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Cabela's (NYSE:CAB)

Q1 2011 Earnings Call

April 28, 2011 11:00 am ET

Executives

Chris Gay - Director of Treasury & Investor Relations and Treasurer

Thomas Millner - Chief Executive Officer, President and Director

Ralph Castner - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Chairman of World's Foremost Bank

Analysts

Reed Anderson - D. A. Davidson

David Magee - SunTrust Robinson Humphrey, Inc.

Rick Nelson - Stephens Inc.

Christian Buss - ThinkEquity LLC

Jonathon Grassi - Longbow Research LLC

Mark Smith - Feltl and Company, Inc.

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

Operator

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Cabela's Inc. First Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I will now turn the call over to Chris Gay, Director, Treasury and Investor Relations. Please go ahead, sir.

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 basis 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 earnings release and 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 Millner

Thank you, Chris, and good morning, everyone. We're pleased to report our strong first quarter financial results which validates that our strategies are working, as we realized exceptional results in retail revenue growth and segment profitability, record performance at our Cabela's CLUB Visa program, strong consolidated gross margin results and increases in market share, all of which led to further increases in one of our vitally important metrics, after-tax return on invested capital.

During the quarter, we made investments in our business to include additional outfitters in our retail stores, technology infrastructure in IT, new store preopening investments in the United States and Canada and existing store remodels. These investments continue a trend which began in the fall of last year. We are very pleased these investments are driving improvements in customer satisfaction, accelerating comparable store sales increases and growing market share.

In addition to our 8.9% comparable store sales increase in the quarter, every store in our comp base showed sales increases in the quarter, a first for our company. Additionally, we realized gains in 12 of 13 product categories during the quarter, with the strongest growth coming from firearms, women's and children's, and hunting apparel. We are particularly pleased with the results in women's and children apparel. And I'd like to provide a little color on what we've done with this category.

As you may recall, last year, we integrated our customer personas into our merchandise assortment strategies and totally revamped our women's and children's category. We refined the assortment, focusing on our core customer base and eliminated periphery product that did not fit in our core assortment, and the results have been very strong.

Another example of investments we've made is at our firearms counter. With the recent remodel in our Owatonna store, we developed a new innovative display for certain firearms, which do not require as much outfitter interaction. We brought these firearms out from behind the counter, providing more of a self-service aspect, allowing an outfitter to serve multiple customers at a time. And it provides our outfitters behind the counter a greater ability to spend more time with customers on higher end or specialty firearms. Again, this has had a dramatic impact on sales.

We are very pleased that Retail segment profitability increased for the eighth consecutive quarter to 11.6%. Again, a first quarter record. Our unique integrated business model with the Cabela's CLUB Visa program continues to attract loyal customers and provide Cabela's with a segment profit expansion.

Subsequent to the quarter, we opened our first store of 2011 in Allen, Texas to a crowd of several thousand customers. This 100,000 square-foot next-generation store will significantly increase our market share in the important Dallas/Fort Worth market. We're also looking forward to opening our second store of the year in Springfield, Oregon next week. This store, our first in Oregon will anchor the West side of Gateway Mall and is also one of our next-generation store formats. We are very excited to open a store in this great market.

Now let's look at our Cabela's CLUB Visa program which had an exceptional quarter, as we saw acceleration in account growth, lower funding cost and significant improvements in delinquencies and net charge-offs. For the quarter, average active accounts increased nearly 8%. This is the largest increase we've seen in the past 6 quarters.

In addition to accelerating account growth, we also realized significant improvements in net charge-offs, which are at the lowest levels we've seen in 3 years. These favorable performance metrics, combined with improved funding cost, boost our confidence that our Cabela's CLUB Visa program will continue to have a great year.

As we previously discussed, return on invested capital is a critical measure of success. We are extremely pleased that our strong first quarter results led to a 230 basis point increase in return on capital compared to the prior year quarter. We continue to have opportunities to improve return on capital, as we increase earnings and further strengthen our balance sheet, as we monetize land held for sale and economic development bonds.

