Cabela's Looks Solid, But Competition Raises Concerns

| About: Cabela's Incorporated (CAB)

Cabela's Inc. (NYSE:CAB), celebrating its 50th anniversary this year, possesses a healthy balance sheet, feasible strategy and improving operating efficiencies. The company provides an underpinning for an excellent investment as it is one of the strongest growth profiles in the specialty retail industry.

The company remains focused and on course to exceed the high-end of the targeted long-term return on invested capital of 12-14% through its next generation store format. The new store model of standard sizes requires less capital investment and also enhances store productivity while helping to 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 Financial Services Business segment plays an integral part in supporting the merchandising business by encouraging customer loyalty rewards program that will result in increase in revenue, profitability and customer retention at its Retail and Direct businesses, leading to overall growth in sales and earnings.

However, the outdoor recreation and casual apparel and footwear markets are highly fragmented and competitive. Cabela’s faces stiff competition from discount stores such as, Wal-Mart Stores Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT), and from such specialty retailers as Gander Mountain (GMTN) and Dick's Sporting Goods (NYSE:DKS). The competitors have large numbers of stores, greater market presence and brand recognition, and financial resources.

Further, the company's expansion in the geographic regions it serves could boomerang. This may cannibalize sales performance and lower traffic counts at individual stores. Consequently, the operating results of the Retail business could be adversely affected.

Currently, we maintain a long-term Neutral recommendation on the stock. Moreover, Cabela's holds a Zacks #3 Rank that translates into a short-term Hold rating, and correlates with our long-term view.