and probably not -- to no surprise as the products are coming back into availability and we're able to start promoting guns and ammunition again. And if you remember a year ago, we didn't have enough supply to even run ads or have catalogs or omni-channel events that included guns, which naturally lifts margin. So we have seen some compression, yet as we balance it with the shift to higher-margin products. That's why I said in the formal script, we still expect margin rate increase when you mix it all out. I will give you a brief anecdote. We advertised guns and ammunition beginning last Thursday for a 5-day ad period. And we're pleasantly surprised at the customer response from a revenue standpoint, albeit at lower -- a little lower margins. But it did give us confidence that if we can start our promotional cadence again, as we get through this bubble, we'll have a healthy gun and ammunition business that, in the back half of the year, should eke out comps.

N. Richard Nelson - Stephens Inc., Research Division

And May is when the compares start to normalize in your view?

Thomas L. Millner

Yes.

Operator

Our next question comes from Matt Nemer with Wells Fargo Securities.

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

So I just wanted to follow up on the comps. Can you -- is there a way to -- I would assume that the mix away from guns puts a lot of pressure on ticket. Do you have any sense for -- can you give us a sense for what you saw with store traffic versus ticket in the fourth quarter and maybe into Q1?

Thomas L. Millner

Well, in the fourth quarter, transactions -- we don't measure total traffic coming in. But transactions were down 5%, and ticket was down 5% to no surprise with -- we're not selling $1,000 modern sporting rifles and baskets full of ammunition.

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

Got it, okay. And then obviously, there's been a lot of not-so-great weather. Can you comment on whether there were any transitory issues that may have impacted the fourth quarter or even into the first quarter as well?

Thomas L. Millner

Well -- I mean, it was really cold in a lot of places in the fourth quarter, but if you look at it from a number of days stores were opened or closed, there was no difference year-over-year '13 to '12. Now could one make an argument that it was so cold in the upper Midwest, people didn't come and shop? We're not going to make that argument. In fact, cold weather helped to sell nice garments that we make healthy margins on. So we would call weather more of a neutral.

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

Okay, that's helpful. And then the implied comp trend in the second half, I don't know if that quarter is perfectly linear, but it seems like you think that we're going to be down maybe 5% or 10% in the second half of the quarter we're in. What are you thinking on a 2-year trend as we get into the back half of this quarter?

Ralph W. Castner

I guess I don't know that I'd given it that much thought intra-quarter. I mean, what we're seeing on 2-year trend is pretty flat. And we've really seen that but we saw it -- if you look at the fourth quarter in the entirety, that's true. If you look at the first 6 weeks of this quarter, it's true. So I guess I would expect on a 2-year basis, it'll stay flat. But we have noticed -- and Tommy alluded to it, with the increased promotional cadence the last week or so, we've noticed a pretty significant change in the absolute performance of our business.

Thomas L. Millner

For the better.

Ralph W. Castner

For the better.

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

Okay. And then -- and just lastly, and I think it relates to that comment. You're -- you ended the quarter with inventory up pretty significantly year-over-year. What's the potential impact of that to gross margins in the first half, or maybe there's some other issues around inventory that explain that?

Thomas L. Millner

There aren't any, Matt. I tell you of all the things we feel fantastic about is the quality of our inventory. We're going to exit winter goods cleaner than we've ever done. And remember, we're opening 10 stores in '14 that we bought inventory for, and we've got some really big stores coming in the first 4 or 5 months of the year. So you shouldn't be alarmed by inventory growth. We -- the quality of our inventory is absolutely fantastic.

Operator

Our next question comes from David Magee from SunTrust Robinson Harwood -- Humphrey.

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

I just had 2 questions. One, the -- with regard to your assumptions regarding the trajectory of firearm demand this year, do you anticipate that to have any sort of impact on new store performance? Maybe let us know of any differences in the mix with new stores versus, say, legacy stores with firearms.

Ralph W. Castner

No. To give some comfort in that, you've got to -- at least relative to the expectations we built in, these stores that were opened in 2014 were probably done based upon mix that we saw in 2011 or 2012 when we're out scouting those stores. So I don't -- we don't expect that to have a significant impact on new store performance, at least relative to our original expectations.