Moving to our Direct business for the quarter. Adjusted for divestitures, direct revenue declined 4.9%, Approximately half of this decline came from ammunition and shooting, returning to more normalized levels. As you may recall, ammunition sales were at extraordinary levels last year.

Despite direct revenue being down slightly for the quarter, multichannel customers increased 2.5%, which is an important metric for the long-term health of our business.

Consolidated gross margin increased 70 basis points in the quarter to 41.8% compared to 41.1% in the year-ago quarter, another first quarter record. Merchandise gross margin declined slightly, as improvements in preseason planning, in-season management and vendor collaboration were more than offset by increased transportation cost. Merchandise mix did not have a significant impact on merchandise margin.

We are encouraged that the trends we experienced in the first quarter have continued into the second quarter, particularly with regard to retail comps and the performance of the Cabela's CLUB Visa program, and direct revenue has improved slightly. As a result, we expect earnings per share for the full year of 2011 to meet or exceed current external expectations.

Before turning the call over to Ralph, I'd like to thank all of Cabela's employees for their hard work and dedication. Their passion and commitment to our customers is legendary, and has placed Cabela's at the forefront of the outdoor industry, and I sincerely thank them for all they do to cherish and delight our customers each and every day.

Now I will turn the call over to Ralph Castner, to review in more detail our balance sheet and performance at World's Foremost Bank. Ralph?

Ralph Castner

Thanks, Tommy. Following up on Tommy's remarks, we feel very good about our first quarter results and have been particularly pleased with the accelerating performance of our Cabela's CLUB Visa program which had an outstanding quarter.

For the quarter, financial services revenue, as a percentage of average managed credit card loans increased 110 basis points to 11% compared to 9.9% in the year-ago quarter. Increases in financial services revenue were primarily due to lower provision for loan losses, reduced interest expense and higher interchange income.

For the quarter, net charge-offs, as a percentage of average credit card loans improved 222 basis points to 2.74% compared to 4.96% in the first quarter last year. Additionally, we continue to see improvements in delinquencies. Greater than 30-day delinquencies were just 0.95%, as compared to 1.73% a year ago. Greater than 60-day delinquencies were just 0.59% as compared to 1.07% a year ago, and greater than 90-day delinquencies were 0.3% as compared to 0.56% a year ago.

For the quarter, we reduced our allowance for loan losses $8 million. This reduction was the result of delinquencies and net charge-offs following faster, and to a greater extent, than we anticipated.

Now let me highlight our funding plan for the rest of the year. Recently we entered into a new variable funding conduit with Bank of America. This is a three-year commitment allowing us to lock in liquidity at favorable spreads for an extended period of time. Additionally, we have 2 securitizations totaling $700 million maturing later this year. This additional funding from maturing certificate -- maturing securitizations will be raised in the second and third quarter of 2011 by issuing new certificates of deposits and new term securitizations, and we expect to benefit from lower funding cost as current markets spreads are more favorable than existing spreads in our maturing securitizations.

As many of you are aware, our parent company revolving credit facility expires in June of 2012 and therefore will become current in the second quarter. We've started preliminary discussion with our banking partners, and intend to enter into a new revolving credit facility in the second half of this year.

From an inventory standpoint, inventory increased $117 million year-over-year to $563 million. This was a planned increase, as we brought in some product in early ahead of price increases and we want to ensure we had enough inventory in the first half of 2011.

As you may recall, in the first half of last year, we suffered from lower fill rates and in-stock levels, as a result of cutting inventory a little too tight. We're very comfortable with current inventory levels, and we believe we are well-positioned for the remainder of 2011.

For the quarter, our tax rate did not have a material impact on EPS. It was relatively unchanged and was 33.7% compared to 33.8% in the year-ago quarter. Our diluted share count however, increased 4% due to slightly higher dilution from the higher average stock price, which is up over 50% from last year and additional equity grants. Now let me turn the call back over to Tommy for some closing comments.

Thomas Millner

Thanks, Ralph. Again, we're very pleased with our financial results for the first quarter, and the significant improvements we continue to make in our areas of strategic focus.

