Cabela's Closes Sale of Notes


In a move to refinance its asset-backed notes that matured early this year, Cabela’s Inc. (CAB) recently announced that its Credit Card Master Note Trust has concluded the sale of secured Notes worth $500 million.

The company distributed the issuance into three parts, including $275 million of Class A-1 Notes carrying a fixed rate of 1.63% per annum, and $150 million of Class A-2 Notes with a floating rate interest equal to one-month LIBOR along with 0.53% per annum.

Further, the company sold three subordinated classes of notes totaling $75 million. Besides, each of the subordinated classes of notes was procured by World's Foremost Bank, a wholly-owned subsidiary of the company.

The issued notes have a maturity of roughly five years, with legal maturity of eight years. As stated earlier, the move will boost its financial services segment and will escalate the growth of the credit card portfolio for the World’s Foremost Bank.

The company’s Financial Services Business segment plays an integral part in supporting the merchandising business by encouraging customer loyalty rewards program. This loyalty program will boost revenue, profitability and customer retention at its Retail and Direct businesses, leading to overall growth in sales and earnings.

Cabela’s remains confident about its improving balance sheet with long-term return on invested capital, which is expected to be in the range of 12% to 14%.

However, the outdoor recreation and casual apparel and footwear markets are highly fragmented and competitive. Cabela’s faces stiff competition from discount stores such as Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT), and from specialty retailers such as Gander Mountain, Bass Pro Shops, and Dick’s Sporting Goods (DKS). The competitors have large number of stores, greater market presence and brand recognition, and financial resources.

Currently, we maintain a long-term Outperform recommendation on the stock. Moreover, Cabela’s holds a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

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