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Cabela's (CAB) Stock Down on Q2 Earnings & Revenues Miss

Zacks Equity Research

Cabela's Incorporated CAB posted second-quarter 2017 results, wherein earnings missed the Zacks Consensus Estimate, after beating the same in the previous quarter. Moreover, both top and bottom lines declined year over year, with the top line marking its fourth consecutive miss.

While merchandise sales were a major let down, the company was impressed with its Cabela’s CLUB Visa program performance in the quarter. However, sluggish traffic trends looming over the broader retail space remained a major hindrance that hurt sales.

Following the dismal performance, the company’s shares declined 5.6% yesterday. In fact, in the past one month, the stock has dropped 10.9%, wider than the industry’s decline of 3.2%.

Q2 Highlights

The company recorded adjusted earnings per share of 53 cents, which surpassed the Zacks Consensus Estimate of 57 cents, but declined 10.2% year over year. Including one-time items, the company’s second-quarter earnings came in at 41 cents per share, plunging 25.5% year over year.

Moreover, the top line dropped 4.2% year over year to $890.4 million, also missing the Zacks Consensus Estimate of $912 million. The top line was largely hampered by lower store traffic, dismal comparable store sales and sharp decline in merchandise sales.

Consolidated comparable store sales (comps) descended 9.3% in the quarter primarily due firearms and shooting related products which dragged the total comparable sales by half. Moreover, U.S. comps were down 9.7% in the quarter under review.

Merchandise gross margin contracted 20 basis points (bps) to 32.7% in the quarter. The decline is mainly attributed to promotional activity and sales discounts.

The company’s total adjusted operating income for the quarter declined 6.6% to $68.4 million, while the operating margin fell 20 bps to 7.7%.

Bass Pro Shops to Acquire Cabela's

Bass Pro Shops and Cabela's have entered into a revised deal recently, whereby the former will acquire the latter in an all-cash deal valued at approximately $5.0 billion. The acquisition is expected to conclude in the third quarter of 2017. This deal will result in a retail giant that will control over 20% of the U.S. hunting, camping, and fishing market. Cabela's was exploring strategic alternatives, including a potential sale, after it came under pressure from an activist fund, Elliot Management Corp.

Cabela's Inc Price, Consensus and EPS Surprise


Cabela's Inc Price, Consensus and EPS Surprise | Cabela's Inc Quote

Segment Details

Total Merchandise sales, which include revenues from retail stores as well as internet and catalogs, went down 6.2% to $737.4 million in the second quarter. Retail store revenues fell 6.7% to $601.7 million, while Internet and catalog revenues decreased 3.9% to $135.7 million. Further, the segment posted an operating loss of $4.4 million, compared with an operating profit of $18 million recorded in the year-ago period.

Financial services revenues increased 9% to approximately $147.2 million, reflecting advancement in interest and fee income, majorly offset by an increase in the provisional losses for loans and interest expenses. The average number of active credit card accounts grew 1.6%, while average balance of credit card loans of $5.4 billion increased 9.2%. Additionally, the average balance per active credit card account rose 7.5%. Further, the segment’s operating margin came in 43.4% in comparison with 38.3% in the prior-year quarter.

Other Financial Aspects

Cabela’s ended the quarter with cash and cash equivalents of $167.6 million, long-term debt (excluding current maturities) of roughly $654.6 million and shareholders’ equity of $2,075.8 million.

Key Picks in Cabela’s Space

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Barnes & Noble has a long-term earnings growth rate of 10%.

Build-A-Bear, with a long-term earnings growth rate of 22.5% and also has surpassed our earnings estimate in the trailing two quarters.

Five Below, has an impressive long-term earnings growth rate of 28.5% and has also reported better-than-expected earnings in the trailing four quarters, with an average beat of 6.3%.

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