Cabela's CEO Hosts 2013 Analyst/Investor Day (Transcript)

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Cabela's Incorporated (NYSE:CAB) March 13, 2013 11:30 AM ET


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

Brian J. Linneman - Chief Merchandising Officer and Executive Vice President

Douglas R. Means - Chief Supply Chain Officer and Executive Vice President

Michael Copeland - Chief Operations Officer and Executive Vice President

Scott K. Williams - Chief Marketing Officer, Executive Vice President and E-Commerce Officer

Sean Baker - Chief Executive Officer and President


Charles Edward Cerankosky - Northcoast Research

Seth Sigman - Crédit Suisse AG, Research Division

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

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

Chris Gay

If I could have everybody start to find a seat so we can get started.

Great, thanks. I'd like to welcome everybody here today in the audience, as well as those that are joining us by webcast today. We really appreciate you taking time out to come and listen to our presentations today and hear what we have to say and the wonderful business we're trying to build.

I think, as I look around at this event, we've been doing this now about 4 years, it keeps getting better and better. And there is a lot of -- whether it's the decor, where we're at, the venue, it keeps getting better every year. And there's a lot of people that help us put this together and I'd like to recognize a couple of those today. So several of them, we have Blain Schilreff in the back; visual merchants for all of the product they brought, if you guys would like to stand; several other people from corporate and we're fortunate enough to be by Glendale store, and I'm not sure how many store outfitters are here today but a number of them came over and helped us set this room up and we really appreciate everybody's hard work to get this put together.

Also, that group also helps us put together our shareholder meeting, which is June 5. I would encourage you, if you haven't been to our shareholder meeting, I know several of you have, it's really a wonderful event. I would encourage you to try and take time to come see us. In addition to an update from Tommy, the CEO, we also do a merchandise trade show that's significantly bigger than what we've got here. We've got every product category there represented, we have a pro-staff, we'll also do a shooting event there as well. So if you have time, I'd encourage you to look at your calendars and come join us on June 5.

So we have a big agenda for today. We've got a lot of ground to cover in a short period of time. I got a couple housekeeping items I'd like to discuss. First, if everybody could silence or put your phone on vibrate as a courtesy to everybody else. Secondly, we are deeply committed to continuous improvement here at Cabela's. One of the things you find on your desk in front of you or on the table in front of you is a short questionnaire on what we could do better at this event to try to make it better and more worthwhile even next year. I would ask each of you to fill that out. And actually, we're going to hold you a little bit hostage and we have goodie bags in the back. If you fill that out, you'll get your gift bag, as well as your lunch ticket.

For those of you that are on the webcast and if you provided us an email address, we will email you the survey after the event and if you could fill those out and send them back to -- it's our third-party service provider. If we have some contact information, we'll mail you a gift card for your effort, and we appreciate your feedback as well.

Most importantly, perhaps is because we're webcasting this, we have actually more people on the webcast than in the room and we've all been on the other end of a webcast, we need to ask the questions, when you have questions, into the microphones so the webcast audience can hear it. Otherwise, as you know, you don't know what question was asked, you're looking into an answer, assuming a question. We'll have microphones on each side of the room. So please take just a moment, wait for the microphone, ask your question so the webcast audience gets the full value.

And I really do appreciate everybody coming and following the company. I know a lot people followed us and been some shareholders for a long time. We really value this long-term relationships and I appreciate your time today. I'm sure you're all familiar with our forward-looking statements, so I won't read them. And now I'll turn it over to Tommy Millner.

Thomas L. Millner

For those of you who now know me, I hate podiums and stages, so I'd rather just kind of come out here, if that's okay. I'd like to also welcome everybody on the webcast that's joining us in addition to all of you that took the time to be here. You could have gone a lot of places today and we really appreciate that you cared enough to join us. Before my comments, I'd like to echo what Chris said, Blain Schilreff, who you all interact with a lot. Blain takes this very seriously as he does with our annual meetings. And so, Blain, thanks for everything you do for us. The event wouldn't look like this, were it not for your leadership.

I am proud to say that we're it not for this pesky company called Berkshire Hathaway in Omaha, we would have the best annual meeting in the state of Nebraska. But he manages to pull 25,000 people around or something like that, and we're not there yet but we've gone from an annual meeting -- Bill was there last year, an annual meeting 5 years ago that had 30 people there and 29 of them were either directors or employees to last year, we had 1,100 people in Sydney at our annual meeting and I would like to echo what Chris said. We would love to have any of you there. It's really -- it's a neat event. It's a little bit of a community celebration because we are such an important part of our community. But it's also turned into a pretty damned good annual meeting.

So please, Tom. Luke Bryan, the country music star, will actually be performing in Sydney the night before the annual meeting. So there's a fun reason to come if you can figure out how to make it.

Also what Chris said, please use the microphones because we have so many people on the webcast. And it is aggravating when you're on the phone and you can't hear the questions. So we've got mics around that we'll be able to pass around.

The last thing, at our annual meeting in Denver, Colorado, we have an annual sales meeting that we had just a month ago, I shared with the top 650 leaders of our company that I dream about a lot of things. And one of the things I dream about is one day -- and I want to live long enough to see this dream come true, is that we would have an array of candidates who could actually be the CEO of our company. And those would be candidates -- people who love diversity, and also a female candidate that could actually run our company.

And for an old, established outdoor retail company to start thinking that way, is a bigger step than any of you can imagine because this has been -- the whole industry has been kind of a guy's club for decades and decades and decades. Last summer, I challenged a number of female leaders in our company to create what we now call the Women in Leadership group. And the challenge that I gave to them was if we're going to make progress towards this dream that I have, we've got to start by assembling the leading female talent in the company to identify for the executive team who are all a bunch of guys, what are the obstacles, either real or perceived, that are preventing women from rising to the very top of our company? And I would ask that all the members of the Women in Leadership council stand up so that we can acknowledge you.

These ladies are doing amazing work. They are officers and directors in our company. They are making a huge difference and they are helping me, as the CEO, understand all the things that we do that make it more difficult for them to bust through. And I think in the last year, we have made -- and I think they agree with me, we have made terrific strides. Today, we have more female directors than any time in the history of our company. We have more female vice presidents than at any time in the history of the company, and we're only just getting started. So to all of you guys, thank you so much for everything you're doing. And one day, that dream is going to come true. And I hope I live long enough to see it. Thanks.

They are here -- the Women in Leadership group is here today for one simple reason, we told them you all were the meanest audience that we ever faced in the course the -- a year and all your questions are really tough. So part of their development is to watch us prepare for this meeting, anticipate what your questions could be, think about how we respond to them and just actually understand how this works so that as their careers develop, this is part of the suite of experiences that they have that they build on. So I hope they get as much out of being here as we do having them.

Well, 4 years ago, we started a journey, and that journey was focused on improving the core fundamentals of our company. Today, and I think I've said to a number of you over the last several months, we were not going to be -- this was not going to be a look back meeting and say here's what we did, because if you'll recall, our Vision 2012, which was our 4-year vision, ended at the end of 2012. So that was the first chapter of our new book that we're building for our company.

So I'm only going to have two clicks to tell you sort of how we did. I mean, I just could not resist, actually. So where are we today before we talk about where we're going? Well, this amazing throughput, 15,000 people, embraced our vision to fundamentally improve every aspect of our business and that has resulted in EPS going from $1.36 a share to $2.72 a share, and that's pretty darn good progress. But it didn't come by trying to chase $2.72. It came from 15,000 people focused on every minute detail in our company that just gets better and better and better, and to commit ourselves to excellence and continuous improvement.

The only other slide click I'm going to give you is this one, and this was the most important metric that we measure ourselves against, and we think it's the loftiest goal of any company, public or private, and that is what is the rate of improvement and return on invested capital? And I think you all know that we have worked very, very hard to have a keen eye on balance sheet productivity and return on capital, because at the end of the day, that's the ultimate measure of how well we're doing. The rest of the stuff is noise that can go one way or another, but at the end of the day, return on capital is everything.

And I'm pleased to share with you that from 2009 to 2012, we increased return on capital from 11% to 15.8%. And as you will hear today, I don't believe we think we are done. Because the more stores that we have in the new format that are generating higher returns than the legacy base, this number just gets better and better and better.

So why was all that important? It was not important just to take EPS from $1.36 to $2.72. The leadership of the company, we all knew that 4 years ago, in order to achieve a dream of building out this iconic brand from, at that point, 31 stores, to what we view as buildout, something around 225 stores. The only way to accomplish bringing Cabela's experiences to people all over the United States and Canada, was to build a house that had a great foundation.

So to demonstrate to ourselves that we could elevate Cabela's branded product, that we could have a real talent development process that could manage growth and have a great people to populate new stores, have a world-class marketing competence, to actually find great real estate that didn't depend on incentive and all of that stuff. Four years ago, we were not world-class executors in our retail stores. I would dare anyone to challenge us that the way we operate our retail stores and the level of customer satisfaction that we provide; we're as good as anybody in the marketplace today. But the importance of building this great foundation was so that we could grow. And Ralph and I said very early on, that as you saw our comfort rise with the way the foundation of the house was coming and its improvement, we would start increasing square footage growth. Now 4 years later, we're in a very -- we're in a great place, as our press release indicated yesterday morning. So it's time to grow. So the whole exercise for 4 years has been to position ourselves so that we could digest and manage profitable growth. There are mornings that I wake up and I think, it is unbelievable that we have a brand that is known everywhere I travel all over the world and we only have 40 stores. I mean, its story's just amazing. Now we have a big Internet and catalog business but if you think of most iconic retail companies or iconic omni-channel retail companies, they have hundreds of stores, if not, thousands of stores. So we want to bring this experience all over the country.

It intrigues me that things build on themselves. You're going to see a brand presentation called It's In Your Nature, it's behind me. Some of you may have seen the commercial that's running on TV. That would not have been possible 4 years ago, because 4 years ago, in our retail presentation, Cabela's branded products were good but they weren't good enough to stand ahead of the brands in our stores or in our web presentation. Today, Brian and the merchants have changed all of that. The products that you see around here are absolutely world class. They actually do something. They keep bugs off of you, they keep you from being sunburned, they do all kinds of neat stuff. Our BOA Boot System keeps your shoelaces from coming untied. So now, Cabela's brand products can stand ahead of the brands in our retail presentation and even support Outpost stores where you can't even find a branded goods in there.

So the timing of a brand campaign that distanced ourselves from competition couldn't have been possible without concurrent work on the product. I would tell you it is, and I've said this to a number of you, it is a bit frustrating for me. I've been in the gun business a long time. I've seen it go up, I've seen it go down, I've seen it go back up again, feels like 100 times. If I have one frustration today, it is that all the noise around firearms and ammunition, you will lose sight of what's really happening here, which is the enormous progress we've made in a new store model that works, that beats our expectations and is predictable now from geographic location to geographic location and that's really important, that is the future of the company.

The gun noise will come and go but what's important is the great products that you see here that bear our name, that protect us, both defensively and give us an offensive weapon against our competitors, that's what's really important. And in the noise of all the guns and ammo that we're selling, please don't lose sight of the core improvements that we're making in the company, that's what will sustain us. And the growth of our retail platform, that's what's going to create value for all of us as shareholders looking forward.

I would close with one thought. We could grow a lot faster. We have the access to capital to grow faster but I think growing faster than 10, 11, 12 stores a year, would be a big mistake for our company.

At breakfast this morning, one of the folks sitting at the table was talking about new store locations and all of that. And I said, does anybody realize how hard it is to be right in assortment in one Outpost store in Saginaw, Michigan? It may sound easy. Well, why don't you just stamp these things out? You do 30, 40 of them a year, you scale big time, get a competitive advantage. It is really difficult. If we're going to be excellent at what we do so that when the customer walks in, the Union Gap or Saginaw or in the next gen store in Columbus, Ohio, that we have the assortment that they know as passionate anglers or hunters or campers, they need for that marketplace. That is much harder work than you can possibly imagine.

So when I hear companies say they're going to roll out 30 of these and 20 of those and 40 of those, I've been in the outdoor industry long enough to know, that's an easy thing to say, it is a really hard thing to do. In fact, I would argue, it's probably not doable because the second that customer walks in and he knows on Lake whatchamacallit 10 miles from his house, everybody fishes with a wooly booger and that store doesn't have it, they're dead. They will never go back. It's that simple and yet, that difficult. So I think the best path for us, we have enormous regard for Nordstrom. Nordstrom has 225 stores in the United States. They don't try to build 50 stores a year. They build a few stores and they do it really well. And I think, as we look forward and start this next chapter of growth, that's what you can expect from us and that's why you should expect that from us. It's that relentless focus on being exceptional, so that when our customer walks in the front door, they're going to talk to somebody that absolutely knows what they're talking about in any category in the store and that the merchandise assortment match that expertise. And I think, we think, 15,000 of us think, that's the best answer for our company.

So with that, we can't wait to talk to you about where we're going. Thank you all for being here. And I'll turn it over to Ralph and then I'll have some closing comments at the end. Ralph?

Ralph W. Castner

I'm going to do my best here to keep us on time and on schedule for the day. One thing I would really like all of you to do as we go through this is, is interrupt me with questions. As I speak, if any of you have questions, please raise your hands. It is important we get you a microphone so the people on the webcast could hear you but I would encourage everybody to ask me a question as you have them, as I go through my presentation.

As I organize my thoughts about this discussion today, I often get questions like, if you were building a model for Cabela's, how would you do it? So I kind of because this was webcast today, organized my presentation sort of along those lines as to how I think about our company financially.

The first slide I'd like to share with you guys is, I get a lot of questions about our competitors. I get a lot of questions Dick's, I get a lot of questions about Bass Pro, I get a lot of questions about Gander Mountain, but if you really think about our business, there's about $50 billion spent on hunting and camping equipment in the United States today and I've got it split out here on the slide. Clearly, Bass Pro important, clearly Walmart is important, clearly Gander Mountain and Dick's is important. But there is still an enormous amount of money spent on hunt and fish camps at small independent dealers around the U.S. And that's really what the story is about. It's about consolidating that market share in a handful of players like you've seen in a lot of other industries. And too, I would suggest to your home improvement and [indiscernible] where we have really seen over the last 10 or 20 years, a real consolidation of independent players through a handful of big-box retailers and that's what this story's about. And if we continue to roll out square footage, we're going to continue to gain market share [indiscernible] consolidate that [indiscernible]

We've highlighted -- I'm going to start with retail. We've highlighted a little bit, Tommy touched on some of our successes in that business but I'll take you back in time a little bit. Some of us on the stage remember this. If you go back to 2009, what we call our retail contribution, which was really the 4-wall contribution to model [ph] , was about $0.11 from $1. So if you took all the sales from a store minus the cost of merchandising the store, minus labor and advertising, we're making about $0.11 from $1, which might seem like an impressive number until you learn that the corporate overhead which sustains for all of us, accounts payable, distribution, all the other stuff, runs about 10% of sales. So we basically were barely breaking even in our Retail business.

We sat down as a management team and went through every line item on the retail P&L and said how can we get better? It started to grow and it came from a handful of areas, it came from greater contributions from our Financial Services business, a huge increase in gross margin at our Retail business, better use of our advertising dollars and better use of our retail labor. And between 2009 and 2012, the results sort of speak for themselves. We have increased to almost 700 basis points as a percent of sales in the profitability we've seen in retail and to Tommy's comment, as we've seen that, we've seen a huge increase in revenues and start to roll off more and more retail stores, particularly this big jump between 2011 and 2012 where we went from $1.5 billion to $1.8 billion in retail sales.

Now, so we'll talk a little bit about retail square footage but I want to start with same-store sales. I get a lot of questions about same-store sales and I still believe long-term, this is a 2% to 4% same-store sales grower. I will tell you, as you saw in our press release yesterday, it may get lumpy and we're probably going to have obviously, in the first quarter this year, we're going to have really good same-store sales. I don't know what they're going to be 2014 and quite frankly, I -- obviously, I care but what I care about and we'll talk about this a little bit, is the production we see in our new square footage as we roll it out. I guarantee you, over the next 24 months, same-store sales are going to be lumpy. Long-term, we think this is a 2% to 4% grower in same-store sales, the ride between that, then and 2015 might be a little bit exciting. Obviously, we had a great the fourth quarter 2012, we're off to a great the first quarter of 2013.

I want to focus a little bit on the store model and this is a real store we rolled. Out and sort of as we think about them as we roll out our stores and I've started here to differentiate between our next generation stores and our Outpost stores. This is an example of a next-generation store that we've actually opened. The store costs $20 million to $24 million to build, that would be with net inventory net of accounts payable. It's an 80,000 square foot store. Our new next generation stores you'll see, we expected to somewhere around $480 a foot. But one of these stores would do roughly $38 million of sales. We model going forward in that 2% to 4% comp for it [ph] . Now, what we've noticed about these is as these enter the comp base, they're actually comping really strong, much stronger than this. Long-term, they'll be a 2% to 4% comper. So relative to that 18.7% number that I showed in the last slide, these stores have a 4-wall contribution of about 20%. Now, we load that with the 10% overhead that we discussed earlier and then calculate an IRR and get an IRR of somewhere between 12% and 13%, that's how we're modeling the stores going forward. Now interestingly, I told this story at dinner last night and it created an interesting debate. You might ask how we get the sales number of $38 million, that actually comes from our marketing department. Those guys have done an unbelievable job of predicting how much the stores are now. There's a lot of individual things that we argue with, that they're right so many more times than they're wrong. I'm not tempted to argue, but we can call our marketing department and say Bangalore, Maine and they'll tell me how much business we'll do at Bangalore, Maine. So our real estate guys use that data to go find the best markets we can go to.

Now if you contrast that, especially with an Outpost store, at least for now, on a per square foot basis, we're not modeling those significantly different than our next generation stores. The stores there will do about $480 a foot. They're roughly half the size, so we'll do somewhere between $18 million and $20 million on an Outpost stores, we'll see for a 4-wall contribution of about 20% and this shows a slightly higher return on the Outpost stores but quite frankly, when you look at all over in the returns, at least, our expectation is they're about the same, which is somewhere between the 12% and 13% return. From an IRR perspective, those stores cost $10 million to $14 million to build own, that includes the land. Both of these examples I used are our owned case. We certainly will lease stores when that opportunity presents itself. The way we look at the lease is, we just treat it as debt and present value for future payments and calculate the IRR based upon that.

This is the most important slide, maybe that you'll see today but certainly in my presentation, is the performance of our new next generation stores relative to our legacy stores. Somebody told me earlier, they're going to go see our store here in Glendale, which I would encourage any of you to do. It's a great, beautiful store, it's unbelievable, we'll never build another one like it. It's just too big and it doesn't get the appropriate returns. Those stores on average, average sales about $347 a square foot. Our last 5 stores of next generation stores to be opened, was -- if I can rattle them all off, that would be Eugene, Oregon, Allen, Texas, Billings, Montana, Grand Junction, Colorado and I think Edmonton, Alberta. Those stores are averaging almost $500 per square foot.

From a 4-wall contribution perspective, our legacy stores do $56 a square foot, the next 5 stores do $91 a square foot. Now this graph represents the 5 stores that rolled out for the full year of 2012. I actually did the math for -- it goes from 5 stores to, I think, 10 that were opened for the full fourth quarter of 2012. Just to make sure that the trends are still continuing and the percentage and obviously, the numbers are different because it's a shorter period of time, was the percentage differential between our next generation stores and our legacy stores was about the same even when I include those additional stores. The store count I measured is just for the fourth quarter. So we continue to be really pleased with how this is going and again, I'll repeat what I think about as I'm looking at success and failure in our company, is that we're continuing to maintain this differential in the productivity of our new stores as we roll them out. I mean, comps will be what they are. The direct business will be what it is, but when I think about success in our company, I'm looking at this slide.