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

Secondly, do you anticipate significant incremental cost this year being encouraged? Just surrounding issues around credit card security, those type of things.

Thomas L. Millner

No, David, we don't. A couple of facts for you. As -- we have routine maintenance programs that replace card readers as they obsolete themselves across the whole enterprise in the U.S. and Canada. So for a couple of years, we've been replacing readers and we'll continue to do that as we move forward. Our new stores, obviously, have new readers. Canada's already converted. So we don't have anything out of the ordinary at the point of sale. As we march to the potential of cards with chips in them in 2015, there could be a couple of million dollars of impact in '15. But that would assume a big bang everybody gets a new card, and likely, that's not going to happen. It'll be -- there'll be a phase in. They'll stagger it. So no real impact from that. And obviously, like any other retailer on the planet, we have redoubled, re-tripled and re-quadrupled our focus on enterprise-wide security, not just at POS. But like everyone, we had hack attempts every day in non-POS systems. So we think we can manage that within the guidance range that we've given. But obviously, we've refocused. We feel good about where we are, but we're redoubling and re-tripling our focus.

Operator

Our next question comes from Jim Duffy from Stifel.

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

First question, why did you guys not prerelease these results in the guidance?

Ralph W. Castner

We gave some thought to that. But particularly, given some of those tax things we're working on late in the quarter, we just want to make sure we felt really comfortable with that. And we didn't have a history of prereleasing, so we've made the decision not to do that.

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

Okay. Ralph, with respect to the change in view for '14 from double digit off a higher number to a high single digits to low double-digit EPS, you've got a slightly higher tax rate range in there. Can you quantify some of the other factors that changed with respect to your outlook? It sounds like some of the changing ammo trends are one. Maybe if you could list off -- put some shape around the dollar amount associated with that and some of the other factors as well?

Ralph W. Castner

Well, I think you mainly have got them. I mean, the tax rate was a factor. Clearly, the fourth quarter results were a factor. And what we saw in ammo, particularly as we left Q4 and going into Q1, were some of the primary factors that influence our decision-making on that.

Thomas L. Millner

Jim, I think we wanted to just be more cautious until we see where ammo ultimately settles. And we were making those decisions in the last 3 weeks or so and just probably an air of conservatism, more than anything.

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

Okay, that's helpful. And then...

Thomas L. Millner

And I say -- Jim, I say that because we still -- we couldn't be more excited about the next 3 to 5 years in our company. I mean, we've got -- the stores that we're opening in '14 are -- I think are going to be blockbuster stores in places we should've been a long time ago. And as I said to Reed earlier, we couldn't feel better about our product innovation pipeline. And as we start doing more in hardgoods with real high-quality Cabela's branded products, we just feel really good about the business. We just got to get through these 3 quarters where the surge was just kind of out of control last year.

Ralph W. Castner

Jim, you also -- you asked me about preopening -- or preannouncing. I think another factor in it is we want to make sure that we -- there's a lot -- we think there's a lot to tell about our performance, both in the fourth quarter and the first quarter. We want to make sure we had a forum like this for an open discussion to talk about it. The comments I made earlier about mix of product categories, I think are an important part of the story as we move forward. And you see that those categories are continuing to perform really well, even when firearms are off. And being able to explain the entirety of the story was another big factor.

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

Okay, makes sense. I'm going to dig into the next-gen stores a little bit. You mentioned in the press release, 11 of them doing in excess $500 a square foot. I'm sure you've done this analysis. What does your next-gen sales per square foot look like if you kind of scrape off to get to a normalize rate of gun and ammo demand? How much is it to give back from that excess of $500 a square foot?

Ralph W. Castner

Well, there's some. And I guess I'd tell you -- I don't know. You got to remember, the $500 a square foot included the fourth quarter, which already gave back a fair amount of gun and ammo. I would tell you in totality maybe there's another 5%. But I mean, we still feel really good. Obviously, doing $500 a foot plus is really good, and that's the average of all of them. Some of them are doing much better than that.