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

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Reed Anderson with D.A. Davidson.

Reed Anderson - D. A. Davidson

A couple of questions. First off, on the merchandise margins. I think the transportation piece makes a lot of sense. And I'm just wondering maybe just provide a little more color. I mean is that just, is it fuel surcharges? Is it rates going up on transportation? And then secondly, knowing that today, should we maybe dial back expectations for merchandise margin expansion this year, thinking about kind of what that longer-term opportunity is?

Thomas Millner

Reed, we continue to feel very good about our longer-term goals that we've articulated of growing margins 200 to 300 basis points in merchandise margins. So I think looking forward, we still feel very comfortable that the initiatives we have in place will realize those goals. We did see in the first quarter very sharp increases in transportation cost, mostly fuel-related. And some of that pressure has continued into April. But we are trying to take steps to mitigate those cost implications in fuel. But I think we still feel very good long term.

Reed Anderson - D. A. Davidson

But absent that, you feel like the initiatives, the other initiatives you're driving for merchandise margin expansion, those are working?

Thomas Millner

Yes.

Reed Anderson - D. A. Davidson

Secondly, on the apparel comments you made, Tommy, on women's and children's. I mean, that's very good to hear and I think there's a lot of opportunity there. And I'm just curious, in my view would be that there's obviously a lot better opportunities you get into the fall and particularly when you think about a lot of your apparel mix, your Cabela's branded mix and camo and things like that, would you just expand on how what we're seeing now can play well into those categories in the fall?

Thomas Millner

Reed, it goes back to refocusing our business on, and our assortments to meet the needs of our targeted customers. And I think when you go to our stores in the fall, you're going to see significantly improved presentations of camouflage clothing. In a lot of stores, it's going to look less like a sea of camo and much better signage, much more focused to get the customer to those kinds of Cabela's branded camo utilizations that they need for specific hunting purposes. So we're working really hard to improve presentation and also drive assortments away from the fringes and more to the focused needs of our customers. And women's I mean, it really paid off as the numbers validate.

Ralph Castner

Just to give some color to that, Reed. I've got the benefit of having the Q in front of me, which will be filed at a later date. But on a consolidated basis, clothing and footwear went from 23.2% of total sales to 24.8%. As you know, that's been reversing a trend that's gone out the wrong direction for a while. Actually, by the way, hunting equipment is up 2% in total. The category, that's been hurt a little is fishing and marine just with the fairly late spring we've had.

Reed Anderson - D. A. Davidson

I was wondering the weather, despite the good comp, I got to believe weather at least around spring activity has not been a positive for you, fair?

Thomas Millner

No, not at all. You're up in Minnesota, you still got snow in the ground up until a couple of weeks ago. And it was great for extended ice fishing, but it wasn't great for walleye and bass. So we did see a late start, both in fishing and in camping.

Reed Anderson - D. A. Davidson

And just a couple of other quick ones. You did talk briefly, Ralph when you talked about inventory about price increases. I'm just curious, what are you seeing baked into your cost? And what are you doing on your pricing to offset that? Are you taking, across the board, just give us a sense of what you're doing there, please?

Thomas Millner

To no surprise, we are seeing increases, both in hard goods and in soft goods, where we are unable to push back on those increases. We're passing them along.

Reed Anderson - D. A. Davidson

And order of magnitude kind of mid-to-upper single digits? Is that fair or is it worse than that?

Thomas Millner

Yes, I think that's a fair number across the board.

Reed Anderson - D. A. Davidson

And then just one last question, and that is, I mean, obviously, Tommy, it sounds like some of the initial experience with some of these store resets is working. Any thoughts to expand some of those remodels or resets beyond I think the 3 you've done so far? Is it, you're going to let that play out for now?

Thomas Millner

No, I think the success that we've seen at Owatonna in this, I think what is an innovative approach to firearms presentation, the results have been so encouraging that we will expand that, as we move forward. And Reed, this is very similar to the efforts last year that we talked about in footwear, where we've moved more of the self-service products out on gondolas and put the more technical products on the wall where our outfitters can really focus their selling energy. Same thing in sunglasses that we talked about last year. So this is just extending that theme over into hard goods and into firearms.