Just talk a little bit about our expansion plans. I'll go through some of the details in a minute. Starting in 2014, we expect to roll out about 1 million square feet of retail a year. That will be broken out between basically, next generation stores. [indiscernible] I'll talk about Canada in a little bit, 2 to 3 Canadian stores per year and up to 3 Outpost stores. Now, if I were to think particularly in these back years about this business, the one thing I might expect to see differently is more Outpost stores and less next generation stores but still trying to maintain about that the 1 million of square feet as we get more and more comfortable with those sites. We've seen a lot of great locations for Outpost stores and I wouldn't be at all surprised to see upward pressure in Outpost stores and downward pressure on the next generation stores.

This just expresses the retail square footage percentages, somewhere between 10% and 15% per year, with slightly more growth than that as we move into 2014.

Going through some specific locations, and for a handful of you who were at our Columbus opening last week, there is -- and you can ask some of the guys. Scott Hamann was there. Chuck was there. If you get a chance, you really ought to go. It's interesting to see the numbers. But one of my sort of behavior for the day as I would get up on the roof and look at all the customers coming in, and when you see all the cars backed up on the interstate and people walk in from miles around, I mean, you get humbled if you think about all the work that goes into that experience for our customers just to see it all happen. I really encourage you guys to try to get to one of those. The stores scheduled for this year is we're opening 3 next-generation stores in the spring. Columbus, Ohio; Louisville, Kentucky, actually opens next week, followed by Grand Rapids, Michigan, in early April. Then in the fall, we're going to open in Green Bay, Wisconsin, and then 2 stores in Denver.

In Canada, we'll open -- we're going to relo our Winnipeg store, as Mark Smith tells me every time he sees me that, that doesn't count as a relocation because your existing store isn't that great. And he's mostly right. The new store in Winnipeg is going to be a much better customer experience for our customers in Winnipeg, and we expect to do much better with that store. Parking lot's bigger, it's better located. The legacy store we had in Winnipeg, we just got as part of an acquisition.

We picked it up as a part of an acquisition. We'll look forward to getting this in our old format, and then we'll follow in the fall with Regina, Saskatchewan. As far as Outpost stores, we've already opened our first store this year in Saginaw, Michigan. Huge success, opened in the middle of February. We're going to open in Waco, Texas. We have one other store that we're trying to get finalized to get opened in 2013. If we don't -- you'll see on the next slide, when I go to 14 stores. We have Kalispell, Montana, plugged in for a May 14 opening. If we don't get that, still, we'll have an announcement done, we may be able to do Kalispell after 2013.

But as you continue to look at '14, I would -- maybe in the history of our company, with the exception of Hamburg, Pennsylvania, this group of stores are some of the most important, strategic markets for Cabela's. And a couple of them are stores that aren't announced, as you'll see over the next couple of months. But the 2 I'd like to call out, particularly Christiana, Delaware. For those of you from Maryland, Greater Philadelphia, that's part of the Christiana Mall. It's right -- the store will be right on I-95. Delaware does not have a sales tax. Pennsylvania, Maryland, New Jersey all do. The shopping mecca is a great location. Maybe one of the best locations we have. Greenville, South Carolina is actually one of the markets that we probably wouldn't have looked at right away, but thanks to our marketing people, who pointed out what great potential Greenville, South Carolina has. So we went to that marketplace and put a store there. Thirdly is Anchorage, Alaska. For those of you who don't know, our brand is really, really well known in Alaska. This is going to be -- we should have been in Alaska 5 or 10 years ago. Great opportunity for us. Woodbury, Minnesota, is an opportunity for us to solidify our leadership position in the Minneapolis market. And then finally is Bristol, Virginia. [indiscernible] opportunity. Because it does really harken back to the days of the spending, we've got a significant amount of incentive to go to a store where our capital expenditure has been very minimal for that store. We're really pleased with that. You should expect 3 more new store announcements there, probably over the next couple of months.

Canada, I'll talk about a little bit. There's great opportunities in Canada. We actually have 3 sites identified that we're ready to finalize with the real estate of Outdoor. We expect an announcement shortly. I've talked a little bit about the Outpost stores. Kalispell will probably be a '14 opening. And there's a couple other stores that we're trying to finalize at this point to be announced at that timeframe.

I'll just talk a little bit about the geographic. Some of this kind of goes without saying, but if you think about where our legacy stores are, I'll leave with you some of the next gen and Outpost.

For really competitive reasons, we sort of started in the West. There wasn't as much competition in the West. There've been a couple of bankruptcies in the West that had left us -- the competition not that great, so we started and put a bunch of stores in the West. And I would tell you x California, market for our next gen stores, we're probably about done in the West, except for Albuquerque, Las Vegas, [indiscernible]. Now at some point, I did -- I said that yesterday, at some point, given our huge success in Seattle, we can probably see having a third next-generation store in the Seattle market next time. But as you think about where stores are going to be, going forward, I always thought that if you were to look at where our direction is, and I always say Cabela's country is if you draw a line between Omaha, Nebraska, and Boston Massachusetts, we do a ton of direct business in that quarter. We see this first quarter as great for us. You'll see us try to make some announcements, but in fact when you look at the 2013 openings, you see why we go to Louisville, Kentucky; Columbus, Ohio; Saginaw, Grand Rapids, Michigan and Green Bay, those are great stores in our market [ph] . You'll continue to see us moving up there. And obviously, there's -- we don't have a lot of stores in Southeast. We're going to continue to move down the Southeast. The first stores will be announced there. The first 2 stores, I guess, are Bristol, Virginia, and Greenville, South Carolina, are opportunities for us. We've been on the [indiscernible] Southeast. We continue to look for stores there and expect to make some announcement in the future.

Canada, is an enormous opportunity for us. We've got 3 stores there today. Each are now -- I had a couple of jokes on the scale, but each of those dots represents 15 customers in our Direct business in Canada. And I only put that there to make the point that we've got 3 stores in Canada today in Winnipeg, Saskatoon, and Edmonton, and we're going to open in Regina, which is down here. And a part of the country where we really don't have that many [indiscernible], there's great opportunity to move obviously to greater Toronto area, a huge opportunity [indiscernible]. Greater Toronto area is a huge opportunity for us, as are the Maritime provinces and British Columbia.

We think we're building 50,000 to 70,000 square-foot stores in Canada. My estimate somewhere around 20 stores is probably the right number of those stores. At some point in the future, we need to design a smaller store format. I don't know how big it is. But something akin to our Outpost stores in the U.S. to roll out the smaller ones.

So I'll switch from retail and talk about the Direct business, and go through some of the tailwinds and headwinds. I know, given that we have seen a lot of improvements in that business recently, both in the fourth quarter of 2012 and into the first quarter of 2013, I just kind of want to reiterate to you guys, I'm not sure our long-term outlook for that business to materially [indiscernible]. We continue to see that as a very mature business. And it gets cannibalized $2 million to $3 million every time we open up more of our retail stores. We continue to believe over the long term that term -- that business will be flat, and possibly a little bit of growth. Obviously, we're excited about the success we're seeing in this -- we've seen in [indiscernible] . Just going through a couple, there are some opportunities. Scott will talk about it in his presentation, to fill that business, to make that experience better for online customers. There's some site enhancements we can do as far as technology initiatives. There's opportunities in mobile. There's opportunities in Omni-Channel fulfillment. Just to talk a little bit about what Omni-Channel fulfillment is. So as a general rule, our online customers don't have visibility to retail inventory when placing an order. So we -- and most of you know, we do have in-store pickup, where you can order online and pick up at a store. But every time that happens, your product has to go from the distribution center to the store even if the product's already in the store today. Conversely, if we're out of the [indiscernible] and have it in the store, we tell the online customer we're out of that product. Having -- building visibility into the store inventory and then ship it out of the store will give a great opportunity to improve bill rates in Direct and increase our shipment [indiscernible] customers if we cut down [indiscernible].

There continues to be opportunities to increase our advertising efficiency across channel promotions. Again, Scott will talk a little bit about that in his presentation. The biggest headwind, some of which I've talked about, is each store cannibalizes $2 million to $3 million out of the Direct business. We do about $900 million out of Direct [indiscernible] stores a year that cost $3 million to $8 million. You go backwards 3% before you even start growing in a year. So to get to flat, you have to have 3% growth after taking in the aspect of cannibalization.

And then additionally, we own -- it's hard to emphasize this enough. We own the Direct business in our space. Our -- we do about $900 million of Direct business. We -- our estimate is the Bass Pro does somewhere between $150 million to $200 million. But we think Gander Mountain, x their Overton's business, the store has hunting, fishing, camping, probably does somewhere around $50 million. So what I mean by that is that every time somebody puts up or any competition you get online, we're obviously a big target and get some of that.

So we continue -- despite our recent successes in this, we continue to believe this is a mature business with flat and slightly positive growth rate. So just as a summary of that through a bullet point, our expectations for that business, we see success as having consistent growth rate, similar to levels we saw in the fourth quarter of 2012.

I want to talk a little bit about our CLUB Visa program. And you guys have heard me talk about our strategy in the past and sort of overly simplified it. We're going to lead with the retail store business. The Direct business is going to be mature, and our CLUB Visa program is going to draft off, I guess, similar to a NASCAR driver, it's going to draft off retail growth. There is an unbelievable correlation between retail square footage growth and growth in CLUB Visa count. We're now up to 77% of new accounts come from our retail stores. It's interesting. Sean and I -- and we need to do some more work on this, but Sean and I, in preparing for this meeting, took the credit card portfolio and split it [indiscernible]. We split it into where that account was originated from. So we basically looked at the portfolio for all -- how many -- all 40 stores and look at the growth rate by store. So we've seen accounts go up. So in the history of the Sidney, Nebraska store, if you'd ever sign up for an account between 2011 and 2012, and those accounts are up, down and sideways -- by the way, we included the Internet, included phone calls, included any other stores accounts. Interestingly, what I expected to see was that for the older stores -- Sidney, Kearney, some of those stores have been on 20, 30 years -- basically, there'd be noise, okay? We were signing up new accounts as they were placing people in the store] [indiscernible] out of the portfolio after [indiscernible] . Amazingly, every single store had positive account growth between 2011 and 2012.

Now I -- what I want to do is come up with some rule-of-thumb formula to help you guys understand the correlation between retail square footage growth and [indiscernible] growth. But if you think -- and then by the way, our newest stores, which is not a big surprise, that opened in 2011, 2012, they're seeing super high growth because we're not having any -- those accounts haven't had any time to write off yet and they're still generating a significant number of new accounts. For example, I know some of you have been to that store in Tulalip, Washington. I mean, we're seeing great growth there because the store has opened in just a short period of time. Well, I can't -- I haven't developed that rule of thumb yet. But if you think about what that means for [indiscernible] growth, going forward, [indiscernible] these stores have been around for 20 to 30 years, if we started expanding retail square footage, what that could mean to our [indiscernible] growth [indiscernible] .

So just the correlation is going to be great as we roll on square footage growth, continue to expect the real growth in our CLUB Visa program going forward.

I want to spend -- the other question I get a lot is, Tell me about the credit card program. Where can they be -- we've now seen the dip below 2%. That's sustainable. And I guess the long-term answer is no.

As you go back and look at the photo sign, this is charge-offs, I don't want to say from the beginning of time, but I'll say we hardly had enough accounts back in 2000 to make it relevant for today's portfolio. I had somebody graph our charge-offs the last 13 years, and the takeaway over long periods of time is we've seen basically 2 spikes, 2 meaningful spikes of charge-offs. In 2000, '01 levels, charge-offs got up just above 3%. And obviously, in the '08, '09 timeframe, they got up around 5%.

Really excluding those, charge-offs have always been between 2% and 3%. Now having said that, we've recently seen a drop below 2%. And that may be sustainable for a while because the growth in accounts mask charge-offs because it takes 2 to 3 years for somebody to charge-off generally. So if we start ramping up account growth, we could see charge-offs be depressed for some period of time. I don't know how long they are, but I'm just trying to warm everybody up. If you see charge-offs go to 2%, 2.25%, those would be well within our expectations of what we see performance now. One other comment as it relates to account growth, the other new accounts also have a much lower balance. So the other thing you should expect to see: If we see pressure on average balance per account, that ought to be expected. As you're adding more and more of these new accounts with smaller balances, you're going to see a decrease in average balance. So the 2 things you should look for as we start -- as you grow accounts even faster is charge-offs will stay low, but average balance will stay low over time. As a matter of fact, one of the big things we enjoyed in '08, '09 as account growth slowed, was accounts we put on the '05, '06 timeframe started ramping up. A new, a first year account has an average balance of around $1,000. A 10-year-old account is somewhere around $2,000. So one of the unexpected things -- well, not unexpected to us, unexpected to you guys that we saw in the '08, '09, '10 timeframe is, we started seeing great growth in average balance as the accounts matured, as new accounts slowed. Now we're going to see the opposite. Account growth is going to accelerate, and we'll see average balance maintain or maybe stall a little bit over time.

I want to talk a little bit about interest rates. First of all, it was interesting to go back and look at this. So if you can't tell, I like looking at things over long periods of time. So I looked at our net interest spread over the last 4 years. As you see, it's remarkably simple. It's 7.5% with the spread increased to 8% in 2012. Now first of all, listen carefully to this. It should not be -- there's 2 press releases we've issued in the last 3 or 4 weeks. The first one is, we did a 10-year fixed-rate securitization at 2.71%. And then we had the press release yesterday about how strong comps. Those 2 things are not unrelated.

And here's what I mean by that. When we started thinking about trying to do a term securitization, it was almost unbelievable that you could borrow a 10-year loan at 3.71% debt for 10 years. But it does cause a short-term earnings problems because our average cost of a money right now is at unbelievable 1.7%. Now the 1.7% is obviously a mix of fixed versus floating and new deals versus old deals. But it did occur to us, "Hey, how are we going to react when our merchandise businesses were so strong? What are ways that we can build long-term value to shareholders?" And one of the things we thought about, "Well, look, we've got some P&L opportunity this year. Great opportunity to lock in long-term fixed rate money. We got $300 million deal that basically cost us 2.7% versus average of 1.7%, cost us 100 basis points, cost us $3 million a year or more than what we're paying. So that seems like a cheap price to pay for a long-term tenure money. So one of the things we should expect to see as we go forward through '12 or -- I'm sorry through '13 to 2014 is continue to look at more of those deals. As a matter of fact, one of the things that we talked about in our bank group is through some of our banking partners, we're actually able to issue 10-year fixed rate deposit. So 10-year fixed-rate deposit. So we started to get more active in that long end of the term as a way to manage it.

So there's a long way to sort of manage expectations, to talk about this. Here's what you should expect to see. In the short term, this 1.7% [indiscernible] cost will probably go up. It will either go up since the average level of interest rates are going to go up and/or we're going to be out longer term in market trying to get basically higher cost money and try to get a fixed -- get it fixed in. Now what that should relate to, when -- I'm sort of a child of the '80s. The interest rate got to go up. I'm not going to win, but they got to go up. When they go up, all of our interest income yields get spread over LIBOR. So as soon as LIBOR moves up, we can reprice our credit card accounts, and that number should move up. This interest rate, this interest expense rate will obviously be a lag. It will go up later at a slower lagging rate as we -- if we're successful locking in more of the long-term money. Now one thing to think about, which will be interesting is we can contractually raise the rate on our credit card account. As a matter of fact, [indiscernible] change them. It will go up as LIBOR goes up. One of the things we're moderately interested in was that changed [indiscernible] . So if I got a card that's -- whatever it is, LIBOR is 1%, my card is at 1,500 basis points over LIBOR at 16%. I mean that doesn't feel bad, but if LIBOR goes to 1% to 5% and all of a sudden my interest rate on my credit card goes from 15% to 21%, even though I can raise it, is that going to change the pace? My guess is no. But it's something we need to continue to monitor as rates go up.

Talk a little bit about merchandise margins. We've done -- oh, yes?

Unknown Executive

Before we get off of the bank, I hope everyone understands what it meant to us to only have a 75 basis point risk premium, 10-year treasury. That not only says something about the CLUB Visa program. We think it says a whole lot about the quality of our company because that kind of risk premium, that 10-year treasury notes is pretty steep. And we were really pleased that it validated, at least, in the term securitization market, just how pristine those investors those investors view our company. And that's really, really important. It sort out hurt my feeling, Ralph. After we did this 10-year deal, he said, "You do realize that if we do one more of these, we won't have to worry about funding the bank for the rest of your career." And I said, "Thanks a lot, Ralph." But it is important. It's really important because certainly rates are going to rise at some point. And if we can lock in now, albeit at a short-term impact to earnings, we're banking value down the road. Really, really important.

Question-and-Answer Session

Ralph W. Castner

Any other questions? I've got no question. Yes, Phil [ph] ? It makes me feel good.

Unknown Analyst

Yes, the focus here obviously is on the new-gen stores turn back to the future, which is in your Outpost in new gen. Talk a little bit about stores like Fort Worth, which is -- I think you could probably fit, what, 6 Outpost stores in that one store?

Ralph W. Castner

Exactly, yes.

Unknown Analyst

So -- I forgot the square footage, but it's huge. What happens with a store like that? It's obviously not part of your future. Does it just kind of muddle along or -- what do you do with that?

Ralph W. Castner

Well, first of all, I wouldn't use the word muddle along because we still do...

Unknown Analyst


Ralph W. Castner

No, that's all right. We still do a significant amount of business out of Fort Worth, mostly a single [ph] store. We've tried to come up with -- the short answer is we've tried to come up with ideas to improve them. It's tough to do with [indiscernible]. A couple -- I'll give you 2 success stories that we've done. In Hoffman Estates, Illinois, we closed the entire Hoffman [ph] okay? Moved all the inventory down to the first floor. What that did -- sales were uni-mpacted. And what that did to inventory levels and what it did to labor cost, it didn't have to have the people up there waiting on customers, was meaningful. Another sort of boring story is in Hammond, Indiana, they -- the finance people. The guys said, "We want to put up an archery range." So I have somebody run this math and say, "Hey, how much -- if you put in archery range, how much are you going to charge every time somebody comes and shoots the bow?" And finally, the guy said, "Ralph, you're missing the point. If I put an archery range, I no longer have to have inventory there. I don't have to staff that. I'll save that in-store labor. I don't care if anybody even comes and shoot archery in it." So we're trying to find out alternative ways to make the space more productive, so I'll tell you it's not a needle mover. A lot like -- I'll tell you what. Hamburg, Pennsylvania, I mean that store does -- there's no the need to change. There are -- and we still do it. Even with a store like Fort Worth. I know somebody is going to go to Glendale today, but we still do an okay amount of business but they just -- they all make money. It's just it's not -- it was not repeatable and it wasn't getting an attractive return on capital. Yes, Leslie [ph] ?

Unknown Analyst

If you think about the overall $50 billion market out there, I mean, you said the pet industry and the homebuilding industry as benchmark. What sort of percentage of market share do you think Cabela's could get over the longer term? Could it be that 10% to 20%? Or could that market leader get access to that big of a percentage of market share longer term?