Thomas L. Millner

Jim, as it relates to new stores, you'll notice, the store in just south of Chattanooga in Fort Oglethorpe, Georgia, is a 70,000-square-foot store, which kind of fits in a size range between the 40,000-foot stores and the 80s. And it's a -- it'll be the first prototype that we do at that size in North -- in the United States. And as we continue to look at market opportunities, we've seen a fair amount of stores that are -- markets that are too small for an 80,000 and too big for a 40,000-foot store. So we're excited to see how this prototype's going to roll out. The façade of the building will look a lot more like our 80,000- and 100,000-foot next gen. So it'll have this big gable roof and a lot of windows. And you should expect to see that come into the mix. And it looks like we're settling in on 40s, 60s, 70s and 80s with a few hundreds sprinkled in over the next 3 to 5 years.

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

Okay. One final question and I'll let someone else jump in. I'm curious the ammo trend differences that you saw between the Direct and retail, was it pretty much a parallel trend where it fell off at exactly the same time, or would one kind of outperform the other? What I'm trying to get at, Ralph, is how much of it was store traffic versus just kind of directly correlated to everybody having enough ammo.

Ralph W. Castner

Well, I'm not sure I'm going to be that helpful in that, in trying to get into your question. And the reason was is because a year ago, the results were very different. I mean, ammo was -- I'll try to directionalize this a little bit for you. Ammo was up in comp store sales, but it was up, call it, double, for lack of a better word. But in the Direct business, it was up by several multiples. And to -- so to try to kind of...

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

This is on fourth quarter '12, right?

Ralph W. Castner

No, I'm sorry. I'm talking about first quarter of '13. But in first quarter of '13, ammo was just way -- here's the takeaway without quantifying. Ammo was just way, way stronger in Direct a year ago, whether you're talking about the fourth quarter -- the fourth quarter or the first quarter in the year-ago quarter, ammo was way stronger in Direct than it was in retail. So obviously, the magnitude of the falloff wasn't as great.

Thomas L. Millner

And that's just a function of we only have 50 -- a 50-store footprint in a big country.

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

Got you. Okay.

Ralph W. Castner

And by the way -- I'm sorry, but to add on to that. And then when the -- but when you couldn't find it in any store a year ago in the country, ours or anybody else's, everybody came online to buy it.

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

Right. You'll expect a sharper falloff in the Direct business. Just to...

Thomas L. Millner

Absolutely right, and we're seeing it.

Operator

Our next question comes from Jim Chartier with Monness, Crespi and Hardt.

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

I appreciate all the color and the quarter-to-date trends. I was wondering if you could just answer one last question on that. What were firearms and ammo comping up in the first 6 weeks of last year?

Ralph W. Castner

In the first 6 weeks of last year, and again, I'm giving you -- they were near 100%. So call it double.

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

Okay, that's helpful.

Thomas L. Millner

So we're down 50 against a near double.

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

So you're flat on 2 years. And so it looks like the rest of the business x guns and ammo is also kind of flattish on a 2-year basis the first 6 weeks of the year.

Ralph W. Castner

Yes.

Thomas L. Millner

Yes. And, Jim, remember, the first 6 weeks of the year and the rest of the business is kind of clearance season, and we haven't done fall rolls yet. And we're kind of approaching the end of the winter season, although not this year maybe for a lot of people on the call. But January is a -- the first 6 weeks of January and the rest of the business are real seasonal low point in volume.

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

Okay. And then on the preopening expenses, will that be up on a year-over-year basis in first quarter? It looks like the store openings are more geared towards the first half of this year than they were last year.

Ralph W. Castner

Yes.

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

Okay. And then -- so then preopening expenses could be flat to down in the next 3 quarters?

Ralph W. Castner

I mean, yes. To help quantify it, I mean, we spent last year $22 million on preopening costs. And at least looking at the fourth quarter, we spent $5 million in the fourth quarter. So I think you could assume they were fairly even. So I don't expect it to be a big driver in any one quarter. I mean, it'll maybe go from $5 million to $6 million in the first quarter.

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

Okay. And then it looks like you guys are losing little bit of market share, just looking at the adjusted mix data. Is that a function of you having better supply last year? Could you just talk a little bit about that?

