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Cabela’s not gun shy following Q2 results


Once again, weak ammunition, shooting, optics and firearm sales at Cabela's caused comparable-store sales to slip 14.2%. But CEO Tommy Millner focused on positives, such as new store performance.

“Second quarter profit and record 9.5% operating margin were excellent," said Millner. "We are pleased in our ability to achieve record levels of profitability as firearms and ammunition normalize. As we approach the anniversary of the end of the firearms and ammunition surge, we are encouraged that expense initiatives, new store performance and accelerating Cabela's Club growth more than offset sales weakness caused by lower than expected ammunition, shooting, optics, and firearms category performance."

For the quarter, total revenue increased 0.6% to $761.2 million. Retail store revenue increased 3.4% to $500.4 million. Direct revenue decreased 18.3% to $147.1 million. Financial Services revenue increased 23.5% to $109.4 million.

Net income was $43.5 million compared to $44.5 million in the year ago quarter, and earnings per diluted share were $0.61 compared to $0.62 in the year ago quarter.

"Expense reductions resulted in significant benefits in the quarter," Millner said. "They were launched in late 2013 and encompass all areas of our company, including incentive compensation, contract labor and other corporate overhead. Accordingly, we expect further benefit in the remainder of 2014 and full year 2015. We are delighted with the entire organization's ongoing actions to lower costs."

Despite the comparable store sales dip this quarter, sales trends did improve compared to last year each month during the quarter.

New format stores outperformed the legacy store base by 45% to 55% in both sales and profit per sq. ft. on a rolling four quarter basis ending with the second quarter. For the trailing 12 months, the 16 new stores opened for the full period averaged sales per sq. ft. of $474.

Furthermore, on a comparable store sales basis, new format stores that have been in the comp base for one year or less outperformed the consolidated comp base by 360 basis points for the quarter. Retail store expansion therefore remains on track with plans to open 13 to 15 new stores per year in the next several years.

"For the quarter, our Softgoods and General Outdoors categories each realized a 160 basis point increase in Cabela’s branded product sales penetration," Millner said. "The launch of XPG (Extreme Performance Gear) has been a success with positive customer reactions to this new innovative line of products. Along with the XPG line, we have had great customer response to our Cabela’s Guidewear, Cabela’s Instinct, and Wildlife and Land Management products. These results give us confidence in the prospects for future growth in Cabela’s branded products."

The Cabela's Club Visa program had another solid quarter and continued to build a base of extremely loyal customers. Club members shop more frequently and have higher average spend. During the quarter, growth in the average number of active credit card accounts was 7.7% due to new customer acquisitions in its retail and Internet channels. Growth in the average balance per active credit card account was 4.4%, and growth in the average balance of credit card loans was 12.4%. For the quarter, net charge-offs remained at historically low levels of 1.67% compared to 1.87% in the prior year quarter. Additionally, greater than 30-day delinquencies continued to improve and were just 0.65% compared to 0.66% at the end of the year ago quarter. Increased Financial Services revenue was driven by increases in interest and fee income as well as interchange income.

"Second quarter results provide us with confidence in attaining our full year 2014 earnings growth targets," Millner said. "We are pleased with our performance in the second quarter; however, due to the unsettled retail environment, we are not raising our full year guidance. Accordingly, we reaffirm our previous full year guidance and continue to expect 2014 earnings per diluted share to increase at a high single-digit to low double-digit rate versus 2013 adjusted earnings per diluted share of $3.32. We are updating the balance between quarters and now expect third quarter revenue to increase at a high single-digit to low double-digit rate and earnings per diluted share to be between $0.80 and $0.90."

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