Ralph W. Castner

I don't know. 10% to 20%. You're trying to box me into a question here, but I'm not -- I don't want to answer. I mean 10% to 20% feels like a number of $5 billion to $10 billion. We'll see going forward. The other thing that is a little bit interesting, you talked about market demographics; one of my internal jokes is we sell a whole bunch of products that I'm never sure see the inside of a staff [ph] line. I mean how many customer use binoculars at sporting events and a whole lot of other things. And that's -- talk to people here who buy things from us aren't necessarily -- I mean, for example, [indiscernible] and were hunting. I mean, I think there's a lot opportunity beyond that [indiscernible] for us to continue to get market share and have customers [ph] . Other questions?

Ralph W. Castner

I want to spend a second on merchandise gross margins, and in the interest of trying not to take too much time, I'll be short here. But this is a huge success factor for our company. And what masses [ph] a little bit. You can see between 2009 and 2012, we've increased margins from 34.6% to 36.3%. So what this covers up is almost all of these improvement within in retail. Very little of it as we continue to try to grow the Direct business or -- first of all, the opportunity was probably bigger in retail, in the first place. And as we continue to try to grow this Direct business, it was tougher to get size and the range of prices in that market. So if I broke this out between Retail and Direct, you'd see almost all the improvement is in retail. I will also tell you, we've got a lot of the low-hanging fruit. We expect to still be able to get improvements in this area. But instead of getting hundreds of basis points, 50 to 100 basis points per year, this is 10 to 30 basis points per year of improvement going forward. We still think there's opportunity there.

Just going through some of the tailwinds and headwinds, there are still opportunities to improve our inventory and markdown expectations. There are big opportunities for us and still opportunity to execute on it. Brian will talk a little bit about product innovation. What we've been doing around the [indiscernible] line, this footwear line, is really interesting. Brian will talk about that a little bit more later.

I don't know if mix shift of guns and ammo is a headwind or a tailwind. It depends what way guns and ammo sales go, but I don't think -- it's no secret that guns and ammo are 25% margin business relative to 35% to 36% business overall. If that continues to be strong or if that continues -- I guess it'd be a tailwind. If that average continues to cool off, that would will be an opportunity for us. We're doing some work on our price optimization and installing a new systems there that I'll [indiscernible] . As far as headwinds go, at least historically, and this is closing given the improvement in the past, but as a general rule because of boats and guns, retailers got a lower margin than Direct. So as we continue to roll out retail square footage, that is a headwind. Operating expense [indiscernible] . Through 2012, we saw operating expenses go up as a percent of sales. In 2012, we were able to manage it downward. As we -- moving forward, we expect to continue to get some small amount of leverage in the [indiscernible] going forward. Now what everybody likes to do is, they know and I tell them, that our store level expense is only run about 19% of sales. But of course what everybody wants to do is just takes 19% of new retail sales and say that's all the new SG&A ought to have and you've to -- to get all kinds of levers. And there's an opportunity to leverage corporate overhead.

Our guidance supply chain has done a really good job of getting leverage also. But I will tell you there's some investments we need to take in our systems going forward. One of which is in the area of technology. We [indiscernible] there. Scott, in a little bit, will come up and tell you about our new brand launch, some of the things that we're doing from a marketing perspective. We need to spend more money, both the national advertising -- well, I've made [indiscernible] . National advertising and in our Direct business around things like mobility. we continue to do things there. As we -- my running joke has been, we've needed a distributor 2 years from now for the last 6 years. And we are continuing to slide a new distribution center in either 2014 or 2015. So we will need, in a fairly short time horizon, we will need a new Western U.S. distribution center, which could be a small drag on SG&A.

So look, the message here is this is something we're going to continue to manage. We think we can continue to get leverage. There are some investments we need to make, primarily around technology and around marketing. We can grow our business [indiscernible]. Another one we're actually, which we will see in 2000 -- primarily this year, in 2013, as we ramp up stores, we will see 3 openings [indiscernible] another slight drag on [indiscernible] .

I want to spend just a second talking about cash flow and our expectations for this. We have done an unbelievable job of generating cash flow. Brian and his team have done a great job on inventory and getting that down. We sold off a bunch of assets really tried to use our balance sheet as a strategic asset [indiscernible].

But where we sit right now, we left the parent company, this excludes any cash that we have in our [indiscernible]. We had $200 million in cash. All the stores, whatever it was, fixed-rate stores, we opened last year, we were able -- we generate last year $234 million of cash. We had CapEx [indiscernible]. So we generated free cash flow of [indiscernible] last year and opening stores. So as I think about going forward in the future, we'll be able to fund, and by the way, when I make this statement, I'm assuming we own all stores. [indiscernible] leased stores, that's an opportunity relative to my cash flow projection. But we expect to get through all of 2014 with no external finance. We may need to do a small deal in 2015, something that I would measure as less than $100 million. As you get out to 2015, you will need to do a more meaningful deal, something around $200 million to finance that deal. You will see on my next slide, we have a rather significant number of debt maturities in 2016. Now that is an opportunity if we're able to refinance both at lower interest rates. But it'll be an opportunity for us to save some money in this business. And beginning in 2015, we're going to have to think about refinancing 2015 [indiscernible]. So this just goes to a summary of the debt maturities I've talked about. We've got -- we're currently at the bottom of that $57 million deal. We're currently paying about $8 million a year in principal on that from our cash flow from operations. Really, the big bullet we need to be able to do in '15 is that $216 million, $215 million debt security in 2015. You can see here coupons. They are ranging between 6% and 7%. Depending upon what we -- what happens to the overall level of interest rate, today we think we can refinance that somewhere in a high 4%, low 5% kind of

handle [indiscernible].

I want to close with just -- and Tommy touched on this in his presentation, but touch with what the overall metric that we look at and we're most focused on is for putting on the best capital, which we've got up from 11% in 2009 up to almost 16% in 2012. We still think there's an opportunity there to continue to improve it. There's some assets we have that we need to work on and turn it into cash that we'll continue to lift that along with our new [indiscernible].

So I wanted to leave some time in the end for questions. If you guys have -- yes, [indiscernible].

Unknown Analyst

Yes, Bill Smeed [ph] from Seattle. What -- tell us a little bit about the way cash flow plays out in a new store. It seems like I remember 20 years ago, when Costco was growing real fast, that somebody said about a third or fourth year is when new store starts to really gush cash. And maybe that would help answer a little bit about the older, larger stores that maybe don't do the high square foot, but do they generate a lot of cash as they mature?

Ralph W. Castner

Well, the -- I'll answer the last question first, which is the older stores [indiscernible]. We've got some older stores that generate a lot of cash that are great, some not so well. But [indiscernible] the nice thing with us -- even though oldest, worst store generates positive cash, none of them have a 0 cash flow, which, quite frankly, a corollary to your question is [indiscernible] and the answer is basically no, unless you could find somebody coming to give you a great offer on the real estate, in which case you probably just fill a next-generation store 3 miles away and move all the employees over. And so we get sort of a real estate decision because as long as the thing is generating cash, unless you can get out of a real estate, you're going to keep the store open. And if you would relocate it, in most of these markets, you're just going to put a smaller store, move all the employees and away you go [ph] . The beauty about our stores is they open at such high maturity that, really, they start generating cash from day 1. We'll just go back -- [indiscernible]. We'll just go back to the store model, they don't have -- a lot of those stores like Costco are dependent upon those big comps early in the year to get to those big, high cash flow years. Ours really start off right away during a lot of cash, which is one of the reasons we don't do a lot of finance. Other questions? Yes, sir, Chuck.

Charles Edward Cerankosky - Northcoast Research

Ralph, how do you manage the capital allocation processes? I'm going to guess developers have thrown more stores like [indiscernible] keep store opening in the -- call it the low double-digit range, low-teens range. What's the internal discipline to keep from getting too far out ahead with store opening?

Ralph W. Castner

Well, there's a couple of things. It really starts with the management team, the 7 or 8 of us on the stage, but we sit down years -- I mean, we sit down years in advance to agree on those numbers and moves from them, quite frankly, really to our marketing group, who goes to -- and they will -- I've got a list, which obviously I don't share widely, of 200 markets in the U.S., telling us how much business we're going to do in each of those markets. So it's basically, "Hey, we're going to put up 8 stores. Let's go look at the list and find out where we think we have the most opportunity for success [indiscernible] ." The problem is, and I won't give specific examples, the real estate opportunities obviously don't always match up with the prioritization on the list. Conversely, sometimes you get a lot of real estate opportunities for something on the middle of the list, and I can -- I guess I'll give you the example of stores -- of one of each of those in the 2014 opening schedule. Greenville, South Carolina was a market that showed up surprisingly high on our marketing list. So we sent the guys down -- I mean, let's go find a site. Greenville is going to be a great market, we'll do really well. I will contrast that with Bristol, Tennessee, which you can probably -- or Bristol, Virginia, I'm sorry, where you can probably imagine that wasn't one of the top 20 markets in the U.S. we needed to go to. We got what was a great opportunity from the developer in Bristol that they put together, and that will be a great place for us to go to because we will get good returns. So it's always a balancing -- it's really -- to sort of sum up your question, it's a balancing opportunity between the marketing data and the real estate opportunities you get and trying to mesh those 2 together. Other questions? Yes?

Thomas L. Millner

To take comfort in knowing that we don't make a decision to go to a new market unless Ralph and I and at least 1 or 2 or 3 of our colleagues up here go with us, spend a day in that market, drive around, see the sites, see the opportunities, understand where competition is. So we don't delegate this really important decision process deeper down in the organization. We personally see the market and see the site and see the other sites in the market and weigh those against priorities.

Ralph W. Castner

I mean, it's interesting, Chuck, because you're in Columbus. That trip Tommy is referencing in Columbus is obviously -- well, in that case, it was 18 months or 2 years. Sometimes you forget that site in Columbus is a great site. And I -- man, that's just -- that's really good, and I know you were there.

Thomas L. Millner

And that was the site, Chuck, where Ralph and I were there, and we looked at the site. And I knew what we were all thinking, do not smile in front of the developer, do not smile. So we just looked around and said, "Yes, this is interesting. What else is in the market?" But we knew that was the place.

Ralph W. Castner

Other questions? Yes, Seth.

Seth Sigman - Crédit Suisse AG, Research Division

Just a quick question on the model. When you're running your IRRs on the next-generation and in the Outpost stores, obviously, you get a little bit of cannibalization on the Direct business, the $2 million to $3 million. Are you taking that account obviously when you're running the model? And then a decision, any sort of cannibalization you're thinking about for the current stores that are out there?

Ralph W. Castner

That's a great question. At least, I will tell you the answer on Direct cannibalization. And I think as far as across the board cannibalization, I think we're still trying to figure that out, only because -- and I can give it to you here for an example. But there are some cases -- I won't give a marker. But in [indiscernible] , we might go to a market because we're doing so well in the store [indiscernible]. And the question you got to ask yourself is the level of sales we're doing in that store sustainable over time. I mean, at some point, it's going to run down the existing store. We're not going to have a great experience because we're just doing too much business out of that. So we have a lot of internal arguments on cannibalization. One school, the most conservative school would be you just look at net new sales and divide that and invest and then look at the IRR. The most liberal way to look at it is say, "Look, we're going to lose those sales anyway because we can't support those customers like we need to do that's sort of too busy, and we don't look at it." But that's something, as we continue to get stores closer together, we need to refine those.

Seth Sigman - Crédit Suisse AG, Research Division

And I think the great example is the Dallas-Fort Worth metroplex. We've got this big store in Fort Worth, we built a store in Allen 40 miles away and we assumed cannibalization at Fort Worth that has actually not happened, at all.

Ralph W. Castner

The way we look at -- actually, this is an interesting discussion because as much as I, we praise our marketing people for how great they are [indiscernible] , they did cannibalization and some of you [indiscernible] in Dallas can relate to this. They looked at -- and you're nodding because they look at every customer who goes to Fort Worth, who lives closer to Allen, and said, "You're going to lose all that business at Fort Worth." Well, what we found is, that's not true. As a matter of fact, I was shocked -- there is something unbelievable [indiscernible] like -- our customers live within 15 minute of Allen. 50% of them were still going to Fort Worth. I mean -- so you don't lose nearly as much business as that math would suggest you lose. And when we've put stores closer together, I mean, you're nodding Fort Worth, Allen, Lacey and Olympia, we're still -- we're not seeing the cannibalization that, that process would suggest [indiscernible] . Other questions?

Great. I appreciate all your time. And I finished right on time.

Brian J. Linneman

There we go. First, let me get started by -- this morning by saying, first off, thank you for being here. We think we have had a pretty great story to tell about our company, and we certainly understand it's not easy to take time out to come to Phoenix, hear our story. So we're somewhat humbled by the turnout. It's been great.

I'm going to spend my time today, frankly, not talking about historical trends. We have had -- Ralph took you through a lot of the improvements that we've made in the business, a 3-year margin spend improvement, have strong comp store sales story, as well as a good productivity on our inventory result.

What I'm going to spend my time talking about today is how we expect to continuously improve margins, keep our comp store sales strong, on less inventory. Bottom line is, we would expect about 10 to 20 basis points of margin expansion going forward and higher productivity out of our inventory. We'll be chiseling away at improving burns. It's an important part of what we've got to do.

So I want to just share with you, 3 years ago, we've put in place many disciplines throughout pre-season planning and season management, and I might tell you, we're in an optimization phase now. Many of those processes are in place. So I'm going to talk about 4 sort of focus areas, and then we'll walk through a presentation about Cabela's branded products and some other topics. But first and foremost, we still have opportunity to optimize and sort of refine those core merchandise pre-season planning and season management processes in our company. Second focus is really around further leveraging technology investments. In the next 12 to 16 months, we'll deploy 3 different technology enhancements, the first being price optimization, which you heard briefly a little bit, and I'll talk about that. Secondly is around net SKU profitability. And thirdly, we're excited about is this Omni-Channel fulfillment.

Quickly highlighting these. Price optimization, as you know, is really a tool set to allow us to surgically take price actions in season. And across 160-some-thousand SKUs, there's opportunities to do that better. So price optimization, we're looking at that tool to be deployed sometime in Q3 of this year, 2 separate projects for markdown and for regular price in Q1 -- late Q1 2014.

Second project is around net SKU profitability. This is about taking and understanding at a SKU level below the gross margin line, with all the cost factors below the gross margin line and providing the merchant's visibility to those cost factors, handling costs, carrying costs, selling costs. Each product is certainly burdened with different costs, and taking that down to a net level does a couple of things. It allows us to surgically better understand the performance of our assortment, and most importantly, there is another avenue we can understand profitability by supplier. So if I've got sort of competing suppliers and one's doing x and one's doing y, and we can understand where those cost structures draw out of the line, it gives us a great opportunity to continue to improve the profitability of the business.

Lastly is Omni-Channel fulfillment. Ralph talked about this briefly, but at the end of the day, making available retail inventory for our direct customers is the right thing to do. Over half our inventory is sitting in a store, and it's not accessible today via our Direct business.

So there's 2 advantages there. Number one, higher in stock equals higher sales in the Direct business, but it also is a better customer experience than the Direct business. And then secondly, there is a margin improvement opportunity. As we can market seasonally relevant products that sit in a store and make them available online, hopefully, we can reduce markdown. The example of that would be, if we've got a size 14 hunting boot and is sitting in a store, making that available online, hopefully, we can sell it at a full price or with a slight markdown versus sitting in a store, it may take a big markdown to move that product.

This functionality on Omni-Channel fulfillment will be in place in mid-Q3, and we're super excited about it.

Focus 3 is really around improving speed to market for Cabela's branded products, and you're going to hear a lot about that today. Cabela's branded products are a key part of our strategy, developing that pipeline, introducing the products faster, taking costs and waste out of that ideation process to commercialization of product is really important. And with the partnership between merchandising, the sourcing team, that's a key focus.

The last one is around relevance of our assortment. Tommy talked about what regional relevancy. Our business doesn't work where we allocate specific square footage and stamp them out in the way we go. I would suggest this industry is probably one of the most complex industry due to the geographic changes, the seasonal changes. Fishing in the South is different than the North. Frankly, hunting in the West is different than hunting in the East. Seasons are different. It's important that we're very relevant regionally. And on top of that, we still have opportunities to continue to improve our assortment, combing through, looking for those improvements that we can make in the business.

So I'm going to spend my time today really around 3 main points. I want to talk about Cabela's branded products, which you'll see visually in the room today as it makes up our room pretty well. But most importantly, the expertise and passion of the people that built these products is really important for you to understand. And lastly, I'll talk about our national brand partner strategy.

But first off, before I get going, I mean, Cabela's is more than a catalog, more than a store, it's more than a website, it's an industry-leading outdoor product brand. Last year, Cabela's branded products generated almost $700 million in sales. They're represented in every major category of business for hunting, fishing, camping, men's, women's apparel, hunting apparel, what good rate -- great representation of the product.

We have great relationships with our national brands. And to sort of size this for you, our largest national brand of 2012, we did $70 million of sales. So Cabela's branded products are 10x the size of our largest national brand.

What does that mean for us? Well, what it means is Cabela's branded products are exclusive to Cabela's. The only thing exclusive in our assortment, no one else can sell those products. They come with higher margins; we control our own destiny, and they're clearly imperative to differentiation in our assortment.

So Cabela's branded products, our objective is by 2015 to make this a $1 billion brand. We've got 1,500-plus years of experience in our merchandising team to develop high-quality, innovative, performance-based products. We're introducing several hundred new products in 2013, some -- this is a fraction of some of the new products you'll see in the room. The room today, by the way, is represented with Cabela's branded products, and it's frankly a portion of the new one.

Our average customer rating and review on Cabela's branded products are 4.3 on a scale of 5, meaning most of the products score a perfect 5. We have over 44 patents on record for products that we've developed. All those -- all of these things around Cabela's branded products promote more loyalty and really a stronger emotional connection to the Cabela's brands, the green roof, if you will.

Innovation. How do we do it? It takes a lot of people to build Cabela's branded products and bring them to life. I mean, we've got a sourcing team in the U.S. and in Hong Kong. We've got a logistics team to move those products. We've got a marketing team that has to tell the product's story with the customer. We've got retail and Internet Outfitters who have to sell those products.

I tell you, we've got a great team that understands how to do this and make products available in a commercial environment and do it very well. But it's not just about experience. Building products is -- really, it's about a passion as well, and it's an authentic understanding of the outdoors. One we have, I can't stress enough as a true, a competitive, advantage in that environment. We've got some guy -- I'll give you a quick story. We've got a guy named Tom Gallagher, who's a director in our merchandising area, 20-plus-year veteran. He literally is an icon in the archery industry, go to a trade show with him, everyone knows Tom Gallagher. Everyone knows who he is. He's been a part of that industry for a long time. As an example, Tom has been inducted into the Treestand Manufacturer's Hall of Fame, one of five people to ever be inducted into that Hall of Fame as a merchant. The point of that, bringing that up, is the experience and dedication of years and years. That's the advantage we have in our people.

We have a tremendous amount of pride in developing product. So why Cabela's branded products? As I said, we think we're the experts in the industry, and that knowledge is unmatched. Our company was built upon having uniqueness in our assortment. I mean, after all, who else can offer Cabela's branded products? The answer is no one. It's exclusive to us.

