Cabela’s Incorporated: New Initiatives Should Improve Efficiencies

Cabela’s Incorporated (CAB), the “World’s Foremost Outfitter,” is the largest direct seller of outdoor goods. Product offerings include national brands as well as Cabela’s own branded goods, which account for over a third of merchandise revenues. Product lines include clothing and footwear (33.5% of fiscal 2006 net sales), hunting equipment (30.7%), fishing and marine equipment (14.3%), camping equipment (13.7%), and gifts and furnishings (7.8%).

The Direct segment, which accounted for 53% of fiscal 2006 net sales, is the largest. It includes catalog and Internet sales. In fiscal 2006, CAB distributed over 135 million catalogs in all 50 states and in over 170 countries. Its 86 editions include general catalogs and smaller specialty catalogs, which focus on specific activities such as camping and fly fishing. Products can also be purchased online.

According to Hitwise Inc., which monitors Internet traffic, CAB’s website was the most visited sports and fitness website in fiscal 2006. Traffic jumped 32% year-over-year. The Retail segment accounted for 40% of fiscal 2006 net sales. It includes sales from CAB’s 18 destination stores. These stores include simulated outdoor environments that allow customers to test products before purchase. Many include large-scale wildlife exhibits and aquariums, which appeal to families and increase time spent in the stores.

The Financial Services segment generated 7% of revenues from managing the Cabela’s Club Visa card and rewards program. Cardholders accumulate points, which they can redeem for CAB’s merchandise. In fiscal 2006, CAB had more than 850,000 active accounts. CAB’s multi-channel business model works well as catalogs drive traffic to the website, and both the catalogs and website promote the retail stores. In fact, the company’s primary growth driver has been new store openings. Four stores opened in fiscal 2006, increasing retail square footage by 29% over the prior year. Fiscal Q4 net revenues jumped 15.6% year-over-year to $781 million.

Thanks to new stores openings, the Retail segment surged 27.3% to $305 million. Samestore sales rose 1.7%. Despite some cannibalization from the growing retail presence, the Direct segment gained 6.2% to $432 million. Financial Services revenues increased 33.1% to $38 million thanks to greater interest income and increased sales of securitized credit card loans. The remaining $5 million of revenue came from land sales.

The gross profit margin expanded 68 basis points year-over-year to 43.35% due to a more favorable sales mix, which more than offset the impact of increased promotional discounting. Better operating leverage from Retail segment growth helped the operating profit margin expand 110 basis points to 11.29%. Net income jumped 25.5% to $53.35 million or 80 cents. CAB is susceptible to possible declines in consumer discretionary spending caused by an economic slowdown. Also, it faces fierce competition.

However, it plans on opening eight new stores in 2007, which should increase economies of scale and significantly add to revenues and profits. The company should also realize benefits from the rollout of a new warehouse management system, the ongoing implementation of a new merchandise management system, and a new online employee training program. We expect these initiatives to improve efficiencies as revenues grow.

CAB 1-yr chart