Cabela's Offers Investors a Strong Growth Profile

| About: Cabela's Incorporated (CAB)

Boasting a healthy balance sheet, viable strategy and improving operating efficiencies, Cabela’s Inc. (NYSE:CAB) offers investors one of the strongest growth profiles in the specialty retail industry. The company remains on course to achieve the targeted long-term return on invested capital of 12% to 14% through its next generation store format.

The new store model of standard sizes requires less capital investment, enhances store productivity and helps increase sales per square foot.

Cabela’s multi-channel model facilitates consumers to purchase directly from retail stores or order products through catalog and Internet channels, and have them delivered to the retail store of their choice without incurring shipping costs. This multi-channel approach gives the company an advantage over its competitors.

The company’s better-than-expected third-quarter 2010 results makes analysts optimistic about the future prospects, as evident from the Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

The quarterly earnings of 31 cents a share beat the Zacks Consensus Estimate of 28 cents, and rose 10.7% from the prior-year quarter. Total revenue climbed 3% year-over-year to $643.3 million, and came ahead of the Zacks Consensus Revenue Estimate of $610 million. Total merchandise revenue rose 2.3% to $587.3 million, reflecting a 2.4% jump in comparable-store sales. Merchandise gross margin expanded 170 basis points to 34.5%.

Cabela’s, which faces competition from Tractor Supply Company (TSCO), now aims to increase the merchandise gross margin by 200 to 300 basis points by the end of 2012. The company expects earnings to meet or beat consensus for fiscal 2010, and increase at a double-digit rate for 2011.

The company is also concentrating on alleviating its bad debt risk in the credit card business. Although, the improvement in the economy has led to a lowering of delinquencies and a decline in charge-offs but we still remain cautious and maintain a Neutral rating.