Cabela's branded products offer 800- to 1,200-basis-point margin advantage over national brands and certainly build long-term brand loyalty. I'll give you an example. We were in Columbus at our store opening, and it's kind of iconic. In the front, one of the key strike areas in our store, we have a logo shop in front of the store. And as you saw thousands of people come into that store in Columbus and flock to the logo shop to buy products that says Cabela's on it is sort of humbling. It's not just caps and t-shirts, they truly want to buy products because it says Cabela's on it, pretty humbling.

So let's talk products. First off, we have to build Cabela's branded products with purpose. They've got to be innovative, have leading technologies, certainly style and more performance features than national brands. And I'm going to talk a little bit about the new products this morning, as well as we'll introduce some old favorites like Guidewear.

Guidewear is a legacy program that's been around a long time at Cabela's, and we've continued to reinvent that. The fishing industry has evolved. I mean, boats are faster, rods and reels are lighter, stronger, and the Guidewear program has continued to evolve with technology as well. It's represented over here on the yellow stand, in the yellow in the back. The point here is Guidewear is a program that we know for different anglers, if I'm a bass fisherman, it's a different product requirement and if I'm a Northern walleye fisherman. So we built 4 specific programs to address those markets. This program actually recently won a Game & Fish Sportsman Readers' Choice Award here in the last couple of weeks. Here's the 4 program.

The first is Guidewear Xtreme on the upper left. That's that Northern angler series of, I'd call it that musky, walleye fisherman. That's what you'd wear if that's the type of fisherman you are. Below that is the Guidewear Bass Angler. This is all about bass fishing, about a lot of casting during the day, throwing a lot of bait and creating that motion and that ability without restriction to have a rain jacket on to effortlessly cast. That's what we built in the Guidewear Bass Angler, along with bright colors that appeal to today's bass fishermen. Titles in the middle, that's saying offshore saltwater, very lightweight, packable program that we've introduced for that saltwater fishermen, and it's designed to be thrown on when a sudden rain comes in. It's lightweight, you won't overheat in it, it's a great program. And lastly, the Guidewear River Runner. Clearly, this is for that serious fly fisherman. It contains all the features and functions of a serious fly fisherman.

Next is the Northern Flight Waterfowl collection. It's represented over here on the left. It is -- we're super excited to introduce this entire new series of hunting products, waterfowl products, with over 55 new products. You'll find in here there are new layout lines, which are -- have amazing functionalities, duck decoys, [indiscernible] flying bag. This is an entire series that we're super proud of to introduce in 2013. We were fortunate enough to engage a world-class waterfowl cardboard actually to help us develop these molds for the decoys. They come with amazing deals -- details. They're -- you get super performance resins so they're tough and rough, stand up to that bouncing around, throwing around. It's truly a great line of products.

This is the next evolution in the Euro line of optics. You might recall, I stood up here last year and showed you some binoculars that were Euro binoculars. So we took that to another level. This is a Euro Spotter. This thing is -- has an 82-millimeter objective lens, has 20 to 70 power magnification. It's got European glass in it, retractable lens shade, got a lightweight magnesium body. This is a world-class spotting scope that I would tell you has more features than a Swarovski sort of spotting scope for hundreds of dollars less.

We also are offering an adapter with this spotting scope where you can take your iPhone, stick on the end of this spotter, take videos, take pictures through the spotting scope and with amazing detail and high quality, even allows you to use your zoom function on your phone to even get more magnification. The price point here is about $2,200. And the point there is this is a premium high-end product. And I can't give details here. But again, here's another product where we've won a very prestigious award that will come out this summer on this product. We just -- we can't speak about it in detail today.

I think all of you guys would agree, camouflage is a big deal in our industry. Cabela's has been in the camouflage business for over 25 years. When we look at the marketplace and constantly look to evolve, camouflage technology, we saw a need to take it to another level. Today's camo patterns, they're very visually appealing, but when you look at them in a distance, they blob up because they're uniform. They're all the same. If you're in a perfect background, you're fine, but if there's a difference in the background, you'll blob up. What we came up with was a methodology to take multiple frame sites of a geographical area and transposing photographic representations of those frame site we call zones into one revolutionary, new camouflage design. So if you look on the screen, on the upper left, that stage, this is a Western camo. On this left stage, in the middle is grass and on the right's rocky ground.

We have built those 3 distinct zone types into a large block camo print program that you see below. So if you'll look at that close enough, and I'll show you another slide, see the stage dominance on the left, the grass dominance in the middle, on the bottom there, and the rocky dominance on the right, this is all being represented into 3 congruent images.

Here's what it looks like in real life. So on the left is that same camo print pattern in the stage on the right -- or in the middle is the grass, and on the right is rocky ground. My point is those are 3 different, completely, background environments, and your ability to blend in is strong. It's -- this is a game changer. There's nobody else doing anything like this. We built this. This was done internally. Those will be offered in a woodlands version for that eastern hunter and a western version. I also want to tell you that we've been working on a few other thing, the extend zone. And we have a revolutionary new product called color phase, and it's going to be available in these zones' pattern. Color phase technology in our camo pattern allows the color of the camo to change color based upon season. I got a short video that I'm going to show you to help describe what this product is.


Brian J. Linneman

So as you can see, another innovative product that we've been working on. This is about a 2-year-old program to try to get to the street [ph] . This is a program we will announce in -- or launch here in 2013 we're excited about.

I just want to quickly show you some of the diversity in a high-demand, low-supply base. We have a line of Herter's ammunition that we offer in rifle, in pistol and shotshell, a complete offering in Herter's ammunition. This diversifies our supply base, but we've been doing this for about 3 years. Tommy was instrumental in helping us get it really set up. We import a lot of ammunition, frankly, from outside the U.S. And it's a very unique program and has competitive advantage that I can tell you in environments like today creates a real competitive advantage by having products when perhaps, to other zones. This is a multimillion dollar program. It has a 400- to 800-basis-point margin advantage over the national brand. And like I said, it's coming out of the international sources. So it's clearly an opportunity for us to have a product that, perhaps, to others, the demand is higher than supply.

I wish I had -- I could spend a lot more time talking about hundreds of new products for 2013. This room represents a bunch of them. We've got the Advanced Angler Tackle Bag over here, that's a new product; that Cabela's Lady Hunter Boots by Meindl, new product; Gun Dog Electronic Dog Collars; Outfitter Game Cameras, Cabela's Outfitter Game Cameras are over here; the Guardian Tent Series such as these, these are just to name a few new products for 2013. So please in the break or so, look at those products. And there are several people here that can answer questions about them.

When developing new products, technology is a key differentiator. And I'll tell you, we embed a lot of different technologies in the Cabela's branded products. Really drive plus is a key part of what we're doing, insect defense. These are all proprietary technologies that we're embedding into Cabela's branded products, as well as we've built a portfolio of world-class technologies like GORE-TEX, Storm Cotton, Boa Closure System, CoolMax technology that you'll find in Cabela's branded products.

We also just spend a second on how we pull this through and visually represent this product to our customers. Our Omni-Channel model allows us to create distant messaging to customers across all channels. And Cabela's branded products are no exception to that. So here's an example of a catalog presentation of that Guidewear program we talked about earlier. It's a lifestyle imagery. It's got call outs to go to for videos and more information. There's a technology story on the page. You go to the web, you're going to find a complete image gallery. There's videos on how to make the right product selection. If you look at the retail store, we bring that feature forward. It's a major strike point on the floor in the store. We tell a tactical story to the customer. So the point is, using that full arsenal of all of our channels with a consistent message around those products is real power.

I'd be remiss, and we're a pretty humble group, but I wanted to make sure you understand that we're routinely recognized by industry publications and experts in the industry. I just want to back up the statements that Cabela's branded products lead the industry and clearly set us apart from the competition. We've received hundreds of awards from experts and publications in the industry. And the awards aren't just from one area of the business. They cover all the major categories of our company. And I can recite 3, 4 awards we've received in the last 30 days on key programs. And they continue to come, and it gives us confidence that we know what we're doing and we've got the passion to build great products.

As I said earlier, I'm going to transition. So what you should have heard is Cabela's branded products are key, they're important. The people and the knowledge and the passion for the outdoors is the cornerstone of building great, innovative performance-based products.

I'll quickly talk about national brands. They play a key role in what we do. In fact, Thursday of this week, tomorrow, we've got our top 100 suppliers that'll be, frankly, in this room to hold our annual vendor summit. This summit will provide clarity on the direction of our company, as well as the support that we need from our suppliers to achieve that particular vision and direction that Tommy spoke about earlier.

The support we're really looking for, being simple, is really around differentiation. We're striving to have differentiation in what we do. Our customers expect differentiation and assortment. So a special makeup product, co-branded product, there's a Cabela's regulator bow up here in the upper left, GORE-TEX, a world-class bow company. We work diligently -- this is a co-branded product. We work diligently to build this product together with GORE-TEX. It's got a unique hand system, different color scheme, it comes -- got a 20-pound adjustment, where most bows are 10. It's a $549 price point. It's got 37 points of margin, which is 700 basis points over the category average. We think it's a great offering. It's -- all you need to do, you buy that, arrows, everything is there, buy a box of rod heads and you go hunting. It's a complete package.

All the way to a Fenwick rod. We wanted to have a $99 price point on a graphite rod. We worked very closely with Fenwick, and we've got a -- built a $99 graphite rod that has Fuji guides and Fuji reel seats. It's been a great program. It's got margins that are like 3,000 basis points over the category average. It creates exclusivity in what we're doing. You can't buy that Fenwick rod anywhere else. Those are just examples of creating uniqueness and exclusivity in our assortment.

Also, it's important to get access to the innovation themes our supplier. If we're going to launch products, form and shape a product, use our knowledge and abilities to help form and shape but also use the Omni-Channel model to launch, we've got to be way out in front of them. So having access to suppliers' innovation themes are critical.

I'd also tell you, it comes to -- down to hardworking people. We can have great relationships with -- and partnerships with key suppliers but we've got to also really roll up the sleeves and take it to the next level. And that's formal business planning process, setting targets, partnering on assortment development, collaborating on forecasting and inventory movement. We pump sales data to our top suppliers and have biweekly conference calls to review what's working, what's not working back to that original plan. All the whole point is taking those relationships to the next level is a big deal.

Also, drop ship programs, we've got a few things to do on our side, but it's a great way to extend the assortment of without necessarily the inventory liability.

In closing, I'm just going to say, hopefully, you heard from me today that our brand is strong. We've got great momentum. What you should have heard is Cabela's branded product pipeline is robust and healthy. We're focused on optimizing our business and building scale. And the level engagement of our national brands has never been better. And lastly, the expertise and the strength of our people are unmatched in the industry. This perfectly positions us to continuously improve our business, and we're pretty excited about our performance and where we're headed. So I appreciate your time today and be glad to take any questions.

Unknown Analyst

Can you talk about the importance of being regionally and seasonally relevant? And I think one of the things that really struck me in your Outpost store was how you're trying to drive assets [ph] there by taking out your assortment even more frequently than you do in the next-gen stores for some of the micro business that I think is efficient [ph] in other areas. How is that -- how you developed that works from an inventory management perspective in the Outpost stores. So do you think there's an opportunity? Maybe replicate some of the learnings with the flex [ph] format in some of the other next-gen-like stores?

Brian J. Linneman

So the answer is it's too early yet. In fact, we made a deliberate strategy. In Union Gap, we're deploying more seasonal changes at our next gen store. But in Saginaw, we're going to follow the same store cadence in contrast to those 2 opportunities together. There's definite -- and that's why we're doing it. We think there's some learnings to be made in being surgical, in creating more freshness than newness. The execution of that and extending that to our next-gen stores, there's learnings from them. So we will continue -- we don't have enough data to say, yes, that works or no it did not. We're in a mode right now of "I tell you, in another 3 or 4 months, we'll have a good understanding of what that looks like." We have made transitions in Union Gap already, but the magnitude is yet to come.

Unknown Analyst

Okay. And then just an unrelated follow-up. Sounds like some of the effects [ph] that you're seeing in Q4 and in Q1 has been in support of some [ph] categories, aside from [indiscernible] camo. Have you seen a higher rate of growth in your Cabela's branded products within those categories given some of the introductions that you've made versus national brands?

Brian J. Linneman

So we've been super pleased in apparel, and Keith's in the room today and some of the apparel folks. The reception of the spring products have been outstanding. The color, the visual view of those products in the store, the customers are responding. So we've been really optimistic and pleased with all the hard work that's going on. In the last 18 months, we developed a world-class kind of products that not only have a little color and style, but there's performance features that, frankly, set us apart. So longest answer to this are -- short answer to a long one would be that we're very pleased with how these things are coming on. And I think we had some tailwinds, too, with weather. I think there were weather -- favorable weather patterns as well.

It's been sort of interesting to watch our leadership team and even the VPs and directors and people in Sydney, when I came 4 years ago, it was common to see all of us wearing North Face branded products, Under Armour products, Columbia products. And it's been interesting for me to watch all of us start wearing our stuff, not because we wanted to wear our stuff for some symbolic reasons, but it actually looks good. And our -- I think most of us are wearing our ultimate outfitter khaki pants. It's so comfortable. Every morning, I wake up, and I think most of the guys think, I really should wear something else, and I put them back on because they're comfortable. So it's been interesting to watch that change happen. And look, we -- the brand -- our branded partners make great products, but we're all starting to wear more of our stuff because it's actually pretty neat and it works, and it's now stylish, and it's got performance characteristics. Yes, go ahead.

Unknown Analyst

Brian, just a couple questions on innovation part. How many people do you have dedicated at the headquarters to developing products? And how fast are you growing that department? And are you seeing any negotiating leverage with national brand vendors as they try to maintain shelf space as you're successful with your own brand?

Brian J. Linneman

Well, first answer is we -- we've made a big investment over the last couple of years into an office in Hong Kong that -- from our sourcing teams. We've made investments in our corporate team. The number of resources, off the top of my head, I would -- I'll give you a number about 30, 35 people that are attached to that in the United States. I think there's 27 in Hong Kong, somewhere in that neighborhood. So we have made investments. As it relates to the national brands, I would suggest we haven't noticed any real different leverage in the past. We are interested in -- I am interested in this new profitability project, which will begin to differentiate one brand from another in a pretty substantial way. And that will be certainly negotiating leverage to ante up and move up the bar of profitability in the business because it takes into account all the prospect.

Unknown Analyst

You were saying what, Brian, 18 months ago?

Brian J. Linneman

A world-class company, a third party, to help us with styling and design of the product and help us to build spec tags that are plainly communicated overseas. And that has really made a huge difference in just the better styling and looks of Cabela's branded products, not to mention the fit and ultimate finish, yes. So we -- and we use that in the apparel side. We don't really use outsourced, perhaps, for hard goods. But it's been a great injection into that process to create new thoughts and view on styling. Okay? Thank you.

Douglas R. Means

Good morning. Really happy to be here. My name is Doug Means. I have responsibility for the supply chain at Cabela's. And we have a pretty unique opportunity with growth in the supply chain. I would tell you, growth really affords us some opportunity to get a lot better at some of the things we do. It obviously always will add complexity, but we really have the opportunity now to leverage a lot of the things that are going on in the supply chain. Somebody asked me last night at dinner if you squeeze everything out of this lemon in what you guys do. And it's interesting, in 2012, we had probably one of our best years ever in terms of improvements that were made in the supply chain and how we used growth as a leverage opportunity. So I tell you, lots of room to continue to improve, we're going to keep pushing that really hard over the next few years. Like I said, growth gives us opportunity that, I think, we're going to try everything we can do to make sure we're taking advantage of it.

What I'm going to do today is just kind of walk through the entire supply chain, really, from where we start with the development of new product and sourcing of product all the way to getting the product into the stores and then into the customers' hands. So what we've seen over the last couple years is a sort of a unique divide in overseas manufacturing. You got 2 camps. You got 1 camp that is still sort of tied to that old school model, where they're very interested in making products for you. They -- and that's really all that they do. You've got another camp that realized -- I think in late 2008, 2009, that just manufacturing product wasn't going to be enough to sustain themselves. And what we started to see was a group of manufacturers that we're looking at. What other services can they provide? How can they add value to the experience for their customers? And so what we're trying to do here is utilize all of that to take full advantage of that.

One of the things that we're doing here in -- over the next couple years is looking at some new technologies that some of these manufacturers are bringing forward to us. One of them that we're really excited about and we've just started to look at pretty heavily is some technology that's coming from sort of an odd place, coming out of the gaming and film industry. And it's all built around 3-dimensional imagery of products, not just the look of the products but actually the -- it's to evaluate the product. So we -- there are services now that can literally build an avatar that matches perfectly our spec for the height of a person, the weight of the person, the dimensions. And we can use that technology not only to 3-dimensionalize an image of that product but literally, to use the product virtually. So that, for example, on the weight to flat chair, we can see where stress points are, how the product reacts when a person sits down, we can change things on the fly literally with the factory on a conference call at the same time so that we can make changes to that product, understand how it may impact the manufacturing process. some very exciting stuff. It will take significant time and costs out of the development process, and we're pretty excited about it.

Again, another technology that certainly isn't new but learning on a daily basis how to utilize new ways to use the technology, high-definition video conferencing. We'll actually be able to look and evaluate materials, not just have meetings, but we're literally with a factory, with technical people overseas, reviewing products on the fly. And again, the whole idea here is to take time and money out of the process that we're getting product to the -- from an idea and into a customer's hand as quickly as possible.

We're also using those partners that are really investing in the services and the opportunities that they have to move some of these technologies and some of these skills from the U.S. right into the factories. We're really leaning on our partners to make sure that they're -- that we're taking advantage of that. So we're starting to see more and more of our manufacturing partners provide more technical development for us. We don't have to build all the specs domestically in the U.S. We can literally just hand an idea off to a factory, let them build the specs to our expectations and to our tolerances, and use that skill set again to communicate better and make sure that they're getting the products developed as quickly as they can. Not just on the spec side, but also using them to maybe evaluate materials for us, find new material sources, pretty exciting stuff.

And then another opportunity that we have that I think is absolutely critical when you start thinking about some of the things that Brian was talking about today was new innovation, more and more products that we want to offer to our customers, being able to offer those products and variations of those products more often and trying to get them into our customers' hands quicker. If you looked at overseas production 5, 10, 15 years ago, everything was really built for large production runs. You needed volumes to get -- to take advantage of cost savings. And what we're seeing now is that I think some of the really good strategic manufacturers are starting to realize it's not always volume that's going to drive sales and margins. It's got to be newness, it's got to be differentiation, and it's got to be being able to get the product into a customer's hands quickly. And so what we're seeing is a real shift in some of our strategic partners' thoughts around how they develop and build manufacturing facilities. So we're now seeing minimums come down. We're able to get product into work quickly, test that product maybe in a few stores before we roll it out to the entire chain, so another good opportunity to utilize the differentiation that I think real strategic thinkers overseas are coming up with.

Where appropriate, and when it's the right set of conditions, we're asking some of our manufacturers and some of our partners to manage their own inventory. It's a great opportunity for us. It lets the vendor themselves look into what we're doing from a sales perspective, lets them manage the raw materials and the raw material procurement. We don't have to get involved in that. Again, the whole idea here is that for them to be able to turn products quicker and get it into our hands in the right manner.

