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Looking Beyond Cabela's Short-Term Weakness

August 20, 2014 | About:
Rustic Nomad

rusticnomad

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Cabela's (CAB) has had a weak 2014, with the stock losing almost 8% of its value so far. The company's results have been sluggish as the outdoor merchandise retailer is suffering due to weak demand for ammunition.

In fact, Cabela's overall good fiscal year was weighed down by weak fourth-quarter results. Low demand for ammunition and the holiday season earlier this year led to a decline in sales.

Weak times

The sharp decline in ammunition and firearms sales has led to a drop in same-store sales for Cabela's. However, apart from poor sales in ammunition and firearms, the company saw strength in segments such as hunting apparel, footwear, men's casual apparel and non-shooting hunting equipment. In addition, the company is expecting higher profit margins from firearms and ammunition sales in the future.

The company's retail growth strategy should help it get better as it is opening stores in areas such as Waco, Texas, and Kalispell, Montana. These stores are performing well, giving Cabela's some room to outperform in the future. All these new stores are expected to perform better than the legacy stores in the future. The company is making strategies to exceed its own expectations in the future, and it has announced that it will open new stores that are expected to outperform the existing comp stores.

Seeing some strength

Moving on to the company’s merchandise, the segment saw an increase in the gross margin from 36.2-36.6% as a result of a favorable merchandise mix that it is offering to customers. This merchandise mix has offset the loss incurred by the poor sales of firearms and ammunitions. The company is also innovating and improving the quality of its branded product to tap the market in the future.

The company has also come up with an enhanced mobile platform in order to give customers an advanced shopping experience. This system enables customers to shop from their mobile devices such as tablets and smartphones. The company expects improvement in this omni-channel system, which will help it in providing the customers an easy and convenient shopping experience.

Moreover, Cabela's is looking on the front foot for the future. Due to the fall in firearm and ammunition sales, the company is expecting a moderation in comp sales and direct business. Further, the company is working on improving operations, promising good results in the future.

The company has also announced expansion. Cabela's is opening new stores in areas such as Augusta, Georgia; Greenville, South Carolina; Anchorage, Alaska; Christiana, Delaware; Woodbury, Minnesota; Edmonton, Alberta; Missoula, Montana; Lavon, Texas; Barrie, Ontario; Acworth, Georgia; Cheektowaga, New York; Tualatin, Oregon; Nanaimo, British Columbia, and Bowling Green, Kentucky. To sustain the rate of opening of new stores, it will continue its expansion in 2015 and 2016 as well.

Despite Cabela's’ bad times, analysts expect it to do better in the future. Looking at its trailing P/E of 22.05, the company seems overvalued for now, but the earnings growth rate for five years of 17.80% is impressive and indicates that Cabela's is set for better times ahead.

Conclusion

Despite a weak performance in the short run, Cabela's looks well-positioned for the long run. It is working on operational improvements deliver better results in the future. Even the future growth rate seems promising. So, investing in Cabela's seems like a profitable proposition for the long run.


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