Operator

We'll take our next question from David Magee with SunTrust Robinson Humphrey.

David Magee - SunTrust Robinson Humphrey, Inc.

Just a couple of questions. One, when you talk about the multichannel customer base increasing, is that inclusive of the stores as well?

Thomas Millner

Yes.

David Magee - SunTrust Robinson Humphrey, Inc.

And if you were to look at just the Direct business, would you have a number for that customer base year-over-year?

Thomas Millner

Yes, acquisition was up in the Direct business a little bit.

David Magee - SunTrust Robinson Humphrey, Inc.

So your customers lap probably higher year-to-year on the Direct side? Is that...

Thomas Millner

Yes.

David Magee - SunTrust Robinson Humphrey, Inc.

The fuel cost being higher, when you say that you feel pretty good about the estimates out there for the year, are you assuming that they stay at the current levels throughout the year?

Thomas Millner

Yes, that would be a fair assumption. For us to try to prognosticate where fuel prices are going 4 months from now, there are a lot of smart people in the world that can't figure that out. So we're just trying to deal with what we're seeing and anticipate a little bit and make adjustments accordingly.

David Magee - SunTrust Robinson Humphrey, Inc.

So they come down and maybe that's a little upside?

Thomas Millner

Could be.

David Magee - SunTrust Robinson Humphrey, Inc.

And when you say you're taking steps to mitigate the impact of higher fuel costs, could you give a little color about what you're trying to do and how much of that increase you're able to perhaps offset?

Thomas Millner

Well, more efficient movement of freight to and from our stores, that's number one. And number two, where we can raise prices, we're taking those steps as we speak.

David Magee - SunTrust Robinson Humphrey, Inc.

Lastly, on the loan-loss provision reduction of $8 million, is that versus roughly a $10 million number last year as I recall?

Ralph Castner

Last year was $11 million, yes.

David Magee - SunTrust Robinson Humphrey, Inc.

I guess from here, I guess would you say the future reductions this year, based on what you know right now, would be smaller, or how would you sort of characterize that?

Ralph Castner

Well, they're clearly -- I would, well first of all, just comment on charge-offs in total. I mean, we are at 2.74%, which is sort of well within kind of the historical levels. Now when we calculate the allowance for loan loss, we use a 12-month average in doing that, so we use delinquency and charge-off data over the last 12 months. So assuming they don't increase, which seems unlikely at least for the balance of the year, that allowance will come down slightly, as we get more and more favorable quarters into our calculation. And if they continue to fall from here, obviously that would be more upside. We've been amazed at how quickly and dramatically those loan losses are falling, relative to a year ago.

Operator

And next we'll hear from Jonathon Grassi with Longbow Research.

Jonathon Grassi - Longbow Research LLC

First of all, on the merchandise margin, can you guys quantify how much the transportation cost did impact that margin?

Ralph Castner

This is Ralph Castner. Freight was about -- there were really several factors in there. Freight was about 20 basis points of that. Another factor which was about 10 of it in total, which we haven't talked a lot about, but when we sold our Van Dyke's business, that was a pretty high margin business and that drove, that had some impact on margins, which wasn't as important when they were up as big as they were in the fourth quarter, but it was more meaningful to the down 30 that we experienced now.

Jonathon Grassi - Longbow Research LLC

On the inventory growth, how much of that can be attributed to the new Allen, Texas store? And was there any -- were you guys carrying any inventory at the end of the quarter for the new Oregon store?

Ralph Castner

There's no question we had -- there's about $5 million of inventory in Allen and a little less than that in Eugene, and we would have had most of that at the end of the quarter.

Thomas Millner

And let me comment a little more about inventory. Last year in the first half of the year, we just killed our customers with poor fill rates in the Direct business and out of stocks in retail. And the increases that we have this year, they are planned. We feel very, very good about the integrity of our inventories. It's focused on core items and core programs. And it's -- we're not going to chase inventory this year. So we feel really good about our inventory position, albeit higher year-over-year. It was just way too low last year.

