Michael Santoli

Outdoor Enthusiasts Flock to Cabela’s, Investors Follow

Michael Santoli

Americans love the outdoors so much that, even when indoors, they spend huge expanses of time and forests of money celebrating leisure time in the wild.

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A customer looks for a sales rep in the firearms department of a Cabela's, Reuters

From their feathered couches, American viewers made “Duck Dynasty” — about a Louisiana clan and its duck-hunting-gear business — the most watched show on television the week of its August premiere, securing the A&E network hit as the most successful cable reality series ever.

A similar fervor for rural good fun, in practice or vicariously, is also impelling many thousands a year to travel as far as hundreds of miles to one of Cabela’s (CAB) 40 megastores, where massive displays of stuffed game greet shoppers who come for the vast selection of hunting, fishing and camping goods.

It happens that six of the 12 highest-rated duck calls on Cabela’s website are made by Duck Commander, the Robertson family’s company featured in “Duck Dynasty.” In need of a “Hey Uncle Si” T-shirt featuring a picture of the quirky white-bearded Robertson-family character from the show? Pick up as many as you like for $19.99 each on Cabelas.com.

Two new megastores

Cabela’s opened two new megastores in the Denver area simultaneously on Aug. 14 – the first time it has debuted more than one at a time – drawing an estimated 5,000 shoppers to each of the 110,000-square-foot field-sports emporia, located in Thornton and Lone Tree. Some had camped out overnight to be among the first to enter.

Chairman Dick Cabela and his wife Mary – who founded the Sidney, Neb., company in 1961 and built it into one of the most successful mail-order retailers in the country – was there at a table in Lone Tree to sign autographs. In the parking lots of all Cabela’s locations, tailgating is common, and many customers reportedly hold onto receipts from Cabela’s grand-opening days as keepsakes.

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Cabela's salesman Larry Allen shows a customer a gun, Retuers

Going to a Cabela’s store – featuring restaurants, archery ranges, and expert instruction and exhibitions – is clearly an event and not a mere shopping excursion. The stores are often located near a water park and multiple hotels for visitors making a weekend event of it.

The devotion of outdoor enthusiasts to Cabela’s and the growing popularity of the outdoor lifestyle have driven impressive sales and profit growth at the company and made its stock a Wall Street favorite. Revenue last year of $3.1 billion was 21% higher than 2008 levels, while profits more than doubled over that span to $173 million, or $2.42 per share.

An appetite for guns

More than just reaping the profits from the abiding popularity of woodsy leisure activities, of course, Cabela’s is a primary beneficiary of Americans’ voracious appetite for guns. About half of Cabela’s sales come from hunting-related merchandise, and about a third last year derived from the sale of firearms, ammunition and accessories. Gun permit volumes have grown quickly each of the past few years, largely on concern about the prospect of more-restrictive gun-control legislation – even though such efforts haven’t gotten far in Congress.

Cabela’s stock, meantime, has surged by 440% over the past five years, giving the company a market value of $4.7 billion and dusting the 135% gain in an index of retailer shares and the 35% climb in the broad Standard & Poor’s 500 stock index. This prodigious run has ballooned the personal wealth of Dick and Mary Cabela and Dick’s brother James Cabela to a combined $1.2 billion, based on their collective 25% ownership of the company.

Cabela’s longtime support for the National Rifle Association and its financial exposure to rising gun sales has led some critics to cast Dick and James Cabela as profiteers following last year’s Sandy Hook school killings. Yet, for the most part, the company has maintained its most direct identification with hunting and sport shooting. And, in fact, gun sales themselves carry relatively low profit margins, although they help drive traffic to its stores.

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The Robertson family in a scene from Season 3 of “Duck Dynasty, A&E”

Aside from its brisk growth path, investors have latched onto Cabela’s as the rare retailer that is enviably positioned in two thriving areas of the industry: “destination” retail and direct/online sales.

Mainstream merchandise chains with hundreds or even thousands of mall and strip-center locations have been suffering from consumer fatigue and the increasing migration of dollars online, toward the likes of Amazon.com (AMZN). From teen retailers American Eagle Outfitters Inc. (AEO) and Abercrombie & Fitch Inc. (ANF) to anchor stores such as Macy’s Inc. (M) and Sears Holdings Inc. (SHLD), consumer excitement is scarce and discounting rampant.

Many mall-store “concepts” seem over-familiar and tired to American shoppers, while Cabela’s – similar to its more fishing-oriented, privately owned competitor Bass Pro Shops – continues to entice outdoor enthusiasts with scale, product array and immersive retail experience.

Emboldened by consumers’ eager embrace of each new location, Cabela’s has now set a clear expansion plan to open 10 to 12 “next-generation” 80,000-100,000-square-foot megastores in the U.S. and Canada in each of the next three years. Greenville, S.C.; Anchorage, Alaska,;and Edmonton, Alberta, will see such stores open in the first half of 2014.

The company is also rolling out a handful of smaller Outpost stores, at 40,000 square feet, with a less-exhaustive, rotating selection of more-seasonal goods. They will reach such locales as Waco, Texas; and Augusta, Ga., by May of next year.

Cabela’s heritage as a mail-order purveyor – known for its thick and comprehensive catalogs offering everything from clothing and boots to knives, trailer hitches and jerky guns – made it a natural to pivot toward e-commerce.

Last year 30% of revenue came from direct sales (through catalog and online orders), and 59% from physical retail stores. The remaining revenue came from Cabela’s impressive credit-card business. Its Cabela’s CLUB Visa card, a branded rewards card usable wherever Visa cards are accepted, has made Cabela’s the 13th-largest general credit card issuer in the country, trailing only the biggest banks in the U.S., American Express Co. (AXP) and Discover Financial Services (DFS).

Cabela’s issues cards through its financial subsidiary, the cheekily named World’s Foremost Bank (a play on Cabela’s marketing moniker, World’s Foremost Outfitter). Last year more than a quarter of in-store purchases were made on the Cabela’s Visa.

Wall Street loves the visibility of Cabela’s future growth plan, based largely on its retail expansion strategy and the decent predictability of how new stores tend to perform. Indeed, this has made Cabela’s shares rather richly valued, now at more than 17-times forecast profits for 2014, compared to around 14-times for the overall market, placing it on par with other retail darlings such as Tractor Supply Co. (TSCO).

This could mean Cabela’s will continue dazzling customers more easily than its shares will enrich investors in coming years.

Anthony Lebiedzinski, analyst at Sidoti & Co., rates the stock Neutral and points out that, with more than a quarter of operating profits produced by the financial-services unit, Cabela’s stock in the future should fetch a lower valuation versus its earnings. (Financial companies typically trade at a discount to the broad market.) He also expects that, eventually, gun-sales growth will slow, stilling one of Cabela’s tailwinds.

Still, even with these challenges, Lebiedzinski figures the stock would be fairly valued at $75, some 13% above its current price just above $66. And as long as America remains enthralled by “Duck Dynasty” and homey, rural amusements, it’s hard to see consumers’ ardor for Cabela’s fading anytime soon.

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