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Bull of the Day: Cabela's (CAB)

Tracey Ryniec

Cabela's (CAB) is a retailer proving that providing a unique store experience can still win over customers. This Zacks Rank #1 (Strong Buy) recently blew by its own raised first quarter guidance and the Zacks Consensus Estimate by 18%.

Cabela's is still relatively unknown, as it has just 35 stores in the U.S. and Canada. It sells hunting, fishing, and camping merchandise but it is also an 'experience.'

The larger legacy stores are built like large log cabins and have unique features such as in-house restaurants, some which serve wild boar, trophy animal mounts displayed on indoor mountains and big aquariums filled with fish.

A larger online presence has encouraged customers to seek out its stores. Some customers have been known to drive hundreds of miles just to walk in the front door. New store openings are also a big event. When was the last time you decided to spend your Saturday at a store opening? But at Cabela's, 10,000 to 15,000 people at a store opening is the norm.

More Than Just Guns

Gun and ammunition sales have been running far above the norm for the past six months at all retailers. In some cases, some stores are simply out of stock of ammunition.

There's no doubt that increased gun and ammunition sales has been boosting Cabela's results. But in the first quarter, it wasn't the only segment that saw strong growth.

Same store sales rose 24% in the quarter, but even if you exclude guns and ammunition, same store sales still rose 9% due to strong growth in softgoods, footwear, optics and archery. Same store sales increased in 10 of 13 merchandise subcategories.

Website Finally Gains Some Traction

While the stores are an experience, the company has made great strides in making its website a similar emotional experience.

Direct revenue rose 18.4% to $225.2 million in the first quarter which is a little less than half of the retail store revenue, which came in at $486.7 million in the quarter.

Margins, the key metric for retailers, rose 110 basis points to 35.6% compared to the first quarter of 2012. Margins rose in 11 of 13 subcategories.

Guidance Maintained

If there was one thing disappointing in the first quarter earnings report, it was that Cabela's didn't raise full year earnings guidance. Instead, the company said it was comfortable with external earnings guidance estimates, which includes Zacks.

Analysts are even more bullish since the report. 6 estimates out of 7 have been revised higher for 2013 in the last 30 days, pushing up the Zacks Consensus Estimate to $3.41 from $3.26.

That is earnings growth of 25.3% in 2013. Another 12.7% growth is expected in 2014.

Shares at New Multi-Year High

Shares spiked to new highs on the earnings report.

Despite its new highs, Cabela's trades with a forward P/E of 19.9, which is just under its peers at 20x.

While first quarter was a record quarter and the company was clearly operating on all cylinders, gun and ammunition sales clearly aren't going to stay this hot for forever. The company clearly knows this.

Still, Cabela's expansion strategy has only just begun. Analysts expect double digit square footage growth in both 2013 and 2014.

Cabela's is a retailer with a rare, extremely loyal customer base. Investors looking for a unique retail play should keep it on their short list.

[In full disclosure, the author of this article owns shares of Cabela's.]

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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