Jonathon Grassi - Longbow Research LLC

And then you guys said the charge-offs are at a three-year low. I guess what's the lowest levels you guys have seen charge-offs at historically?

Ralph Castner

There was a period of time they were in the low 2s. Only very occasionally over the last 8 years they've been below 2%. They've been in the range of 2% to 3% really from when we got the business in the late 90s, up until the financial crisis of 2008.

Jonathon Grassi - Longbow Research LLC

The times that it did dip below 2%, that was done on a quarterly basis or an annual basis?

Ralph Castner

Neither. I think it might have even been on a monthly basis. So it's just rarely been below 2%.

Jonathon Grassi - Longbow Research LLC

Finally, you guys mentioned comps have maintained going into April. Are you seeing -- is it trending above or below kind of what you saw in the first quarter?

Thomas Millner

A little above.

Ralph Castner

The Direct business has improved more meaningfully in the second quarter, relative to the first.

Thomas Millner

And that's for 2 reasons. We're over the biggest part of the bubble in ammunition sales from last year. And as Easter finally came and the weather warmed up a little bit, we have seen some improvement in fishing and camping in direct.

Operator

Next, we'll hear from Mark Smith with Feltl.

Mark Smith - Feltl and Company, Inc.

Just looking at the merchandise margins. Tommy, did adding new outfitters -- did that really impact the margin at all?

Ralph Castner

Well, none of the outfitter expense hits gross margin. That all hits SG&A. Now the only thing that might have had some impact on, although mix wasn't a big piece of the change in margin year-over-year, it was single numbers of basis points of deterioration just because one place we put a lot of the additional outfitters was by the gun counter.

Mark Smith - Feltl and Company, Inc.

And then Ralph, how about preopening expense, kind of the effect there in this quarter?

Ralph Castner

Preopening expense was meaningful. It was about $2 million more because of the -- we would've had a significant amount of it at the Allen, Texas store, a lesser amount at Eugene and a small amount at for the Edmonton store. So we did have an increase of preopening cost of about $2 million.

Mark Smith - Feltl and Company, Inc.

Lastly, can you guys just comment on the competitive environment, we're hearing about Wal-Mart's trying to get back into some of that gun and maybe a little more emphasis on fishing? Is that a big competitive threat, as you look at the environment?

Thomas Millner

I don't think so, Mark. I actually think it's a net positive for the whole industry that, that large retailer is getting back in the business. It just creates more critical mass. We don't really overlap with them, I think from a customer standpoint significantly. So, I mean I view it as a net positive, and I hope they stay in.

Operator

Next, we'll take a question from Jim Duffy with Stifel, Nicolaus.

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

A couple of questions on the comp, and then some follow-ups on the merchandise margins. Do you have a view on traffic versus ticket impact to the same-store sales?

Thomas Millner

Jim, we measure transactions. We don't measure actual footprints through the front door. Transactions were flat. Ticket was up 8% in retail. But I think anecdotally...

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

I was just going to say, is that a higher average unit retail or a bigger basket?

Thomas Millner

I don't know. We don't know.

Ralph Castner

We just don't have that data with us.

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

And then the comp improvement, is it possible to quantify how much of that is due to better in-stocks? I do think your were better inventoried this year in the quarter, and perhaps captured more sales as a result of that?

Thomas Millner

Jim, I'm not sure I can quantify it sitting right here for you. But I think we certainly believe that having the right inventory, the right programs and the right number of outfitters in our store, we're driving the business. And there is -- we believe very strongly that we're taking share.

Ralph Castner

Yes, in-stock percentage was up year-over-year about almost 200 basis points. To equate how much of the comp that impacted is difficult. But there is no question the initial inventory helped the comp.

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

And then shifting gears to the merchandise margin. Incremental expense and transportation cost, I guess I'm a little unclear, was that due to increases on the direct side and outbound shipping costs? Or is it more related to inbound?