I think we got some questions about what we're doing overseas in terms of investment in the manufacturing and development process. We're going to continue to invest more heavily overseas because we think that's where the opportunity is. It -- I don't know how much of you -- how many of you have spent a lot of time in manufacturing environment overseas. But the reality is there's nothing better than having eyes and ears in the factory. It helps us make sure that we're getting our needs met in a timely manner. We're communicating better. We're making sure that things are being done the way we expect them. So we're going to continue to invest to make sure -- I guess, maybe the most obvious one is quality assurance, making sure that the product that we're building is to our expectations and continually getting better. We're constantly evaluating new factories. This is just a fact of life when you're manufacturing your own product. We need to make sure that we're in the right factories. We found the right partners. We're constantly looking for new opportunities, whether it's utilization in new technologies or finding the right mix of factory and capabilities.

C-TPAT, Customs-Trade Partnership Against Terrorism, this program has been around since 2001, and it continues to be an important part of what we do. This is the customs -- our customs -- our U.S. customs program to make sure that our supply chain is based all the way back to the manufacturer. And there's a lot of certification of factories to has to be done. And again, we want eyes there to make sure that all of that is being done correctly.

And then finally, compliance. We need to make sure that the partners that we have overseas have our best interest and have, quite frankly, their employees' best interest in mind so that they're complying, not only with our expectations around how they manage labor but also they're complying with local laws to make sure that they're treating their employees the way we would expect them to treat them.

This is an area -- lead times is an area where, I think, we've got a lot of room to improve. We're continually trying to find ways to get products from that -- Brian talk about, ideation to commercialization, and the whole idea here is to take an idea out of a merchant's head and get it -- get the product into the customer's hands as quickly and humanly as possible. We're not going to rest until we feel like we literally are industry-leading in this area. It is so important that we take these ideas and we take the products that we know our customers want, and we have the ability to get it into their hands.

So we've got a huge initiative going on this year to take literally weeks out of this process. We feel very confident that we're going to get there, but that's just the beginning of this. We've got a long way to go, and we're going to keep pushing until we're happy with it.

Moving on to the freight and transportation piece of the supply chain, another very critical piece of what we do. $2 out of every $3 that we spend in the supply chain is spent on moving products from one place to another. So you can imagine there is a big opportunity here, and we need to make sure that we're managing this as well as possible.

So where do we think this is headed? Not surprisingly, this is going to get a lot more complicated over the next few years. Nobody really knows what's going to happen with fuel prices other than over time, they're going to continue to go up. Industry regulation, whether it's in the insurance companies and how they're regulating, what's going on with the transportation industry or what -- or the government regulations associated with the transportation industry, are going to make costs in this area harder and harder to predict over time. And what we think is going to happen here is that, that volatility in that regulation is probably going to push a lot of the smaller guys out. It's going to be hard -- this is going to be a hard industry to be a part of. And then also, what we expect over time is that some of the larger guys are probably going to consolidate. So it's going to be their way of trying to manage what's going on here, but a lot of volatility coming up in the future.

So how do we handle that? Well, we think that the best way to handle a very complex situation is to try to keep things as simple as possible. So none of this is going to be -- is going to sound super complicated, but we think it's the best way to handle things. Number one, absolutely drive for the highest view possible. And this doesn't mean fill a truck as full as you can. This may mean even looking all the way down to the product level and how are we packaging it, and are we shipping any air with that product. So if you look at this example, we'll take a shirt that maybe, historically, we put it in a box to ship. We're shifting a lot of that kind of product over to automated bagging machines that not only take labor and material costs out of packaging that product to send to a customer, but also, it take up a lot less space in a truck that's going to either a store to -- or directly to a customer. Absolutely have to get the most efficiency out of that process as we possibly can.

Another one that sounds pretty obvious, move product only when it's absolutely necessary. Again, it sounds pretty straightforward and simple. But we make decisions -- historically, we've made decisions well before a person or a customer may buy a product, we're making decisions about where that product is going to go, what distribution center it's going to go into, what store it's going to go into. And what we're trying to do is move those decisions closer to when that customer is actually going to buy that product so that we're not repositioning stock from store to store, from DC to DC. But literally, we've got the technology and the capability now to predict more accurately where that product needs to be. The whole idea is move it once, move it to the right place, and we'll be a lot more efficient in our supply chain.

And then what it really boils down to for us is move as few miles as possible. This is how we spend money in this part of the business, is how many miles a truck moves up and down the road or a boat moves across the ocean. And the whole idea here is that if we can drive the number of miles that it takes to move products around down, we're going to save money. Again, very simple, but that's going to mean how do we make as few trips as we possibly can, while we're still maintaining the service levels that our customers and our stores expect. Well, it's things like consolidating freight on trucks, maybe partnering up an Outpost store with a next-gen store so that we can put products for both of those stores on one truck, maybe even cubing out that trailers with direct-to-consumer products so that we're getting the absolute maximum utilization that we can. So we're going to continue to drive that. This is our #1 metric that we use to evaluate how we're doing in the freight part of the business, and we're going to keep getting better at that.

Kind of opposite to what we're doing on the international side, domestically, we're bringing some of the management functions, that we've historically let third-party people handle for us in this freight management area, back in-house. As we get to more stores, as we watch that change happen more rapidly, we feel like we got to be more nimble. We need to make sure that we can react to conditions on the ground today. A good example, when Ralph talked about the Columbus opening -- the Columbus store opening and seeing what was going on there, clearly, we were selling-through products at a higher rate than we had originally forecasted, literally able to reroute products out of our distribution centers, reroute products actually that was destined for other places to that store to make sure that we were meeting the needs of that store. And if we can do that in-house and do that well, we believe we're servicing our customers a lot better.

And then also structuring relationships with payers at a regional level. We talked about one size fitting all and one size not fitting all. This is a good example where one part of the country may be best served by rail. Another part of the country may be best served by truck. Another part of the company might be best served by a small package service. We want to regionalize the way we look at transportation, pick the best mode of transportation for the situation at hand, and that's going to be continually evolving and changing over time.

And then finally, what goes on in the 4 walls of our distribution centers. We've seen some huge improvements in productivity over the last couple years in our DCs, primarily around work that the planning and inventory people have done to reduce the amount of inventory that we carry on products. Again, look at the way we package products and make sure that we're managing those products well. We will always have distribution centers. We believe the best way to reduce costs in them is to avoid bringing products into them at all or to try to, at least, minimize the amount of handling that we're doing in those DCs. But at the same time, we're only going to do that if it's right for the business and right for the customer.

We think that service level is going to continue to be a differentiator. I know all of you hear a lot of different things around free shipping, shipping offers. You pay upfront and you get free shipping for the year. You're a member of a particular service, you get free shipping. Whatever that may be, the reality is someone pays for that shipping. So that product -- that shipping cost is built into the cost of the product, it's built into the profitability of the company. Somewhere along the line, somebody is paying for that shipping.

We believe that over time, that's going to level out. We also believe that the differentiator becomes service. And people are going to get used to either paying or not paying for shipping, whatever -- wherever that lands. But service and the ability to rely on the retailer to get them the product when they expect it is going to be critical. And we think getting it to a customer quickly is going to be a very important part of that -- quickly and reliably. Ralph talked about a West Coast DC. The next DC decision that we make won't be built around storage capacity. It will be -- that decision will be built around service and how quickly do we need to service our customer.

We will continue to focus on Omni-Channel distributions. Again, our customer looks at the experience with Cabela's with really one eye, right? It doesn't matter whether they're in a store or online or they get a catalog or on the phone with us, they expect the same sort of service from us no matter how they interact with us. The distribution -- our distribution group is critical in that, in making sure that, that experience is a positive one no matter how the customer interacts with us. They need the product, they want product, they expect it from us with a certain level of service. And this distribution group is going to make sure that, that happens, whether we're shipping from a store, or whether we're shipping from a DC, whether we're matching product, that part of it came from a store and part of it came from a DC, we got to make sure that we're maintaining the service levels that our customers expect.

We will continue to use inventory as a competitive advantage. We don't differentiate today products, and we don't segregate products that's going to a retail store or to a direct customer. That's complicated to manage in a DC because you never really know for sure, but we actually think that's a competitive advantage to us. So we're going to focus on technology that helps us manage that inventory better, literally looking at inventory, not only the inventory that we physically own but the inventory that's on its way to us, and how do we communicate that, if that's available to our customers. And again, one size does not fit all. We may, at times, ask vendors to package products in a certain way because it's going directly to a store. The next day, we may ask them to package it in a different way because we need to bring it into a distribution center. It's more complicated. It requires, I think, a new level of sophistication in the relationship with our vendors, but we've got the technology and the capability to do that. We got to make sure that our DCs are executing on that.

And then finally, we need to continue to focus on reducing the amount of handling that we do. It's important. There's a lot of cost that goes into running these DCs, and we absolutely need to make sure we're as efficient as we can possibly be. We'll continue to drive costs out of our distribution network. We still think we have a lot of opportunity there. There's plenty of room to improve, and we're going to keep focusing on that.

So really, just to kind of sum things up, continue working overseas to take advantage of the capabilities and the level of sophistication that we're seeing our overseas vendors start to establish and develop. We're going to continue to manage our freight and distribution network in an efficient way and use growth to actually leverage the opportunities that we have and really continue to make some changes. And with that, I'll open it up to questions.

Well, great, thank you very much, and enjoy your break.

Chris Gay

It's 10:42. Why don't we get back together in here at 10:50 to reconvene. We'll take a short break.


Michael Copeland

Good morning. I'm Michael Copeland. I am responsible for the Cabela's retail stores in the U.S. and also responsible for Canada. And I've got to tell you, I was extremely excited to hear Tommy's format this year to talk about what we're going to do and not what we have done, because as those of you that have been to this conference in the past know that I came up here and gave you a plethora of things that we were fixing and that we were working on and through the efforts of all of these guys up at the front, many of the folks that you see from Cabela's sitting at the tables, we've been through all of that over the last couple of years, and really, they get the credit for a lot of good things that have happened in retail.

This an exciting time for Cabela's retail. We're opening new stores in many of the top markets. Our Outpost format has exceeded our expectations. And just as importantly, we continue to attract the best talent in the industry. We're proud of our accomplishments, but we're looking ahead to ensure that the Cabela's retail experience is and will continue to be relevant to our customers. Because as we've seen in the past, if you don't change in retail, a lot of times you go away.

Our agenda today is, as we on focus retail growth, we're committed to 3 things; the first of those being our Outfitters. Their training, their education, their well-being are critical to our success. Conservatively, there'll be another 10,000 more Cabela's Outfitters in the field over the next 5 years and it's extremely important to know that we will maintain our current nature.

Secondly, we're looking at our customers. We'll continue to improve the customer experience in our stores and communicate with our customers in ways that they haven't yet imagined. And I've got more for you on that here in just a moment.

Thirdly, our processes. You've heard me talk about this in the past, but every retail process continues to be refined by our team and our support team. The economy of scale will play a part in process improvement as will our ability to react quicker, and touch our customer in true Omni fashion.

All of these lead to our growth. Certainly, these support our growth in retail. Before I share a bit more about Cabela's retail of the future, I'd like to speak about our Outfitters for just a moment. Not only do we continue to attract the best talents in the outdoor industry that face our retail customers, that talent is more connected to Cabela's and our nature than ever before.

If you look at the engagement, we've raised our retail engagement scores every year since 2009 and improved another 200 basis points in the past year. We've made it a priority to relate the company's strategic focus areas directly to the retail for Outfitters. We recognize that big goals at the office need to be personalized by every Outfitter in order for us to be successful. Our strategic goals had been defined for retail Outfitters for a series of 9 "I am" statements. These statements were designed to inspire the retail Outfitters and start them thinking about what actions they can take to support the focus areas and how they personally can impact our success.

Beginning this month, we'll highlight these areas of strategic focus in our stores by recognizing Outfitters in the field who exemplify those focus areas by their actions. Management teams will receive monthly training on each strategic focus and at this with the rollout to their associate. We'll use all our many communication channels, our innovation newsletter and augmented reality notebook to reinforce these messages.

Mobility will be a big part. Our vision is to give Outfitters the ability to manage their relationship with Cabela's and other Cabela's Outfitters through mobile device. This is very simple, an Outfitter in Gonzales, Louisiana who has a customer that is going up through Scarborough, Maine to do a hunt and they're an expert in Gonzales, but they need an expert in Scarborough, and this mobility will give us the ability to reach out across the nation, touch another Outfitter, network with them and make sure that the customer's experience is that of a great one.

We're also focusing on product education. And we'll continue to focus on Cabela's branded products. Besides bearing the Cabela's name, these products drive big margin in our stores and continues to be a big part of those stores. We're working with our merchant teams to get Cabela's branded products in the hands of our Outfitters, so that they can actually test them in the field, know how they work, know what the benefits are and then be able to sell those benefits to our customers. This effort helps to drive their knowledge and support the product.

We've taken our merchant's training materials and combined it with training material from our vendors. This gives us a great, great advantage in knowing how that product works. Our Outfitters will receive a focus on Cabela's branded products, information on new technology design and new product, sales and training. An example of one of our training programs is the Cabela's: Fly Fishing University. This online curriculum was developed in collaboration with the Federation of Fly Fishers and cover all aspects of the sport. It offers 7 courses which are available to both Outfitters and customers. Customers can also visit select retail locations for on hands instruction after enrolling online. It's a great way for us to educate both our Outfitters and our customers.

We're also utilizing more video training. We also have a Cabela's YouTube format. This allows us to share training videos with our Outfitters that allows the Outfitters to share information, to like, rate it and comment on these videos.

Let's talk about firearm. Firearms training and safety are another critical part of retail Outfitter development. I think we're all aware of the significance of the gun business for Cabela's. Every Outfitter who handles firearms, whether a greeter at the front door or the outfitter behind the gun counter must pass 13 firearms-specific safety courses. Last year, we completed 38,000 firearms related courses averaging 30 minutes each. Cabela's is best in class in the gun business. We have the best product. We have great firearm sales. We're very proud to say, though, we also have the best clients. But I'm most proud to say that we have the best safe -- we are best-in-class.

We invested, last year, almost 357,000 hours in our safety program. So if you add it all up, Cabela's Retail Outfitters trained over 700,000 hours in 2012. As we add more stores and get prepared for the future, we expect to train over 800,000 hours in '13. Next year, close to 940,000 hours. We remain committed to ensuring our Outfitters are the best trained in the outdoor industry. And I would tell you, this is the difference and what the experience is a robust experience in our stores today is the investment that we have put in those Outfitters.

Well that investment also has another benefit and that's our retention. There's a financial benefit to lower turnover. But outfitter retention creates bench strength, which if you see the number of stores that we're growing in the next couple of years, it's extremely important that we have that.

Let's talk about leadership development. We're increasing our bench. We've addressed our need to build our bench through 3 programs; the first being our MIT program. So as we grow the retail store count, we have to ask who will manage these stores and Cabela's, how will you maintain that culture and keep it intact? Well, first is our MIT program. We gave this program a little facelift this past year. This program realistically takes an external candidate through the gamut of everything that we do. From everything, from processes, programs, but most importantly, culture. I'd liken our stores to being a Ferrari. This is one of the most complicated retail stores that anybody will ever manage. And to give someone the keys to a Ferrari and say, "Hey, get out on the Autobahn without any training." You can just imagine, that is a wreck that is waiting to happen.

So we lift these folks. They go through a 6-month period of training. They shadow our senior manager for a couple of months and we make sure that they're prepared to run a store. The focus on all of this training really is system, processes and culture, culture, culture. MITs must complete the entire program before becoming eligible for one of our stores. And I would tell you, the majority of these get a full 12 months of this training before they get those keys to that Cabela's Ferrari.

We've invested a lot of effort in these MITs for 2013. By the end of this year, we'll have invested in 25 of these. Adding talent to this MIT program is a priority for retail. Today, we have enough MITs to handle our next 2 years of growth and we're focused on adding even more today. This program was updated in September 2012 and has given us consistency amongst every region within our company. We also utilized some of the material from MIT for our senior managers who are promoted internally. This program is based on sections that can be taken as a whole or as a part and be role-specific for the needs of these individuals.

Second, we have our SUMMIT program. I like this one probably the best because this is all about our senior managers and our internals. These are people that have earned their way through the company, who have been embedded within the Cabela's culture that can go to the next step and manage a store for us. We've identified numerous candidates within our senior teams for these classes in 2013 and quite frankly, some of our best GM candidates come from this group.

Our third program is our Lead Development program for Outfitters. I like this one as well because this takes Outfitters from being pastors, to teacher, to leader. The program supports our core competencies, teaches leadership skills, job skills and relationship building and gives our Outfitters motivation to make that next step. And long-term, is the best conduit for maintaining the flow of our culture from one generation to the next.

Let's talk about retention. My final note on this area. We believe very strongly that these developmental programs have a very positive impact on our employee retention, our culture and our morale. Astonishing number is that 83% of our GMs and our senior leaders, we retain. I think this speaks volumes about our ability to attract talented people, as well as the desirability of Cabela's as a career choice for many that are in retail. Next, let's talk about our customers. Our primary focus is to ensure that customers are at the center of everything that we do. Providing education.

Last year, this is a great number, our retail marketing managers put on over 23,000 in-store seminars, demos and classes. We donated and committed to over 2,600 banquets, support shows and events. We're committed to expanding our activities to include more women, children and families. 40% of our activities this past year targeted women, children or both and we're committed to increasing that number in 2013. We'll do so through our Ladies Day Out event, Ladies Only Handgun Classes and stronger partnerships with established programs, such as Becoming An Outdoors Woman and Women in the Outdoors. We're increasing the number of youth hunter safety classes, focusing on off-site activation, such as partnership with KOA campgrounds across the country. At Cabela's, we realize we must do more than just sell products. We must be a participation leader in our industry, in our community.

Let's talk about the customer experience. Some things will remain the same. In the future, our customers will continue to shop at Cabela's because they know they will find the best products, the best service and the most knowledgeable Outfitters in the industry. Our customers will continue to visit our stores because they know they will receive expert assistance from those Outfitters. In the future though, our customers will visit our stores because the experience of those Outfitters and the depth of that knowledge and the culture within those stores has not changed. There'll still be exciting taxidermy displays, seminars, classes to educate them, and the new generation of Cabela customers, we'll know that we stand with them and share their values.

What will change is our ability to engage with the customers at the retail level. In fact, in just a few short years, we will communicate and assist our customers by providing a retail experience second to none. New technology will help us connect with our customers quicker and help us deliver personalized messaging.

Beginning this year, we will roll out the following to all of our locations to help support this: An infrastructure, and upgrade to handle more wireless traffic and wireless devices. The format of mobile iOS devices to all locations. Eventually, we'll see a reduction in the number of other devices and IT hardware within the stores as this is rolled out. Deployment of a mobile version of retail product information and basically what this does is give us the ability to put an Outfitter mobile in the aisle with an iPad with any information that you could imagine. Imagine that you walk into a store, that you want to go fishing and an Outfitter tells you, you need to go to this lake. This is what you need to fish for. This is what you need to fish with. And this where they're biting. Now, that is real service. That'd be great, wouldn't it? I'd say I need that kind of help myself, sometimes.

Also a mobile kiosk. You guys know we had kiosk in the stores today and they're utilized by our Outfitters quite a bit and our customers. That kiosk will now become mobile. So again, you're not going to have Outfitters that are in stationary areas that are stuck at a desk, working with the customer where they can roam the floor and go with the customers are. That will be huge.

Deployment of non-transactional lane busting. This is fantastic. We tried it on Black Friday. We've used it our new store opening. Any of you that got up to any of our Outpost store knows that those stores are in the 40,000 square-foot range and they draw just as many people on grand opening day as a next gen store.