Thomas L. Millner

Yes. I think we've said in a number of conferences, we don't focus as much on the mix data as you guys do. But I would suspect, we had such better supply because we made some really big bets in the late summer of 2012 on supply of both ammunition and guns. So we probably got a little more share from having supply until we ran out like everybody else. But when I -- Jim, when I think about share, you got to think about -- we built 2 stores in Denver, Colorado, where we didn't have any share unless they drove to Grand Junction. And the performance of those stores -- I mean, we're taking share from somebody in that market in a big way. It -- ditto for Grand Rapids and Columbus, Ohio. And I mean, I could keep going on. So that's why we don't pay that much attention to the core share numbers from mix. We obviously looked at them. But as we keep building stores, we're just taking aggregate share in a pretty big way.

Operator

Our next question comes from Chuck Cerankosky with Northcoast Research.

Charles Edward Cerankosky - Northcoast Research

Ralph, I guess this is a question for you and Tommy because it spans the Cabela's CLUB business. It was up -- it did really well in the quarter. And that suggests to me that consumers were using the card for their Christmas shopping at a number of venues, yet it sounds like you got hit by some macro events within the stores, apart from the guns and ammo trend falling off. And I was wondering if you could sort of square that thought I have that suggest a little bit of inconsistency versus how the stores performed or merchandise performed versus your Finance subsidiary.

Ralph W. Castner

Well, I'm not -- well, let me comment on the growth in the card business. And I just -- I think there's a bunch of different factors going on. But in the card business, what we saw is that accounts were up 8.6% on average -- which deaccelerated a little bit from the previous quarters of the year. And we just saw that as a function of the traffic in the store being off to some extent. The average balance was up 4.1%, which actually has been an acceleration, to your point, of what we saw earlier. And I think you know this, but 97% of our spend is elsewhere. So I think what we saw in our business was largely a function of what we saw in firearms and ammunition. And then what you saw elsewhere is that our cardholders are out spending their -- spending money on our card, and that business performed really well. I'm not sure I'm trying to make too strong of a linkage to those 2.

Thomas L. Millner

No, because that would be comparing us to gasoline purchases and restaurants and all kinds of unrelated things.

Ralph W. Castner

But to the question we got earlier on why we're optimistic about '13, the fact that, that business is growing at 13%, we're pretty encouraged about. And by the way, we'll - I don't know if it'll accelerate any, but with opening 14 stores next year. 11 of them in the U.S., because Canadian ones, obviously, don't count, but we'll continue to see nice growth in that business.

Charles Edward Cerankosky - Northcoast Research

That's helpful. Just to make sure I enumerate, what was the number of stores at year end?

Ralph W. Castner

50.

Charles Edward Cerankosky - Northcoast Research

Spot on, 50. Okay, good.

Ralph W. Castner

That's why I remember, it.

Charles Edward Cerankosky - Northcoast Research

Yes. When you're talking about some of your efforts to merchandise the Cabela's brand products getting into hardgoods and offsetting some of the pressure in the firearms categories, what new merchandise categories are you looking at, if any?

Thomas L. Millner

Well, we -- the newest merchandise category we added was a whole line of Northern Flight waterfowl, hardgoods decoys, bags, layout blinds, all of those things that fall into hardgoods. And the consumer reaction was just fantastic. So you look at their -- you just go in one of our stores, and there are just opportunities for us. We did very well in game cameras with Cabela's branded products. So just -- we're just going to thoughtfully, by category, expand. One of our real successes from a social media standpoint was in our Regulator and Instigator bows, which is clearly a hardgoods category. And again, customers love those products and bottom, and we see further expansion opportunities in optics. So we're just going to thoughtfully do just what we did in softgoods, expand where we see opportunities. And I think it's a long runway of opportunity if we do it right.

Operator

Our next question comes from Sean Naughton with Piper Jaffray.

Sean P. Naughton - Piper Jaffray Companies, Research Division

You guys -- would you mind just giving us maybe an update on the Outpost stores? I know we've got a few of them out there. Just how those are performing and updated thoughts on that particular prototype.