Ralph Castner

It was primarily related, actually -- it was primarily related to higher transportation cost, shipping stuff between the DCs and the stores. We expensed that when incurred, and those costs were up year-over-year. Then there was an additional variance in the expense from getting merchandise from our vendors into our distribution center. But the actual impact of the shipping expense, we've done a pretty good job of managing what we charge on that, and that was not a big draw in the quarter.

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

Tommy, you mentioned the mix had no impact on margins based on Reed's question. It seems I may have missed at the outset of the call some of your commentary around categories, but given some of the strength in apparel, weaknesses in fishing and difficult year-to-year comparison in camo, I'm surprised you didn't see a mix benefit. Are the cost pressures in apparel and footwear working against the mix benefit you would typically see from that?

Thomas Millner

No, Jim. It's the strength of firearms in our Retail business. It was very strong.

Ralph Castner

Actually, to add to that Jim, Tommy's comments, with respect to mix not making a big difference were on a consolidated basis and it's true. It's interesting we have seen ammunition drop-off in our Direct business rather dramatically. But we've seen it be very strong in Retail, and we've seen the gun business be very strong in Retail. So when you look at mix by channel, it was a push -- you look at consolidated it was a push, if you look at it by channel, mix actually benefited the Direct business by about 40 basis points and hurt Retail between 10 and 20. And it was because of that, the ammunition impact in Direct, which is falling off we got the lift but we are hurt in the Retail. So there was an impact. You just don't see it on a consolidated basis.

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

And then Ralph, a couple of more questions here. I'll let someone else jump in. The inventory -- where should we expect the inventory at year end based on Tommy's commentaries, should we expect it to build on a year-to-year basis? Or is that more of a first half phenomenon?

Ralph Castner

I would expect it to build, but not as much as what we saw in the second quarter -- I'm sorry, first quarter.

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

And then Ralph, final question given the trends in delinquencies and charge-offs, was the provision for loan loss level a surprise to you? Or is that something you had planned into your outlook?

Ralph Castner

I was surprised for the first quarter?

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

Yes.

Ralph Castner

Well, yes, I would tell you I was surprised both at the levels of charge-offs and then sort of the resulting amount that we reduced the allowance for loan losses, We were just surprised how fast that's come down. Actually, I'm sorry I'm going to add on to Jim's point. I know he's dropped off. But our results in the first quarter was significantly ahead of our plan. Remember a year ago, we had an $11 million reserve release to get to that $0.29 non-GAAP number. Our internal budget was much less than that and our first quarter results were significantly ahead of our plan.

Operator

We'll now move to a question from Rick Nelson with Stephens.

Rick Nelson - Stephens Inc.

I would like to ask about SG&A, the expense ratio looks like it's up about 150 basis points with the big comp in the quarter. It's been a little surprise there wasn't more leverage.

Thomas Millner

Rick, let me give some color, and then Ralph can touch on some of the specifics. We could not feel better about our Retail business. Eight quarters of improvement in segment profitability. Our stores have never looked better and performed better. And we're optimizing almost everywhere across the chain and even by department in the stores. So last fall, we consciously decided to invest in a number of areas in the stores from commitments to remodels, to significantly more outfitters to continue to drive the business and drive revenue. Additionally, we made some investments -- ongoing investments to optimize our CRMS system and new cabelas.com and continued some investments in merchandising. So we think those investments are smart investments. And they certainly, in the aggregate, increased SG&A in the first quarter. As we look to the balance of the year, we would expect higher levels in the second quarter. But then in Q3 and Q4, we believe we'll fall back to low single digit levels of increase in SG&A. But we feel very good about our retail models sufficiently enough to make pretty significant investments there. And Ralph can give you some more detail.