When we were in Union Gap, when we were in Saginaw, both of those stores drew in excess of 3,500 customers. The reality is they had fewer registers. Well, we were able to use the lane busting technology to take customers that are in line, we can scan their baskets, we give them a number, they go up to the cash register, the cashier pulls up that number, and guess what? You are ready to go, checked out, boom. Expedited process. Connecting with our customers. This isn't about the in-store technical experience. We're committed to continue our nature-based curriculum.

Now, I'd like to walk you through the Cabela's retail experience through the eyes of 3 people: The outfitter, the customer and the manager. And I'm going to give you kind of the abridged version of this, because if I read this whole thing, it will be long. But this is reality and this is coming in the next couple of years. Imagine as a customer you walk into a store and it alerts one of our Outfitters that you're there. This particular outfitter can pull up and know exactly what it is you like to do. Maybe you like to fish. Maybe they know you like to ice fish. And at that point, they can come to you and they can help you with your purchase. You may be able to contact that outfitter and say hey, I'm looking for this particular coat.

This outfitter can help you. They instantly go to it. The outfitter will be able to pull up your latest purchases. They'll be able to send you magazines or articles, they'll be able to send you notes, you as the customer, will be able to interact directly back with the store. You'll be to do your Voice of the Customer. Automatically, our managers will be able to get that Voice of the Customer and literally respond to you in 20 minutes. So it's a pretty big deal to us. It's a pretty big deal to the customer. And the reality is, it differentiates Cabela's from any other retailer that's out there. This is technology that has been tested and we'll see it in the next couple -- few years come to our stores and that will make a best-in-class experience when that customer gets there. We're extremely excited about the amount of information it gives us and we're extremely excited for the fact that it's going to make the job of the customer easier and the job of the Outfitter easier.

Now, the last person is the manager. And I would tell you, I said this in the very beginning. These are the most complicated retail stores that you can run. There are many different moving parts in a retail store and our managers need the best possible tools to be successful. In the next couple of years, our managers will be connected to the business more than ever before. Here's a typical day for a retail manager. The manager receives that alert from the customer and they automatically can react back. The manager receives an alert that -- from Business Intelligence that all of a sudden, business is going up and they can reallocate labor to the registers within 30 minutes. They also can send tasks to their Outfitters. They also know that having that knowledge of the business gives them power and knowledge is power and all these tools will give our managers the knowledge that they need to help our customers the best -- to stay on top of the sales, manage labor and connect with customers.

Success, these days, depends on speed, the ability to react to the business every day at a moment's notice will be one of the things that adds incremental sales and cost savings for the bottom line.

Another new technology we're testing is augmented reality. I love this one. This technology adds graphic, sounds, epic feedback and smell for the natural world as it exists. With augmented reality displays, mostly in smartphones today, informative graphics will appear in your field of view and audio will coincide with whatever you see.

I've got a video here to show you exactly this works with the Cabela sign and how this would work with your smartphone.


Michael Copeland

Now how cool would that be if you go into a store and you see a product that you like, you're not really for sure what it does and you can click on it and it gives you that information? Now I'm fixing to take you way out on the technology side. This is real stuff that's tested and some retailers have it and it's things that we're looking that what we can do here in the future. How about virtual dressing rooms? The ladies will love this. Nobody likes having to change and change and change to get the right size. So the virtual dressing room has a camera and a screen positioned in front of the customer that will superimpose virtual outfits onto a shopper's body. Hand gestures allow a user to choose different item and color.

It brings catalogs to life; Audi and other companies currently are doing this. Point your cell camera to a picture and that product comes alive, showing the TV ad on your phone. Brings our moments to life and tells the story behind it. Those are just some of the things that we see that are coming up.

We're also very proud of the way our customers embrace us. We monitor and analyze everything that our customers say. We call it our VOC or Voice of the Customer. As you can see on this chart, to the side on the right in black is retail comp -- competitors and how they have scored in Voice of the Customer. We use the ACSI program, which is the American Customer Satisfaction Index, same as all of these other retailers. What you'll note is the industry average is a 76.6%. Our nearest competitor is at an 84% and I would tell you, that is a fantastic number in ACSI. Cabela's in 2011 was at 87.1% and we've increased this past year to 88.7%.

Our GMs, when we get a VOC, are alerted when the customer fills it out and it tells them that the customer would like a call back. We set a standard in our stores that within 24 hours, we should make that call back. We also implemented a case management system to track all of these to make sure that we have contacted that customer. In 2013, we'll have optimized mobile surveys to give us that feedback, while the experience is on the top of the mind of the customer. We expect this to allow us to work with customers before they leave the store.

Let's talk about process. And I know in the past, I've mentioned to you guys, those of you that have been around for a while, we've touched over 350 processes, policies and procedures within our retail stores to increase productivity and efficiency. Processes is our third priority of retail growth. It's our dedication to process improvement that will make us more efficient. Here's an example: increasing outfitter availability. Our goal is to reallocate labor hours to the sales floor, not reduce them. We're focused on system automation and enhancements to reduce operational and administrative activities, allowing us to invest more into the customers. We're providing stores with more canned reports and ready-made tools to manage their business, so they don't have to spend time in the office doing a deep dive.

We've improved our forecasting and accuracy by separating out high volatile sales items, such as boats that impact those labor dollars. Our ability to forecast sales has improved our ability to manage our labor. And we continue to drive improvements in job roles and responsibilities to maximize customer-facing labor.

Standards. We centralized those standards and made them consistent and visible to all of our teams. Perhaps nothing illustrates our commitment to process improvement more than our advances in firearms. Our electronic firearms purchase process continues to evolve. The program to date, we've reduced the firearms purchase transaction time by over 10 minutes, positioning ourselves to be the best-in-class retailer in both compliance and in the firearms customer experience.

In 2011, we introduced the electronic 4473 program, eliminating over 90% of the potential errors. Last year, we connected the program to our point-of-sale system and found book ensuring less errors again and lowering transaction time, as Outfitters no longer have to rekey all the information that a customer gives you in the system.

This spring, we will add the ability to electronically submit background checks to the FBI via InstaCheck. And I have to change this because we've been testing this in our stores. We've finished our testing yesterday and we should be able to roll out this process to all of our stores within the next week. This will ensure busy times do not lead to extended wait times to purchase the firearms.

Now, a lot of you know that we have reduced the overall time that it takes for a transaction. And you know that the numbers of firearm purchases, number of 4473s that we go through is a big number. This process is going to reduce that process time by 5 minutes. That's a big number. As for volume, it's important to note that last year alone, we had over 550,000 4473s. Do the math on that one. This year, the volume will be higher and we're proud to offer these capabilities to decrease those wait times.

Now, let's talk about growth. Retailers prepared for our growth and our customers are ready. We had over 3,000 people stand in line in a snowstorm in Saginaw to get into our newest outpost store. Now I would tell you, there were customers that were in line 14 hours before we opened those doors. Last week, we were overwhelmed and it depends on who you talk to, as to how many people were actually at Columbus. Operations guessed there were about 6,000. The fire marshal guessed there were about 8,000. And marketing said that there were over 10,000, because there was such great marketing for the store.

I'm going to go with Scott and I'm going to say they're probably over 10,000. And this next week, we'll open up our next gen store in Grandville, Michigan, which should be just as exciting. Canada, as Ralph stated before, holds enormous promise. We're relocating our Winnipeg store. It's right next to IKEA. I can tell you that Canadian Outfitters are extremely excited. Our Saskatoon store has shown strength of Saskatchewan and we're looking forward to the same results in Regina. We're excited about all our new stores in 2012. They've all exceeded our expectations. Our new stores do a fantastic job of introducing the benefit of the Cabela's club to the market and connecting more customers to brand.

So, all these going on, all of these growth, you can imagine, were somewhat taxed on the operation side of how do we manage these stores, how do we manage all of these opening and what do we do? So as we add stores, we're adjusting our reporting structure. We spent the past years piloting a new district program. The training has been completed and we expect a complete district structure in 2014 that will allow us to focus more on the local customer, events and merchandise. Thus, creating an event, even better customer experience.

We've also got new field support teams and I would tell you, this the best part about what we do in new stores, better than any other retailer. We put together a team that actually goes in and helps the new store set all of the fixtures, all of the merchandise, all of the displays. But we also put a very experienced pro team in these stores 3 weeks before they open. 20-plus people that are experienced Outfitters from other stores that go in to insure that not only are we teaching people that this the way that we do it, this is the process, this is the program. But again, it's about culture, culture, culture.

We have another group of Outfitters that comes in and stays 2 weeks after the store opens. This ensures that if there are any questions about how we do things, how we treat customers, that, that culture is preserved. There's not anything more important to us as we open these new stores is that those stores come across and are seamless [ph] , from Saginaw, to Union Gap, to Columbus, to Fort Worth, Texas, to Scarborough, Maine. We want our customers to have the same experience and I would tell you that most of our executive team, Tommy and I for sure, have had the privilege to go into every one of these stores and every single time we go into one, we'd talk about how great that team was.

So new stores' growth is in good hands. Cabela's will not change as we expand. So on my forward summary, we've got continued investments in the development of our Outfitters. I think we are best-in-class in our training program. We're putting together a more robust and integrated customer experience for leveraging technology, increased effectiveness through process and standards. And as an operator, I would tell you that, that happens every single day and it never stopped. And in stores that resemble and inspire participation in the outdoors.

In closing, our Outfitters do a wonderful job representing the nature of Cabela's to our millions of customers worldwide. We will provide them with the tools and mobility to do their jobs, faster, better, with a better connection to our customers. As we grow our commitment to our culture, our brand and our nature, we'll remain the same and continue to set the standard for our industry.

With that, I'll say thank you and open it up to any questions.

Thank you. I'll turn it over to Scott.

Scott K. Williams

Good morning. I'm here to talk to you about marketing transformation and the direct business. And when Tommy opened up today, he talked about a journey that started in 2008 and 2009, a 4-year journey that has had a pretty amazing run, specifically at retail and the process of the VOCs and the EPS doubling, etc. On our marketing transformation, we're in a little bit earlier stage than that. Meaning that we have announced 5 main pillars of our marketing transformation and these started in February of 2012.

So we're at about 13 months and probably the most common question I heard last night was given that we're here in spring training country, if this was a 9 inning ballgame, what inning are you in, in marketing transformation in the direct business? And we think we're in about the third inning. Meaning that we have some signs of life, we have some positive movement, but we think there's a long way to go. And so while we talk about a lot of our accomplishments, we're going to talk about a journey and we're going to show you some things today that we are implementing that we think takes us a long ways along this journey.

The other question I often get is, as I've had a chance to be at Cabela's and look at the direct business and marketing, say, what is the one thing -- what is the one silver bullet we can do to turn around this direct business that's been struggling for 3 to 4 years? And the answer is it's not one thing. It's a combination of a bunch of little things. And as we get those types of improvement, and I'll talk about them today, it's user experience and side enhancements and better mobility. All these things together, working together, we think, is a 1 plus 1 equals 3, or a 1 plus 1 plus 1 equals 7. But it's going to take some time to put them together, but we're excited about the progress that we're on and we'll talk about that today.

Now, if you look at these 5 pillars, these are all in and of themselves fairly major initiatives. We have some of the folks from our marketing group in the audience today and I don't think there's anybody within marketing that hasn't been touched, meaning their role has changed or we have new departments like Omni-Channel, like category marketing, that didn't exist before. We have folks that are changing their jobs from primarily being copywriters and content on print, now transforming those skills into digital experiences. So as things begin to evolve in the available media, et cetera, we need to move all these things forward and drive things together.

You've heard Omni talked a lot about today and I would tell you, Omni in the success for Cabela's is not just a marketing term. You've heard it talked about in fulfillment, you've heard talked about in how we put the customer at the center of everything we do. And the best way that I can explain that is I personally asked folks and they say, "Oh, I meet someone." And I say, "Who do you work for?" And I say, "Why, I work for Cabela's." And they say, "Oh, that's really cool, I bet you love your job and so on and so forth." And they'll say, "I got your hardbound catalog or I have your credit card in my wallet." They're really excited to know that. And if I ask them, "Are you a direct customer, or a retail customer?" What? I don't understand." Meaning that they don't think about it that way.

If you have our store close, I plan into get into your store on my way to vacation. But I've been a catalog customer for a long time and I research on the internet. I'm a Cabela's customer. And as we go forward, we think it's really important that we break down those friction points, because the customers really want to interact with us in our Omni-Channel environment and the green roof.

So let's take a look at what we did holiday. We were proud of our Q4 results, specifically our retail at the 12 comp direct showed some life at a plus 2 comp. We really came together as a group and started to think about things in a full Omni-Channel approach. This comes from coordinated messaging, look and feel. On the right side here would be the cadence of our weekly retail ads that had a consistent look and feel, but would change by color schemes and by featured products. But you'd have a similar look and feel in the catalogs that were in the market that the same time.

As you'll see, these are a couple of the catalogs. And so as we begin to evolve the things, the customer, we want them to come to Cabela's first and we called it your Christmas gift Outfitter and then determine which ways they want to shop and interact with us.

This is where things look like, at the top for a couple of Internet ad banners. You'll see that we're utilizing our marketing mix to optimize for the green roof. So it's not just about go spin digital and arrive direct. In the top, that's our Thanksgiving Day sales. That does help drive direct, where we had a greater presence online on Thanksgiving day, showing door busters, selling items on Thursday, but also driving these Internet ad banners that is the second one here, which is saying come to our retail stores, 5:00 a.m. Friday morning and driving that.

So the way we look at things is that when we run our marketing mix, many times they optimize for a lot of channels. Sometimes, digital helps retail. Sometimes radio and TV helps direct. As we go forward, you know how we score keep is that we do charge certain marketing mix as the different channel. But we're optimizing what's best for Cabela's.

So as it all comes together, you'll see here's how it would look in a summarized format. The retail, that catalog, the dot com and the digital would come together around the season. So obviously, that's looking backwards.

Now, let's talk about where we would be in the market today. Spring is a huge season for us. This is an event that last from mid-February into early April. We call it Spring Great Outdoor Days. We optimize it for different climate, different seasons that will launch it earlier in the South and later in the North and have a cadence that includes retail ads, catalogs, etc. We're in the middle of that today. Here's a retail ad example. You'll also see a catalog self-mailer.

When we look at these things, you'll also see the integration of what we have around the room. We have a very important time right now where we're not only talking about our brand, which is It's in Your Nature, Spring Great Outdoor Days and the new launch of all of our soft goods, Guidewear, etc. to try to seamlessly integrate that message to be a really exciting time.

The other piece that's really exciting for us right now is that through the course of the momentum that you've seen over the last couple of months, and specifically with the guidance we gave yesterday, we are seeing a number of new customers that are experiencing the Cabela's brand for the first time. We're seeing existing customers buy more, but we are seeing customers experience the brand. And we think there can't be a more exciting time to be talking about the great new product that we have in soft goods, what we're doing with our brands and the improvements we're seeing in our online experience for folks to be able to experience that. And obviously, it's our job to turn them into repeat customers.

This is what the things would look like right now on e-mail and on Again, consistent look and feel. Now, regarding print, I won't go into a lot of detail here. I guess we don't want to divulge everything we're doing. I will tell you this, we have traditionally been a heavy print and catalogs vendor. We still are. We are transforming from print to digital and we always look at optimizing our circulation plans to look at metrics that include number of touches, it includes targeted titles, obviously, they include response rates, etc. You will see us change if you watch closely in some of the sizes of the books and some self-mailers that can be put into the mail at less extensive cost. We can utilize print to stimulate demand, meaning they may not shop completely from the print piece, but they may be able to remind them of a micro season, or of a specific launch, use that to stimulate it and then go complete their purchase either online or at the retail store. In the bottom, you'll see us using more digital. There's some examples in some remarketing and Internet ad there.

Additionally, I think as we have looked at our online experience and if we go back 1 year ago, we would have graded it not us highly as we would like for it to be. And the example that I use is that our retail experience is such a wow experience that it sets the bar high for our online business. Meaning, we literally have people walk into our retail stores, they'll have the 6-year-old kid, and he looked up and just, like, "Wow, look at the taxidermy and the mountains, so on and so forth."

You come to our online experience and we haven't had it to the level that we want it to come to. So the question is how can you make the online experience more wow? And that's why I talk about a multi-year journey. But some of examples of things that we are working to improve and you'll already see them today are things like video integration online. You'll see things like targeted landing pages and stories that we'll tell. We've brought on a new e-mail service provider and starting to have best-in-class techniques that a lot of people have, like 360-degree product views, etc.

We've also needed to think about how do we manage through that? We have had the opportunity in the last couple of months, where we've opened a new office in North Denver, we've already got over a dozen people working there, attracting folks who have very specific talents and user experience in e-mail, in social and mobile, and feel like this is an area that we need to really grow in. And so we're excited about the possibilities that, that will bring coming forward.

Additionally, Tommy talked about the ultimate in outdoor pants and I think I have them on about 75% of the time, but not today. These are our -- this is an example of a fantastic product, that honestly if you'd gone on our site maybe 6 months ago, it wouldn't have been called out as well as it could have been. Meaning, what's the differentiation of this? Why does it have a reinforced knife clip? Where is the feature video? How do you tell the story? You'll now have landing pages. You'll have multiple images to be able to go through and to try to feature our new and exciting product towards the top of our internal search. This an example of a journey we're on that as we target our best of the best, that we will have product features landing pages, et cetera to tell that story online.

Here's another example of a boot that we worked and developed with Meindl. But not only will you have the feature video, it'll go through product features where you can zoom in. The integration at the bottom is the ratings and reviews, so Brian talked about average rating and review being 4.3 out of 5. This is -- would include a 5-star review. It's pretty well documented that if you include those type of reviews, you're helping the customer do the research that they would need to do themselves, helps the conversion path. And then you can go ahead and click the ability to shop now.

So as we go through thinking about the direct business, we'll talk about the team being laser focused on conversion, lots of little innovations and lots of little improvements are the ways to tick up the conversion. Because we have had a strong track record of bringing traffic on and to be able to convert that to buying customers.

The new product story, these are what led to -- Brian talked about. But if you'll see, these are all examples of the zones program, which is really exciting. The Stitched In, which comes across all of the elements of the new soft kids launch. The guide wherein you can see how these are coming to life online. We think if you keep watching, you'll see gradual improvements everyday as we tell the story with our products online.

Then, let's think about the more connected experience. There are several key things that are going on here. We do have an active Facebook presence, over 2.3 million fans. But what we're really thinking about there is the level of engagement. You'll see us more and more prompting conversations out there, putting videos out there. We've integrated a social widget on the site which allows uploads to Facebook, YouTube, Twitter, etc. As we go forward, this new e-mail service provider, a couple of you asked me questions about things of targeting based on your activity on this site, or whether there's been an abandon that you would be able to come back and complete your purchase. Those are things that are being launched out of some of the new Outfitters in the Denver office, and we're excited about that.

Mobile is a big deal. Mobile is a big deal. You can read a lot of articles that the growth in mobile is probably surpassing expectations. And the expectations were high. And it's going even faster. What I would tell you is that we do have a lot of access to our site via both smartphones and tablet experience that is growing rapidly and it's very important for us to have a best-in-class mobile experience. It's a headline initiative for us in 2013 and the customer's moving fast. And it's very important because the best-in-class examples of conversion show that folks on tablet ought to be able to convert similar level to those that are on laptops and desktops. And so if that new traffic is coming in and if it's heavy on tablets, if that conversion can be at the same levels of laptops and desktops, we think that can turn a headwind into a tailwind. We're putting a lot of effort against that.

