Cabela’s Inc. (CAB, Financial) operates through three segments – Retail, Direct and Financial Services. It is a specialty retailer and direct marketer of hunting, fishing, camping and related outdoor merchandise. The company started fiscal 2015 on the front foot, with estimate-beating first-quarter results.
Looking back
Cabela’s total merchandise sales soared 12.5% year over year to $697.7 million. Consolidated revenues increased 14% year-over-year to $827.08M, beating analysts’ expectations by $22.98 million. Additionally, for the fourth consecutive quarter in a row, the company witnessed sequential improvement in both retail comparable-store sales and direct revenue.
On the back of solid sales growth, adjusted earnings per share grew 5.6% year-over-year to clock $0.38 and beat analysts’ expectation by $0.02.
Cabela’s exited the quarter with cash and cash equivalents of $267.7 million, long-term debt of around $663 million, and shareholders’ equity of $1,832.3 million.
Growth drivers
The active members in Cabela’s CLUB increased 7% year over year and the average balance of credit card loans increase by 12.3% to over $4.2 billion. The segment’s revenues jumped 24.7% to $122.9 million, on the back of rise in interest and fee income, along with an increase in interchange income. Credit card charge-offs as a percentage of loans contracted to a low of 1.53. A low charge-off reflects that the company is advancing credit card loans after due diligence.
The new store formats continued to perform exceptionally well. The company opened 2 new stores during the quarter and has plans to open 5, 4, and 2 new stores in the second, third and fourth quarter of fiscal 2015, respectively. The additional stores will drive growth, going forward.
As a part of being a shareholder friendly company, Cabela’s authorized a share buyback program for buying back 2 million shares through February 2016, from open market. This will drive the bottom-line growth in fiscal 2015.
The omni-channel strategy continues to generate visible improvements in the shopping experience for customers. During the first quarter there was a continued movement of traffic to mobile devices and roughly one-third of traffic was from handheld devices. The company already launched an improved home page during the first quarter. As the year progresses, it has plans to improve retail store pages and events specific experience pages by spring of 2015. With increasing shift toward mobile devices, these impending improvements should be a catalyst for growth.
There has been considerable volatility in the firearms and ammunitions segment over last two years. However, that’s settling down and this is also a good sign for growth, going forward. As a result of this Cabela’s is confident about its 2015 guidance.
Confident about future
With volatility in forearms and ammunitions being a thing of the past, and a solid performance of Cabela’s club and new-format stores, the company is confident about a good performance in fiscal 2015. As a result, the company reiterated its full-year guidance. Cabela’s expects low double-digit growth in revenues and a high single to low double-digit growth rate in diluted earnings per share compared to fiscal 2014 EPS of $2.88. Analysts’ expect full year EPS to be $3.15.
Final take
Cabela’s started off fiscal 2015 on a great note. The volatility in the firearms and ammunition business has subsided and the same is stabilizing. In addition, the cost cutting plans are yielding results and the company has identified further cost cutting possibilities. During the last 30 days, there have been 7 upward revisions in earnings estimates and zero downward revisions.
Trailing P/E of 18.61 and forward P/E of 14.61 signifies growth in earnings. In fact, for the next five years the growth is pegged at a CAGR of over 12%.
Hence this stock warrants a buy.