Ralph Castner

Well, as I'm sure the math most of you guys have done is that the reported SG&A numbers were about flat, relative to a year ago. But of course the last year number had the $18 million accrual for the FDIC matter. So adjusting for that, they're up $18 million. Roughly half of that investment was in Retail. Of that, as I've already mentioned, $2 million of it was preopening cost. $1.3 million was the additional expense we had related to our Grand Junction store year-over-year. About $2.5 million of it was related to our additional investment we made in comp store labor, and about $1.1 million of it was in Canada. In addition to retail, we made some investments in our MIS area of about $2.4 million. Those were just related to continuing improvements we wanted to make in our CRMS system, and also into our website that we rolled out last fall. The distribution costs were up $1.2 million. That was in some part related to the inventory. At the bank, in part due to their strong performance, non-marketing expenses were up about $2 million and incentive comp overall was about -- was up almost $2 million given our strength in our outlook for the remainder of the year. So they were fairly broad based with about half of the expenses -- about half of the increase being investments we made in retail.

Rick Nelson - Stephens Inc.

I'd like to ask you two about the ROI of retail. I think you mentioned it's up 230 basis points. What -- where is the ROI today? And what is the threshold to really step on the accelerator in terms of store growth?

Ralph Castner

Well, the ROI number we gave you is on a consolidated basis of 230 basis points. But the disclosed number that we had at the end of last year was 13.1%. We expect that to grow this year. Probably not the full 230 that we saw in the first quarter, but we expect it to grow year-over-year. As we've talked about, we continue to be more and more confident on our Retail model, and would expect to open more stores next year. Or at least as many stores next year as we did this year.

Rick Nelson - Stephens Inc.

Also I'd like to ask about the sustainability of the comps now that you've talked about where you have tougher compares this quarter, fishing and marine sounds like it's been a little soft and we're transitioning to that season. We got recent the spike in gas prices. How do you feel about the comps as we look forward?

Thomas Millner

I think we feel really good, Rick. I think the sense here is that we've got a pretty good head of steam going. That whether we can sustain 9% comps or not, I'm not sure that, that would be our objective. But I think we feel really good about comp velocity and especially the market shares that we're obviously gaining. We feel really good about our Retail business.

Operator

[Operator Instructions] We'll now move to a question from Christian Buss with ThinkEquity.

Christian Buss - ThinkEquity LLC

I was wondering if you could talk a little bit about the inventory pull forward? And you mentioned that you're going to be, you're expensing the transportation expense there in the quarter that that's received by the stores. Shouldn't that be a benefit for you in the second quarter and the third quarter? Or am I missing misunderstanding something there?

Ralph Castner

I don't know that it's going to be a huge benefit. I mean we would have done it a year ago. And I don't know that at the store level we have a significant amount more inventory than what we had a year ago. So I'm not sure I'd look forward as a huge benefit as we move forward.

Christian Buss - ThinkEquity LLC

Just so that I understand the provision for loan losses correctly, that 1.17 percentage point level was pretty low. Would you expect a similar level of provisions going forward? Or should we expect the step-up function there a little bit?

Ralph Castner

I think there'll definitely be a step-up function as we go forward. I mean, as I've talked about in the past, over the long-term, they will trend towards the charge-off rate. Now our charge-off rate with the 2.7%, that does not include -- I'm sorry, does include charge-offs we have for accrued interest and fee income, which don't go through the provision. Those we reverse against interest and fee income. That's worth about 30 basis points. So if charge-offs were for the rest of time, at 2.7%, you'd expect that provision to approach 2.4%. Now to the extent that the provision charge-offs go down, obviously that's helpful. And at some point, we won't have -- once we have more quarters of more consistent charge-off performance, you won't have as big a reserve releases and those 2 numbers will approach each other.

Christian Buss - ThinkEquity LLC

Could you give us some marketing transfer payments for the quarter?

Ralph Castner

Yes. They're up big because you got to remember that a year ago, we had the $18 million accrual for the FDIC matter, about half of which we reversed later in the year. But it was roughly $15 million at retail and $11 million in direct.

Operator

That does conclude our question-and-answer session for today. At this time, I would like to turn the call back over to Mr. Tommy Millner, for any additional or closing remarks.

Thomas Millner

Thank you all for joining us today, and we look forward to talking to you again soon.

Operator

Thank you, sir. That does conclude today's teleconference. We do thank you all for your participation.

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