Ralph W. Castner

I would tell you they're performing about in line with our expectations. On a per-square-foot basis, they're not performing as well as some of our next-generation stores but way better than our legacy stores. And I guess to give you some things about how we're thinking about it, we feel really certain that we need a 40,000-square-foot format to go to a lot of smaller markets across the country. And Tommy talked to you about our efforts around a 60,000- or 70,000-square-foot store. The question we wrestle with is whether or not we need to differentiate that store from a marketing and operational standpoint. And you'll even notice, we were kind of getting away from talking about them as Outpost stores and just talking about the entire set of them as new stores. So these smaller stores are going to continue to be very, very important to us. How we refer to them from a marketing and operations standpoint may change over time.

Thomas L. Millner

Absolutely.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay, got it. And then on the -- in the release. I think you said the next-gen stores are comping about 200 basis points ahead of the chain overall. This -- I think that's down from the 600 basis points you had talked about earlier, I think in -- at the end of Q2. Is this just a reflection of the mix inside of the store, or is there some of these stores maybe not coming on quite as strongly as some of the initial stores?

Ralph W. Castner

No. I'd tell you the biggest thing is -- and maybe we should just discuss the ones that are just there in the comp base. But now we're getting a big set of those stores, some of which are several years old, so they're comping on top of themselves, which has got one of the things that's going to drive the absolute rate down. But we feel really good about the stores now that they're comping.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And then I guess on the -- an update maybe on the cannibalization that you're potentially seeing or not seeing, for that matter. Anything that -- any updated thoughts there as you put in more stores? Are you bringing in cannibalization from any of the existing stores in the area?

Thomas L. Millner

We continue to see less cannibalization than we ever expected in almost every location. And, Sean, Denver is the great example. I mean, these 2 stores are 30 miles apart. And both are just doing extremely well, and both are exceeding our expectations by a wide margin. And they're 30 miles away from each other. So it's forcing Ralph and our real estate guys to think more about markets and maybe we're wrong about market capacity. We're going to open Woodbury, Minnesota in the Twin Cities. It'll be our third store up there in May, and that'll be an interesting indication of just what kind of capacity there are in markets. But so far, so good.

Sean P. Naughton - Piper Jaffray Companies, Research Division

Okay. And then I guess as -- the last question is on the Direct business. It seems -- and I think I've asked this before is it does seems like you may have turned a corner in this business. Are you guys willing to say that yet, just given the performance that you had in the fourth quarter with, obviously, opening up a number of new stores, which I think you've said $2 million to $3 million of cannibalization, big drag from ammunition, obviously, year-over-year and yet you're only down about $15 million? It seems to be a real positive.

Thomas L. Millner

Well, just as a matter of culture and in the spirit of continuous improvement, declaring victory is never something we do in our company because you can always get better. So with that as a preface, I'll tell you that we feel very good about user experience improvements, our ability to leverage social media, our ability to have world-class content on cabelas.com and our ability to fill from stores. So -- and our ability to launch new products on cabelas.com. Now on the other side, we've got cannibalization issues as we build new stores in places we haven't been before. So none of the good things are purely incremental. But we're on a path of continuous improvement. And I think we're very pleased with where we are right now. But you'll never hear us declare victory in any part of our business because that says there's no more to improve, and we don't feel that way ever.

Operator

Our next question comes from Mark Miller with William Blair.

Mark R. Miller - William Blair & Company L.L.C., Research Division

Yes. I think we all agree there's many, many positive long-term drivers of stores and brand merchandising. You guys are great operators. I think one of the things we're trying to get at for your stock is that in 2014, the first quarter, you're down 40%, 50%. If I'm understanding the guidance, up 20% to 30% rest of the way in the year. Now I don't know if I've seen that kind of a shift in 20 years, and so there's some very exceptional circumstances. But I think it'd be helpful just to maybe lay out what you see for comps for the full year? And then, Ralph, I know you talked a lot about some of the G&A reductions. Is there a way to kind of, I guess, aggregate that or dimensionalize what some of the savings can be, just to give us more visibility on how that progresses through the year?

