cab 1q14 earnings preview

8/12/2019 CAB 1Q14 Earnings Preview

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Gun Sales Normalizing:

With only 21 new stores built since 2008, for a total of 50 stores, Cabelas comparable store sales haveproven to be quite robust. 1Q13, Cabelas experienced a huge spike up to +24% in comparable store salesdriven by firearms sales. As we begin to lap these inflated numbers, Cabelas is likely to comp negativethrough the first 3 quarters of the year. Through the first 6 weeks of 1Q14, comparable store sales are down-25% to -30% compared to being up +35% to +40% over the same time period last year. With easiercompares in the second half of the quarter (remember, total quarter was only up +24% in 1Q13), and strong

observed delayed demand, we expect comparable store sales to easily beat the companys guidance of -20%.

Additionally, the company confirmed firearm and ammunition comparable store sales were downapproximately -50% through the first 6 weeks of 1Q14. During our handgun survey conducted in March, weobserved strong delayed demand for firearms as the weather improved throughout the quarter. We believethis leaves an opportunity for Cabelas to beat on both comparable store sales and total topline metrics.

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Margin boost:

Firearms sales carry a lower merchandise margin than the average SKU at Cabelas. As shown in the graphabove, merchandise gross profit margins decreased in 4Q12, the beginning of the surge in firearm sales, butcontinued to rise through FY13. As customer spending shifts from firearms to General Outdoors andClothing & Footwear we expect to see an uptick in merchandise margin.

Going forward, we expect sales to shift out of firearms and ammunition and into our other higher-

margin categories. Thomas Millner CEO, 4Q13 conference call

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Square footage productivity:

Cabelas is growing square footage, increasing square footage by +15% from 5.14mn to 5.89mn square feetin FY13 and we expect square footage to increase +17% to 6.87mn square feet by the end of FY14. SinceFY08 Cabelas has opened 31 new stores, most in their Next Generation format, which boasts an averagesize of 75,000 square feet and +50% sales per square foot and +60% profits per square foot compared to the150,000 square foot Legacy format.

Notice sales per average store for General Outdoors and Clothing & Footwear have been in decline. But

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We are happy to see sales per average store decline while sales per average square foot have been steadilyincreasing, showcasing a more efficient square footage growth strategy. As firearm sales have began tonormalize in 4Q13, we have seen an uptick in Clothing & Footwear, despite lower foot traffic from thedecline in firearm sales, which carries higher gross margins. Additionally, the smaller Next Generationformat stores are comping several hundred BPS higher than the larger Legacy stores. We expect this benefitto increase as Next Generation stores continue to make up a greater portion of the comparable store base.

Strength in Financial Services:

The average balance of credit card loans has increased from $2.47bn in FY10 to $3.50bn in FY13. We haveseen a healthy mix between average number of active accounts and average account balance over this timeperiod. Notice average number of active accounts increases during 4Qs, the average account balancedecreases, reflecting the incremental smaller balance accounts activated for holiday spending.

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Charge-off rates have declined from 4.23% in FY10 to 1.80% in FY13. This is near industry lows andreflective of the incredibly high 793 average FICO score for Cabelas credit card holders.

Since FY10, revenue per average active account has increased +29%, from $173 to $223.

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The increase in revenue per average active account has mainly been driven by stronger NIM and interchange

income growth as well as growing average balances.

What is even more amazing is that the decrease in charge off rates and revenue growth has been driven bygrowth in the lower two buckets of their FICO buckets, the 692-758 and Below 691 bucket. Impressively, theRestructured segment, which only makes up 1.1% of total loan balance but 11.1% of past due balances as of4Q13, has been steadily decreasing at a double digit pace.

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Wrap-up:

We believe at these levels Cabelas offers a compelling square footage growth story coupled with increasingoperation improvements. With a P/E ratio of just 17.9x our FY14E earnings estimates of $3.65, we believenow is an opportune entry price from a promising retail growth story in a growing market. Compared toDicks Sporting Goods (DKS), which trades at 19.3x FY14 analyst estimates and Hibbett Sports (HIBB),which trades at 18.2 FY14 analyst estimates, we believe Cabelas value at this current price is even moreenticing. These comparable businesses do not own their own credit card business, do not own the majority of

their real estate, and do not have nearly the same customer loyalty as Cabelas. Cabelas even receives landgrants and local government bonds to entice them to open stores in new markets, how many retailers canboast that?

After the disappointing decline in comparable store sales from the lack of elevated firearm sales, we believeCabelas management is being conservative in their FY14 guidance and will have the opportunity to raiseguidance once visibility is clearer after lapping the elevated comparable store sales of FY13.

Disclaimer:The information contained herein reflects the views of Consumer Fox as of the date of publication. These views are

subject to change without notice at any time subsequent to the date of issue. All information provided in this presentation is forinformational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell the securitiesmentioned or to invest in any specific security or investment product. While the information presented herein is believed to bereliable, no representation or warranty is made concerning the accuracy of any data presented. In addition, there can be noguarantee that any projection, forecast or opinion in this presentation will be realized. All trade names, trade-marks, service marks,and logos herein are the property of their respective owners who retain all proprietary rights over their use. This presentation isconfidential and may not be reproduced without prior written permission from Consumer Fox. It should be noted that ConsumerFox has no position in any security of the company mentioned in the report/presentation.

cab 1q14 earnings preview

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