Additionally, we've really put in place a lot of analytics. It's very important that we look at the sources of traffic, that we maximize our SEO, that we maximize our affiliate programs and we've really become rooted in analytics. Ralph talked about, within the marketing group, we do have a strong track record of some statisticians and so forth. I don't think we've put as much rigor into analyzing the direct business as we have in retail site selection or things like that. But as we go forward, you can trust that we spend a lot of time on visitors turning to browsers, turning to shoppers, turning to buyers, abandon rates, page views, those type of things and becoming rooted in our DNA as we go forward.

Additionally, you'll find that digital to support retail is very active. We'll have videos for grand openings, pre-Black Friday, etc. So as we talk about the blurring of the channel, I don't know that we can talk about just one or the other anymore because of the way the customer is interacting.

On November 9, we launched search-as-you-type. It may seem like a pretty straightforward feature, but the conversion rate, when you actually help the customer complete their search or give them options on drop downs, we found that, that was a slight boost to conversion in the fourth quarter and coming into this year and an example of one of the many little things we try to do to make big changes in conversions.

We launched a Christmas gift shop. This is a way to shop by end-use so you can shop by -- for who you're shopping for, for him, for her, for your pet, but it also gives opportunity to have more merchandise mini-sites within a season and I think allowed us, for some of our success, to kind of own some progress through Christmas.

You heard some discussion about the excitement of a grand opening. This a picture of Halayla [ph] . But then we talked about what it's like to have 5,000 people out front, if you can look there, that's from the top of the building, it goes probably 10 wide out to the highway, down there and what you can't see is it goes equally back past the casino and wrapped around the back of the building. And so as we go forward with this, it's very exciting that the folks who, keep in mind, we'll open on a Thursday, but we'll be open on a Friday and a Saturday and a Sunday, but they want to be there that first day. That's a very exciting process.

We've been fortunate in that each of the grand openings we've had have continued to have these types of lines, even in Union Gap with the 40,000 square foot, store probably 1,500 to 2,000. So as I talk to you here in a second about brand, it's really a unique situation we have here, that how many times our folks lining up like this for a retailer? And look at the Black Friday. If you look and compare the last 2 years, we were at 56,000 people in December 2011. Is that right? So at Black Friday, the end of November, 56,000 people and you can divide by 35 stores, right? So you can get 1,700 of stores that went from 5,000 to 800.

When we came to Black Friday this year, we thought, well how are we going to top 56,000 people? And we had started a franchise, I'll call it the year before, of first in-line giveaways. There's an opportunity to give away one gun per store and to be able to continue to generate that buzz. This year on Black Friday, our first customers started lining up about noon on Thursday. So think about that. On your Thanksgiving Day, people are leaving at noon from their turkey dinner and going to Cabela's. And they'll be there for 17 hours, including camped overnight. And by the time we got to 5:00 a.m. the next morning, there were 72,000 people, right? And so 16,000 more, roughly a 30% increase of the folks that lined up. It's become a very exciting time for us and the part of the reason it's really important for us is at the big launch for holiday season. It talked about not just sales on that day, but Cabela's is your destination coming forward.

We have some partnerships, I'll talk to you about Luke Bryan here in just a minute. But we wanted to be able to have key high-profile partnerships such as Justin Moore, who's a country music singer, and Luke Bryan.

We have partnerships with Olympians. Down here at the bottom, Kim Rhode, who's the second from the left, won the gold in women's skeet in London. She shot 99 out of 100, including 25 out of 25 in the finals. She won her fifth medal in 5 straight Olympics, 1 medal in each of 5 straight Olympics, the first woman Olympian to ever do that. We're excited to have these folks. They come to our grand openings, interact with our customers and so wonderful partnership.

We have pro staffers that we work with. These are folks that are key celebrities in the outdoor markets. And additionally, we have a program, I don't know if we've talked that much about, so it's called Cabela's Outdoor Fund. And so if you go through a Cabela's retail store and you're checking out, they'll say, "Would you like to round up to the next dollar for conservation?" And so that may range anywhere from $0.01 to $0.99. And we're getting a high acceptance rate and a very great execution from our retail folks, where through the course of the last year we raised over $1.1 million. That money, 100%, goes back into causes to support the future of our industry and our sport.

So we have partnerships with USSA, which has a -- they have a Trailblazers program for introducing youth into hunting and fishing. We have partnerships with -- lobbying efforts to be able to support the legislation and the issues that are key to our future, and we're able -- in Columbus, for example, we gave the Trailblazer program a $900,000 check for a 3-year partnership for us to be able to make sure that we ensure the future of our sports. So that's very exciting. I think it shows us a leader in the outdoor space.

So I want to talk to you about brand launch, okay? As we think about this, some of you may wonder why now and why do we need a brand launch? And one of the things that we did was we've spent some time last year looking at what is the legacy of Cabela's. And what you'll see there is that's actually a kitchen table, and that's where it all started.

52 years ago, Dick and Mary and Jim Cabela had a dream to start a company, primarily hand-tied flies and catalog business, but they had 2 key principles. One was never compromise on great quality product, and number two was take care of every customer, one customer at a time. And those principles have never changed for the last 52 years.

And through the course of time, we've built this amazing thing, and it's been built by all the folks out here where we have customers that come up to us and say, "We love Cabela's. I just love you guys to be able to do that." And as we dove into it, we started saying, "You know, there's an emotional connection here that Cabela's can have with customers that maybe not any retailer can have." It's pretty tough to do if you're selling toilets or if you're selling some other things. But for some reason, we may have this opportunity to really connect with customers because they wear our hat, they put decals in the back of their truck. They wear our product, they tell stories about their conquests.

And so we started interviewing customers, and we started looking at what really is the underlying piece here. And as we interviewed customers, they started talking in a language that was beyond functional things. It wasn't like you have a very great return policy or things like that. They started saying, "When I'm in the outdoors, when I hunt and fish, it's not what I do, it's who I am. It's part of me. It's deep down in me. And when I'm not in the outdoors, I'm thinking about the next time I'm going to be in the outdoors." And I'm always -- it consumes every piece of me, and I can go back to some deep memory of the first time with my grandfather or taking my daughter fishing or something that resonates really deeply and emotionally.

And as we talk to them further, we kind of wanted to understand how does Cabela's fit in with that. And they said, "When I'm preparing for my next opportunity to be in the outdoors, I think about what's the ultimate destination that can help me prepare for that. And I think it's Cabela's. You guys have everything I need to make me more successful this year than I was last year. I'm always wanting to catch the bigger fish or shoot the Trophy Buck. I want to be better this year. And so I'm taking a part of me and I'm connecting it with who is my ultimate destination to be able to come together. And if you make me successful and you have wonderful service and outfitters and expertise, that's why I say, "I love Cabela's".

So as we went forward with this, I'm going to show you this brand manifesto.


Scott K. Williams

So that's what we call our brand manifesto video. We launched that only internally. And the reason we launched it internally was it was very important in order for our outfitters to be able to act in support of a brand to really understand the essence of our brand platform.

You'll also see that it's not only It's In Your Nature talking about customers, but we'll use it's in our nature, meaning how we will act to support our customers, also letting them know we get you because we are very active in the outdoor activities as well.

So as we went forward, we launched this internally to all of our outfitters in October, including a letter from Tommy internal videos, et cetera. And the thing that I think I want to call out here is if you think about what's happened within our industry in the last few months, there's a lot of noise out there, right, and there's been noise and questions about the sales of guns and sales of ammunition. Our brand campaign is different than that. If you look, our brand campaign is about service, it's about connecting with our customers, where they live and what they do and where we want to be emotional. We are trying to stake to a different claim because we think that we can get a higher calling and a deeper connection with our customers because of that expertise, quality products and the way we integrate with them.

So we have, for the first time, launched a 60-second brand anthem. It has been running, hopefully some of you have seen it. It's been active on YouTube and on our Facebook page, had tons and tons of views. And what we wanted to do here was because we're not a big television advertiser, we're not going to turn and spend all of our marketing budget on television advertising, but we do want to signal something's really different about Cabela's and that we have this wonderful new brand launch.

We also need to have a spot that resonates enough with customers that they'll talk about. They'll tell each other, they'll go on our Facebook page and talk about why it's in my nature and to have something that cuts through the clutter. So what we've done here was if you think about the Super Bowl, there's a lot of people that have television ads right now that shout at you. You get the commercial, everything's amped up in volume, and they all -- you almost tune them out because there's too much there.

We actually developed this prior to this running, but you'll recall in the Super Bowl, there was a really well done ad, in my opinion, with Paul Harvey and the farmer and the Dodge Ram where it didn't shout at you, but it really resonated with some emotion. Well we had been developing our ad already. And what we had decided to do was rather than having heavy voiceovers and heavy music, a lot of our brand, you'll see, is talking about great photography, transporting you to the outdoors, if you're not there now, you want to be there.

And the other revelation that we had was when you experience the outdoors, you don't just experience it with sight, but you experience it with sound. And whether you're thinking about it or not, the sounds of nature drive that connection that you have. So we've used just the sounds of nature for our 60-second spot. If you'd turn up the volume and roll that thing.


Scott K. Williams

So we're excited about that spot because what we tried to do was to create a compilation of a 60-second spot that resonates with everyone in one way or another. So I had -- like I literally have had people come up to me and say, "I can show you mine." And I was, "Show me your what?" And they said, "I can show you my family tree. I can take you to South Dakota and show you our tree where I hunted, it's where my dad hunted, it's where my grandfather hunted." Another person would come up and say, "I thought that was my Britney in the truck." Or somebody says, "That reminds me learning to shoot a bow with my dad."

And so as we go forward, everyone has their way of when, what we call, the day it started it all for them, the day that they got their connection with the outdoors. I'll show you a second spot here, a 30-second spot. Important here is that we want to be able to translate the themes for different seasons. In this case, we've got a growing women's and children's business. This spot has not only a female fishing in it but a father-daughter in the similar theme.


Scott K. Williams

So please keep an eye out for that. You'll see that running from now up until we start our media for Father's Day, which will start in May, so you'll see that running in the next couple of months. It's running each Wednesday on the premiere of Duck Dynasty. You'll see it on SportsCenter, Outdoor Channel, Sportsman Channel, a variety of places like that. We're excited about the feedback we're getting and the number of views that are going forward.

Additionally, we have launched the micro-site. You can go in, experience it, download wallpapers. You can get different scenes from the ad. We have folks that can be able to live Twitter feed, Instagram, share their stories, et cetera. We think this is really important in the age of the new media that you're not just spending money on television but you're extending the life of it as far as you can.

Okay, let me talk for a minute about Luke Bryan. When we went to launch It's In Your Nature, we had met Luke last year and spent some time with him. And besides the fact that he puts on a wonderful show, he's very popular with fans and he's a very outgoing guy, he also is a very avid hunting and fishing guy.

He -- when you talk about somebody that's in their nature, you can't get him to stop talking about his ranch up at Nashville, et cetera, what he's done to flood the property, learning to shoot a bow, and he's very active. And we found that here's a guy that could be a really good connection. But if he wasn't really authentic, then it wouldn't play out well. You don't just grab someone and have them wear a Cabela's shirt.

Now the part that's been exciting for us is that Luke's been on a hell of a ride, and I just actually saw a minute ago his -- if you Google Billboard Magazine, his Spring Break album just debuted #1 all genre today. So he's on a really hot role, he's a lead entertainer, and he's a headline in across the country. Having visited our stores, doing meet and greets, advance ticket sales, and I'll tell you about what he do at the ACM. So I'll show you a little reel so you get a sense of what Luke's like on award shows and performance.


Scott K. Williams

So Luke's now going to be the co-host with Blake Shelton on the ACM Awards. It will be on Sunday night, April 7, and that will culminate the end of our initial launch of our It's In Your Nature branding. We also wanted to have some integration of our relationship with Luke, and so we try to think about a way that we take It's In Your Nature, and with Luke and to try to take kind of a double play on words that we're doing with it's in your family tree, it's in your morning commute and how that would play to a country music star and how they could support it.

So this is a 30-second spot we'll be running on CMP [ph] and other country music outlets and then on the lead-in to the ACM Awards on April 7. And here's the spot we put together.


Scott K. Williams

So we're very excited about that partnership. Keep an eye out for Luke. I think he's really on a meteoric rise and something that will be a great partnership for us.

And I'll just close by bringing you back to where we started here. I used the term, "the day that started it all". And you'll see out in the lobby that all of these things on the excitement of a brand launch could not have happened without a lot of the great work of the leadership team up here, a lot of our outfitters that are in the audience today that have built a legacy, a quality product, taking care of one customer at a time. And that is the foundation that allows us to launch It's In Your Nature.

I'd be happy to answer any questions.

Yes, Maggie [ph]?

Unknown Analyst

Could you just talk a little bit about why you are trying to make the Direct business stand on its own when it's blurred, as you point out, and in the eyes of the customers it's all one?

Scott K. Williams

Well, it's a good question. I know we've talked internally was, is there a day in our future where we don't report channels separately.

Unknown Analyst

Yes. I mean, it seems to me you're doing it just for Wall Street.

Scott K. Williams

Well, go ahead, Ralph.

[Technical Difficulty]

Ralph W. Castner

Is the mic on? I think there's a day -- and I'll be pretty frank about it. I think there's a day we need to report it together. Quite frankly, what I'm waiting for is more consistency in the Direct business. And at some point, our Retail is going to be so big relative to Direct. I mean, because what would happen now is if we had a tough quarter in the Direct business and your report a down comps because the Direct business was down, you'd be out talking about the Direct business anyway. There's the day coming when Direct will be a more consistent performer and small enough relative to retail we are just going to look forward to get. I don't know if that's 1 year away or 5 years away. But there's a day that we're going to report them together. So I don't know if that's [indiscernible]

Unknown Analyst

I mean, I don't even know how you separate them internally now.

Michael Copeland

Well, it's not even a business. To call it a business, it's not a business. Our customer's shopping agnostically.

Scott K. Williams

And to your point, there are times where we do make decisions today just simply because the way we report. So kiosks and in-store pickup, our multichannel orders, go to retail. I think that's the right thing to do because we want to put the customer at the center and make sure that we complete the purchase. But we also decide which marketing expenses go to which channel. So it does cause a number of things that's not important to the customer.

Ralph W. Castner

I mean, the short answer is we need to do that, Maggie [ph ] . But right -- at least historically, if we were to report a down comps and started talking about the Direct business, then it would have been confusing the message. So there's a day we're going to do it. I don't know when it is. It's probably sooner rather than later.

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

Scott, can you just talk about the improvement in Direct that you've seen this quarter based on your announcement yesterday? One of the sources of that improvement and then how sustainable do you think that is excluding what you've seen in ammo?

Scott K. Williams

Yes, so one of the things we've talked about is that we feel like in the improvement in the Direct business, roughly half of it is related to improvement in ammo. So the good news is there's a full half of the estimation that we put out there that is spreading across a lot of categories. And very specifically, it's been really important for us that when our customers come in, new-to-file customers or returning customers, they're seeing products across a lot of different businesses. We don't call out the categories, but I would tell you we're encouraged by the women's and children's business online, and we're finding that we spend a lot of time looking at different types of baskets, baskets that have ammo only, baskets that have ammo plus other products, baskets that don't have -- that have completely other products unrelated to ammo. And I would tell you that all categories are up. Having said that, when we have this excitement of grand opening, think about Columbus last week, Grand Rapids next week, Louisville next week, opening to crowds of 5,000. We're throwing $2 million to $3 million negative against this every week. So as Ralph pointed out, because of our legacy call center business and the cannibalization that comes in, we've got to grow high single-digits to get to that flat basis [ph] . But we were encouraged by showing some finalized in the fourth quarter and what's happened so far in the first quarter.

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

And then just a quick follow-up. I know that you mentioned earlier there's not a silver bullet, but can you help guide us to a couple of the big needle movers this year, things that are launching this year that may change the site experience or set the stage for improvement in Direct?

Scott K. Williams

Yes. Well, I would tell you that there were at least 3 major initiatives that we're spending a lot of time on that I talked about in my talk and I would highlight those for you: improvement in mobility, more productivity out of our e-mail campaigns and greater content to include video digital content.

Michael Copeland

Matt, I would also add to what Scott said that we'll see when we roll it out, but the lunacy of telling a customer that we don't have a product for them on their order when we have the inventory is about the single dumbest thing we do as a company today. That rectifies itself, as Brian said, late -- sometime in the late third quarter coming into the season. But we're missing fill rate. When we have the inventory, it's like a management nightmare, and we're going to fix that. I don't know what that does to lift in total revenue, but it's meaningful and we'll obviously tell you guys as we get there what impact that's having. But that's big, in addition to what Scott said.

Scott K. Williams

It is. In the headline, they called it out best for me was when Cabela's was primarily a catalog business, 100% of the inventory was available for Direct. When we're a multichannel business, an omni-channel business, until we optimize that omni fulfillment, Brian told you 50% or less than 50% is available. So as we pushed it out into the stores, you actually have a degrading effect on what you can do to satisfy your Direct customer. We're working hard against that. Yes David?

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

Scott, do you anticipate a meaningful reduction in the catalog pages mailed over the next several years? And if so, is that a net savings to you, or do you just redeploy that cost towards other types of marketing?

Scott K. Williams

Our stance is that that is a redeployed cost. You'll see us moving down -- without disclosing, but you'll see us moving down our catalog circulation, but we'll look at it to try to keep contacts up and talk about some of those self-mailers to get as many impressions as we can out there. Our thought is there's plenty of opportunities with what Ralph talked about of improvement of digital, new methods that we can go in to invest in mobile, what we need to do in some national advertising. The excitement is that while we don't look at that as a savings to be able to -- we do think we can move that effectively to redeploy without having to drastically increase. Sean, next?

Sean Baker

Good afternoon. Thanks for coming. We're here in the home stretch, I promise. I know we're really close to getting to lunch time and we're running a little bit past.

So I'll keep things moving along, but I'm very excited to be here. I didn't get a chance to meet everyone. This is my first time out here in my new role. I'm Sean Baker, I'm the new President and CEO of World's Foremost Bank in the Cabela's CLUB loyalty program.

And it's easy to be excited in that role, because we just come off another record year. And you guys filed the numbers and you see the master trust data, so I don't have the tell you a lot about the numbers. And Ralph hit the most important ones earlier in his slide. Record low charge-offs, account growth, liquidity looks good with the 10-year securitization we just did. So it's a good time to be here. And I could spend a lot of time talking about portfolio metrics and talking about key performance numbers and a lot of those things.

But instead of that, what I'd like to spend my time is talking about what drives those? What is it -- what's the secret sauce? What's the key to why the CLUB is different? Why is the CLUB different than a co-brand loyalty program that our competitors have? What makes us unique? Because that's what's interesting. We're one of two retailers in the United States that owns our own banks, that funds our own issuing. And why doesn't everybody do it?

And what you're going to see is, I'm going to focus on 2 themes throughout this time. And it's not rocket science, I hate to say that. One is integration, and the single most important part of integration is the name at the top of the logo, the Cabela's name. It's leveraging that brand for everything it's worth because, as we go through here, you're going to see that, that's what I believe drives the loyalty and the passion for the program.

Integration also means communication. It means working with everyone in here and the other Outfitters here, and all of our Outfitters throughout the United States, so that we can be quicker to react and implement changes to our program that a co-brand partner can't do and I'll show you an example of that.