Ralph W. Castner

Well, I don't think we're prepared to discuss comps by quarter for the rest of the year, as in, obviously we expect them to get better. But -- and even with regard to SG&A, there are just, I mean, hundreds -- I mean, I can give you big ones and little ones. There's hundreds of examples where people who've got teams of people working on taking cost out. I mean, one of the simple ones, quite frankly is incentive comp, which will almost certainly be down between 2013 and 2014 several million dollars. We already talked about the increase in preopening costs, which were up $10 million in '13 versus '12. That'll continue to be up, but not at the same level. We've made a lot of improvements in just to kind of our corporate expenses and taking a lot of those out, which continues to help. We've actually hired a new person to help us manage credit card fees that's already found several million dollars of savings there on a full year basis. Now we won't get those all in place until later in the year, but we think there's a couple of million dollars there. So we've just challenged our people across the whole company to continue to find those types of savings that anyone of them might only be $0.5 million to a $1 million or to a $1.5 million, but you get 10 or 20 of them, it's real money.

Mark R. Miller - William Blair & Company L.L.C., Research Division

The comp for the year though, is it -- I'm guessing you're kind of low single-digit decline for the year. Is that roughly what's in your range?

Ralph W. Castner

Yes. I would tell you we -- 3 months ago, we're probably thinking of a smaller number than that. Down, but not down mid-single digits. That's probably moved -- as we've gone through the year, that's probably come down just a little bit. So maybe it get you to mid-single digits. But I would tell you, 3 or 4 months ago, we're thinking about being down a low single-digit comp, and we probably added maybe 100 or 200 basis points to that.

Thomas L. Millner

Because of ammunition.

Ralph W. Castner

Just because of ammunition as we've gotten into the first quarter.

Mark R. Miller - William Blair & Company L.L.C., Research Division

Yes, that's helpful. Then on the 2-year comp being flattish, and, Tommy, I think it's a fair point, January is not the critical month in the year, but -- I mean, this is a business that we think of as clearly a growing business. And so -- and you think there's any risk to that -- you've had this surge in traffic. I mean, that some of the consumer might've just upgraded the whole line of goods and equipment. And is there a risk that we stay flattish on a 2-year basis for some time?

Ralph W. Castner

Well, I don't know about for some time. It could certainly happen in the first 2 quarters. But I think that's part of the reason I went through the whole discussion about how we're doing in an individual category. Because I think there's some -- even in the fourth quarter, the fact that our softgoods categories comped up or most of them did and we expect most of them to comp up in the first quarter, I think it's really encouraging about the long-term trends in our business. I mean, where we're seeing the challenge from a comp perspective are those categories that are directly attached to the firearm, primarily ammo and optics.

Thomas L. Millner

Mark, even in the fourth quarter, acquisition of new customers was up 12.5%, which is a pretty big number. So we're still attracting new customers to our franchise.

Mark R. Miller - William Blair & Company L.L.C., Research Division

No. You guys are the winner here. But yes, I'm just trying to understand. This whole shift is very tough analytically. Final question for me, if you could give us a percent of sales of firearms and ammo, just roughly, where you ended for 2013. Just -- it helps understand some of the shift going forward.

Ralph W. Castner

Yes. In totality, across Direct, everything else, it was about ammo was about 10%. Firearms was slightly higher than that. Yes. It was 13% is the exact number, so 10% in ammo, 13% in firearms.

Thomas L. Millner

That's for full year.

Mark R. Miller - William Blair & Company L.L.C., Research Division

All of 2013, great.

Thomas L. Millner

Yes.

Operator

Our next question comes from Mark Smith with Feltl and Company.

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

Real quick, just looking at the Direct business. Top line was good. But just looking at the operating margin in that business, it seem to see some deceleration. Can you discuss that a bit?

Ralph W. Castner

Well, I got to tell you -- and I'll talk a little bit about what we're going to do next year. I don't spend as much time thinking about the profit as a percent of sales. They're mainly because the Direct business probably gets over-allocated to advertising costs. Any -- well, basically, any advertising cost, except for radio, local TV and newspaper flyers, gets allocated to the Direct business. One of the things we're looking at doing for next year is just allocating each channel a fixed percentage of revenue as advertising and creating a common pool, because those lines on advertising are blurring greatly between channels. So for example, if we run something digitally, even if you go to the Yahoo!, Facebook page and it says visit whatever, the Denver store, that gets charged to the Direct business. And those lines, you just can't split them that way anymore. So I wouldn't spend a lot of time thinking about the contribution to the Direct business in the fourth quarter. As we move into next year, when we start having a constant percent of sales get charge for advertising, it'll be a lot more meaningful.