The second one is being about more than points. You guys know this. You all have different loyalty cards in your wallets, I'm sure. Everybody can do points. It's not unique. Everybody does do points. So how do we connect with that passionate, loyal brand base that we've got? You're going to see, just some examples I can give you. I think it's in being -- it's communicating with them on a different level. It's giving them access to experiential events. It's leveraging our vendor relationships. And I'll go through a lot of examples throughout here.

We'll talk about some successes in 2012 with that integration and that platform, talk about opportunities for 2013. But I do want to spend just a few minutes at the end talking about some other things that we see down the pipe that's more than a year away, and I really want to do that to show you that there's more out there for us even than what's in the core program today, and we'll get to that later.

So let's start with integration. And I want to start with what a co-brand relationship might look like for one of our competitors, to distinguish what our program looks like from them. And it starts with a customer, so here's a family, outdoor customers, and here's all the touch points that, that competitor might have:

You've got retail operations, customer relations, contact centers, the merchants, selecting the assortments and the products we give. You've got website design, you've got marketing. All these different touch points and every one of them is influencing that competitor's brand. But what you don't see up there yet is you don't see a loyalty program or you don't see a co-brand, because that's a third party, and they're out there on the fringe.

And everything they do every day still influences that competitor's brand. They do it in how many authorizations they do, how many account activations they do and credit lines they establish. And it's more than that, though. Because they have touch points within that competitor's organization, but they're probably limited. In my example I threw up 3 of them.

So they might have touch points with the customer -- or the, excuse me, the Retail Operations team. They may have some integration with the customer center, customer relations contact centers, and maybe with marketing. I think I'm being liberal. I don't know if they would have relationships on that level throughout the organization, to be honest with you. And I don't know how many times they're communicating throughout the year, maybe 1 or 2. Give them the benefit of the doubt and say they're even getting together every 3, 4 months.

But what does that lead to? Sure, they have a program, sure they have a loyalty card, but are they really able to adapt to what the customer wants? Can they react quickly to what that customer's saying they want from the program? And I would say no, they're going to be slow to react. Ultimately, they can, but I don't think it's integrated to the level that they can do it quickly.

So let's talk about Cabela's. Let's talk about the CLUB program. Same customer base. Same touch points throughout the organization. So you'll see in the bottom-right corner there's a little bit different spin there. There's one that says CLUB Lincoln. That's basically World's Foremost Bank. That's our 400 Outfitters there, down in Lincoln that are focusing on the portfolio and managing those things.

What I'd tell you is different is, there's not one touch point from those 400 Outfitters. Every one of our Outfitters, throughout the entire organization are focusing on CLUB, not just those 400 folks down in Lincoln. Just got back from our Denver sales conference, I think, and like Michael mentioned it before, and I challenged -- there are 650 leaders, that every one of them is a CLUB employee, because every one of them carries on that relationship on that brand on every contact they have, every day with our customer.

And we practice what we preach. I challenge every member of our management team in Lincoln to get out to Sydney, to get out the store operations teams to work with these guys, to make sure that what they need is what we're reacting into or we're prioritizing in the loyalty program. And I'll show you some examples of the successes just last year where that's been the key.

So move forward off of integration just for a second, talk about points and rewards being critical, but everybody does it, like I said. So what are we doing differently? What is that experience I talked about? I want to give you an example of 3 different programs we have going on this year, think you've heard about them before, but I'll reinforce them. And there are Signature Outdoor Adventure hunts and trips, the experience events, which are a little different. You may not have heard of those. Those are new, just last year, and Family Outdoor Days, and I'll go through each of these one at a time.

So Signature Outdoor Adventures. This has been around for a few years, and this came out of collaboration with Charles Baldwin and his team back in Sydney, that heads our Outdoor Adventures and our travel service industry. So that's where that came from. This last year, we did 17 different unique adventures in 2012. These are unique Outdoor Adventure hunts that could be as simplistic as pheasant hunt in South Dakota or maybe a walleye fishing trip up in Canada, but it could be tarpon fishing down in Costa Rica. It could be over in Africa on safari.

And they're unique in the fact they're only available through our Outdoor Adventure service. They're also unique because we have CLUB event staff on hand at every one of these locations, making sure that it's a unique experience. The customers felt special. It's personalized to them, and it's something that makes it also very unique. Very interesting feedback we get from our customers.

Based on this, this isn't a free benefit, by any stretch. They're expensive trips, but yet, we have many first-time participants going on these trips. And when we ask them why is that, why would you spend that much money on a trip? Their answer is simple: "Well, we trust you. We trust you that you're going to give us a great experience. You're going to have a safe environment, and you're going to have us have a successful time of learning the new sport, which is very interesting."

And I made this comment before, they fund us. But even though they fund it, it's still viewed as a benefit because it's a unique opportunity that they have just by being a CLUB member to get to that. And none of our competitors have it.

Family Outdoor Days. Similar concept, but a little bit bigger scale to these. We did 3 of these last year. And this came about through collaboration with both our Retail operations teams and Michael Copeland, as well as the merchants and some of our key vendors that we have relationships with. These are weekend trips where a family can come, and if they've never hunted a fish or enjoyed the outdoors or if they're professionals, they still come and enjoy it. Bring the entire family, the weekend staff with participants from both our folks, as well as U.S. Sportsmen's Alliance, vendor support, some of our key vendors come out on-site and help facilitate these.

So we had 3 last year. There are 650 total participants last year. We talk about 2013 in a minute, you're going to see that number's going to grow significantly. This is a great example where, Michael talked about at it, where the store is trying to figure out a way to educate that next customer, that next wave that's coming through. This is the way the club's participating in that.

And it's not just about the youth, this is about spouses also. What's phenomenal here is we get grandparents, we get spouses, we get all kinds of first-time participants in the sport. And again, they love coming because they trust us, and they have a great experience and they learn a lot at it. I put down there that it includes shooting, archery, fishing, could be camping and other outdoor activities. Depending on the venue, we could have other sports like kayaking if there's access to that close that the kids and the families can participate, which has been a home run for us.

Last one I want to talk about is the experience events. And this came about through a collaboration with Brian and the merchants and our key vendors and Roger Burrows [ph] is out there, too. These are, I'll say, the ultra-exclusive events we had this last year we added. We only did 3 of them. They're very high-end, and they're integrated with the key vendors. The 3 we did last year were Ruger Gunsite Academy, the Whittington Center for the NRA, and Swarovski.

And what these are is, I'll say behind-the-scenes backstage passes to these events. As an example, at the Ruger Gunsite Academy, if you signed up for this, you got 2 new firearms that were basically very, very difficult in production. There wasn't a lot of inventory out there. You got to go to the Gunsite Academy, which is where Ruger field tests and does their own product analysis. You got to go to that Gunsite Academy. You got to decide on your weapon. And I believe that night, they went on a dinner with the CEO of Ruger that night.

That's something you can't get anywhere else. And it's -- even though there's probably about 50 people that participated in this last year, not a lot of card members, the fact that you can, and the fact that you're not going to do it every year, but that's out there as a benefit that you might have as a bucket list item that you want to do at one time in your life, is really, really strong and passionate for our cardholders on what drives their passion and their love for the outdoor.

So past experiences. Some other things that we did this last year that proves my point about success through integration. Free shipping. So example, Scott Williams and the direct marketing team and the Omni team came to us last year, about the middle of the year, and they're trying to find a program that drives direct revenue. So we talked about leveraging our best customers, which are our CLUB customers, for a win for the Direct business, we'd offer free shipping for the balance of the year from July to December.

They were successful, we did what we wanted to do. We drove some direct revenue. We saw great benefits for the CLUB members though, too. We saw a lift in sales at Cabela's for those CLUB members drive into a positive comp, which hadn't happened for a while. Even better for the CLUB, even though we've showed this as a promotion, we didn't say it's a benefit that's there forever, we saw account acquisition really scale up the back half of that year that caused us to go over-budget, which we didn't anticipate last year. So it's a win-win.

Scott gets what he wants, we see benefit from the cardholders that we acquire. And right now, the question is, will those cardholders behave the same way? Will they be as loyal because they signed up for a free shipping promotion? That's up in the air, but right now, they look like they're trending very well, which is a great, great story.

Pre-screen at the gun counter. This came about from an idea with Michael Copeland and Craig Harrison's team, about a year ago, maybe a little over a year ago. And the idea here was, we already have customer's information when they're trying to acquire a gun and doing the background check. So if we have that, why don't we bounce against a pre-screen, to see if they qualify for a card. So as soon as they get cleared to purchase a firearm, we can say you've been preapproved for a Cabela's CLUB Visa and walk out the door and get them that card there.

That never would have happened if you're in a third-party, co-brand relationship. You just don't have those kind of -- those concessions, and that drove new 10,000 accounts last year for Retail. We anticipate that to continue this year. It's been a very successful program.

Outpost support model. Anybody that's been to our existing stores knows that the CLUB booth and where we handle CLUB operations is pretty significant in size. I mean, it's a stand-alone operation. When you go to an Outpost store model, there's not enough real estate to have that, that dedicated space. So what do we do? We get ahead of the curve, we sit down with Craig Harrison's team and Michael Copeland's team. We make sure that we have space in the customer service booth that we can still issue cards. We can do everything we can do at a next generation or a legacy store, but we leverage our labor and we leverage our space to make sure that if customer service can staff it, they help us, we have all the support we need and we can do everything we can in that store.

Another great example. I would tell you that, we would not have done that if -- a third-party would not get that accomplished in the time leading up getting the first outpost store opened.

And last, one more example of Brian and the merchants, last year, we did over 80 independent vendor offers. So our vendors come to us and they're trying to drive product sales, and they want to drive new programs, whether it's because they have excess inventory or new product launch, whatever it might be. We can leverage CLUB to do bonus points offers on that product launch or on that promotion. We can do 0% interest on high-ticket items.

Again, I think other third-party relationships can do that. I don't know if they can pull them off with the speed that we can to implement those quickly for our members.

2013. What are we going to do next? We're going to expand all the events I talked about from the experiences. So I said we had 3 outdoor -- or excuse me, 3 Family Outdoor Days last year. We're going to do 8 next year. So we'll put over 1,000 people through that program next year, and the other thing we're going to do is, we're going to make sure it's all staffed internally by CLUB Outfitters to make sure the experience is what the customer expects and the cardholder.

17 outdoor adventure trips, that's the same number of the venues we have, but we're actually increasing the number of opportunities for cardholders to go behind the scenes to those this year. And the catalog's in the mail, and everything is selling through very, very strongly. We continue to see that be a very good program. And we have the same 3 experience events last year, but we're adding one more through another vendor contract with Gore-Tex. I believe they're going to go -- to be able to field test products at their factory, then they're going to go do some fishing out on the West Coast.

Website redesigns and content integration. The CLUB is in the process of putting up their own website. And it would be very, very easy for us, for the sake of speed and refreshing the website, to just go and take, I'll say, a typical banking website, where we could go, allow customers to check balances, make payments, file disputes, those kind of things.

But we want to do it right. We want to make it the Cabela's look and feel. We want it so that if you log into that, you have the same experience you'd have, that you'd expect from logging into a Cabela's site. So from content integration, our goal here is make sure you can do everything you want to do with the card. At the same time. We can leverage the relationship with Scott's teams, to make sure that you have that look and feel, that we could even potentially market to you at the same with regards to which site you're on.

Omni channel integration. Scott had It's in Your Nature. If you didn't notice it, when you look in your books, you'll see it later. Cabela's CLUB is integrated into all those marketing campaigns, and it's a natural fit. So when Scott has It's in Your Nature ad campaign going out, you might see it, for example, right now, $5 flat rate shipping for CLUB members. It's integrated in everything they do. That's a testament to both our marketing teams working together.

Same thing with promotions and offers with the merchants. We're going to continue to leverage that. We have every indications we're going to go up this year.

And the last one, Scott did touch on a lot, was social networking expansion. I want to mention this because, I made the comment that the experiences are what will make the difference for us, and how we communicate and relate to our customer. Customers' expectations on how they want to communicate with us and with each other are changing, from a social networking perspective.

We need to make sure that we allow them to brag about their trophies. We need to allow them to communicate with other CLUB members, and we're going to make sure we're there with Scott every step of the way. That CLUB is integrated with everything we do from a social perspective, which is what we're planning this year.

Chris, I'm going fast to make sure we get caught up on time.

Last slide. Long-term opportunities. When I say long term, I mean, these are more than a year away. This is something you should expect coming in 2013, but it just shows the runway we have as a CLUB, and you'll see what I mean in a couple of examples.

And the first one's the Canadian market. Right now, we do not have the opportunity to issue credit in the same loyalty program in Canada. We know there's a definite demand for this, and we'd know, because we've already done surveys ahead of this, as well as our cardholders that come across the border every day, to Tulalip, Washington and East Grand Forks in Minnesota, and everywhere we have stores. Trust me, we hear about it every day. I hear about it from our Outfitters in the stores, and I can see guys shaking their head in the back right now.

We are working on this. You can imagine there's some regulatory hurdles to overcome. We'll work through those. And obviously, this is not a matter of if, it's a matter of when. I'd say it's probably longer than 2013, but it's an active project we're working on.

Mobile experience and mobile payments. Scott talked about this being a focus area for his team this year. And I don't want you to have the impression that we're not focused on it as the CLUB. But what I'd say is, from a mobile payment perspective, that industry is tremendously fragmented right now. There is 0 adoption in terms of how I want to pay with my phone or how I want to integrate with retailers and customers.

And until we see some type of adoption that really says this is what a customer wants to take us and how they want to use their credit card or the loyalty program differently, and having a plastic in their wallet, we'll be fast followers on that. We'll make sure we keep our eye on the ball on this, and as adoption comes about, we will be there. I just don't know if that's going to happen in 2013. That feels like more of a longer-term project, though.

Cabela's product brand integration. Three or four times, I gave you examples where we've used key vendors to have great relationships and drive CLUB. I didn't say Cabela's brand in there yet. Brian spent 30 minutes talking about the brand and the power of it. We have a lot of opportunity to continue to leverage CLUB into that, so if we're doing Cabela's brand product releases, or we want to drive different sales to Cabela's brand to drive margin, we can leverage our CLUB customers. We can leverage that relationship and we're going to continue to do that.

And the last one is probably a bigger picture thing for us. This is -- the relationship with Visa's been very good, and it's a cornerstone of our program, but we need to keep our eyes open and know when our customer's changing behaviors over time. If they want to pay by different methods, or they want to transact differently, we need to be aware of that. So I'd tell you, we're constantly looking at things like private label programs, maybe second look programs, where we can have a different issue or take a little bit more credit risk, but we could still get a card in your hand.

Things like debit, prepaid, reloadable prepaid. And if the customer wants to make a shift and transact with us differently than a traditional Visa card, we need to make sure that we're keeping our hand on that pulse, and that we're relevant on those programs, which is something we have to be looking at. Obviously, nothing that we would have, ready to go this year, because we don't have anything in the pipeline, but that's something we can fairly pull off fairly quickly in 2014. And I went really fast. But do you guys have any questions about CLUB or the loyalty program? If not, I'm going to turn it over to Tommy.

Thomas L. Millner

I don't know if there's any symbolism for the fact that a new Pope was just selected during the Cabela's Analyst Day, but draw your own conclusions, I guess.

A couple of things before we close up. Just for the Women in Leadership Conference, you guys hear Ralph and I go to analyst conference that a lot of folks in the room conduct. When you saw the Luke Bryan video, and the crowd reaction of all the young girls screaming, that is exactly what Ralph and I have to put up at the end of our presentations. It's so embarrassing, I can't even tell you, but that's for another day.

In the spirit of continuous improvement, yesterday, we met with our bank group and talked to them. We actually missed something, and it was the same miss that we had today. I try to put myself in your shoes and say okay, great, what did I hear, but more importantly, what didn't I hear was talked about?

I want to introduce one of our Executive Vice Presidents that you will hear from next year. His name is Charles Baldwin. Charles is our Chief Administrative Officer, which means he has lots of hats. Charles is responsible for IT, for all of our call centers, for asset protection, but his core responsibilities are, as the chief Human Resource Officer of the company.

Charles has brought to us, starting 5 or 6 years ago, what is now a world-class leadership development confidence. Because at the end of the day, one of the things Dick and Jim and Mary instilled in our DNA was that, it's not the merchandise, it's not the building, it's not the IT system, it's not all this stuff, it's people. And next year, you're going to hear from Charles on the level of talent that we've developed and especially as a growth company, that's really important and it was a miss this year, my apologies. We'll fix it next year.

Before closing, I feel obligated to tell you a little bit about why we issued a press release yesterday morning, which I don't think we've ever done intra-quarter. And it was really simple, and I'll be brief. Last week, we closed the month of February, we had our March forecast. We're looking at the numbers that we talked to you about in the press release.

One of the things we're very proud of in our culture is transparency. We are transparent with our Board. Our Board has free access to anybody in the room, they call them all the time. Our leadership group is not threatened by that. We have a very open company, and I hope over 4 years, we have been as transparent as the law allows us to be with all of you.

And when we looked at the numbers, Ralph and I kind of looked at each other and said, "How in the world could we be in front of all of you today and everybody on the phone in a Reg FC-friendly environment, and not say something?" How could we do that? It would be so in disingenuous to then come back a month from now on the call and drop this bomb on you, that our business has been fantastic and we didn't even give you an inkling. In fact, we would've -- had to be so coy today, that it would not have been a good thing for us to do. And it was on that basis alone, in the spirit of transparency, to issue the press release yesterday morning so that you weren't surprised.

I sort of hope we never have to do it again, but given the circumstances, I -- it'd be nice to have to do it again as well. But it's not going to be a matter of normal course that we do this, but it was just the circumstances of knowing how good the quarter's likely to be, and then seeing you in this environment and not -- we believe that credibility can be lost, not just with not sharing bad news, but also not sharing really good news. So it's hard sell from us. We take our credibility with all of you as the most important thing that we have.

Now I hope you enjoyed today. I don't want to be in the way of analysts shooting guns and eating. So those are 2 dangerous places to be. I can just tell you, the next decade for our company is going to be so exciting, because we are in an incredible place. We have fantastic people, we've got a great strategy, we have a store format that works, that is predictable, that is scalable. We're not going to lose our souls in the process of chasing growth. We're going to continue to be focused on core fundamentals. And I am as excited about our company, and I think you saw it in all of our eyes; we are in very, very good place.

The environment is likely to continue to be competitive, there will be competitors, pop up, that will try and compete against us. I'm absolutely convinced, if we stick to our business, and live what Dick and Mary and Jim ingrained in us, which is one customer at a time, don't boil the ocean, take care of one customer at a time, do it as excellent as you possibly can, everything else will work itself out. So it is in that spirit that we thank you. Thanks for your attention, for your interest in our company, you can be in a lot of places today, but you're here and you're on the phone. And our commitment to do the best is easy because it's in our nature. Thanks very much. Chris, we go to lunch now at Top of the Rock, where we had breakfast.

Chris Gay

Yes. We'll go to lunch, then why don't we round up at -- for those that are going shooting, at 1:30-ish, we'll get together. If you need a ride or want to ride with somebody, let me know. If you have space in a car, let me know, and we'll all try and get a little bit coordinated to go, and I don't have to take any questions right now. Tommy, you're not.

Thomas L. Millner

Yes, and from all of us, thank you so very much. Any questions for Ralph and I? Great. Thank you very, very much.

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