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

That helps. And then just talking about...

Ralph W. Castner

And by the way -- I'm sorry, as it relates to the Direct business, the single biggest expense item in the Direct business is advertising. About all else, it gets charges are call centers and some of our Internet expenses. I'm sorry, go ahead. I'll let you ask the next question.

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

Okay. Just looking at competition and kind of some of your new stores, and we've talked about your Woodbury store really coming right in the heart of kind of Gander Mountain country. This new store in Idaho Falls, you're right down the street from probably one of the better Sportsman Warehouse. Is there anything that concerns you as you move more to Bass Pro and competition, or do you guys feel you can go to head -- head-to-head really with anybody?

Thomas L. Millner

Well, we go head-to-head with all of these guys everywhere anyway. Bass is a really good operator. We square off with them in Phoenix, Omaha, Dallas, Fort Worth. Our store in Louisiana, Denver and ditto for Sportsman's Warehouse, multiple overlaps; ditto for Gander Mountain. So no, I think our success in the southeast, Mark, is going to hang on our ability to get assortments right, especially fishing assortments right. And needless to say, our merchant teams and our virtual merchandising teams and our marketing teams have been doing extraordinarily deep dives in those markets to make really sure that our assortments are spot on in those southern markets. We're taking extreme caution to make sure we're right.

Operator

Our next question comes from Anthony Lebiedzinski with Sidoti & Company.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

So last quarter, you guys talked about improving your store labor productivity, given that the gun business is so labor-intensive. So now the demand for that has kind of more normalized, have you been able to do that, or can you just discuss whether you're able to get some of that in -- for the quarter? And what's your outlook for 2014?

Ralph W. Castner

Yes, that's still an opportunity for us. And I tell you it's something we're continuing to work on. We think there's an opportunity, to some extent, with store labor, and it's something we're working on.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. And then I just wondering, as far as the softer demand for ammunition, was that in anyway magnified by seasonality of the business, given that the hunting season for the most part is in the third quarter traditionally?

Thomas L. Millner

No, I don't think so.

Anthony C. Lebiedzinski - Sidoti & Company, LLC

No? Okay. And as far...

Thomas L. Millner

It's just the extraordinary levels of the year ago.

Ralph W. Castner

I'd say if there's a seasonality component, it's in Q1. Because in Q1, where you've got our seasonally weakest time of the year, yet the strongest demand for firearms and ammo, which is why you're going to -- at least, as we've talked about, you're going to see a big headline number in the first quarter, just because it was so big relative to the...

Thomas L. Millner

Disproportionately big.

Ralph W. Castner

Yes, disproportionate to the seasonal performance of that store or that...

Anthony C. Lebiedzinski - Sidoti & Company, LLC

Okay. And then how should we think about the penetration levels for private label products? Certainly, nice increase in the quarter that you discussed. So going forward, what -- where should we think about that metric going up to?

Thomas L. Millner

Well, I'm not going to give you a number, but you should expect it to rise as we continue just this thoughtful expansion of our brand in balance with our great, strategic branded partners.

Ralph W. Castner

And really -- I mean, the best way to think about that, and we'll -- we can give more color on this as we go throughout the year, is thinking about it by a product category, where -- by the way -- and particularly in softgoods, we saw a big improvement with the Zonz camo stuff that a -- that's really [indiscernible] our customers. So it's more important to look at it by a product category. Because as we move forward with more retail stores, that is a headwind because you start selling more firearms, more ammunition doesn't -- which doesn't have as high of Cabela's branded product penetration.

Operator

It appears we have no further questions in the queue at this time. I would now like to turn the conference back over to management for any additional or closing remarks.

Thomas L. Millner

Thank you all very much, and we'll talk to you soon.

Operator

That does conclude today's conference. Thank you for your participation.

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