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TheStreet Open House

Cabela's Inc. Reports Record Second Quarter 2013 Results

Stock quotes in this article: CAB

"We are certainly pleased with our strong second quarter results and investments we have made to further build the future health of our Company," Millner said. "Our retail stores are performing at very high levels, and our Direct business is showing continued improvement. As a result, we are comfortable with the current external earnings estimates for the third and fourth quarter of 2013."

Conference Call Information

A conference call to discuss second quarter fiscal 2013 operating results is scheduled for today (Thursday, July 25, 2013) at 9:00 a.m. Eastern Time. A webcast of the call will take place simultaneously and can be accessed by visiting the Investor Relations section of Cabela's website at www.cabelas.com. A replay of the call will be archived on www.cabelas.com.

About Cabela's Incorporated

Cabela's Incorporated, headquartered in Sidney, Nebraska, is a leading specialty retailer, and the world's largest direct marketer, of hunting, fishing, camping and related outdoor merchandise. Since the Company's founding in 1961, Cabela's® has grown to become one of the most well-known outdoor recreation brands in the world, and has long been recognized as the World's Foremost Outfitter®. Through Cabela's growing number of retail stores and its well-established direct business, it offers a wide and distinctive selection of high-quality outdoor products at competitive prices while providing superior customer service. Cabela's also issues the Cabela's CLUB® Visa credit card, which serves as its primary customer loyalty rewards program. Cabela's stock is traded on the New York Stock Exchange under the symbol "CAB".

Caution Concerning Forward-Looking Statements

Statements in this press release that are not historical or current fact are "forward-looking statements" that are based on the Company's beliefs, assumptions, and expectations of future events, taking into account the information currently available to the Company. Such forward-looking statements include, but are not limited to, the Company's statements regarding its tax rate being 32.5-33.5% for the remainder of 2013 and continuing throughout 2014, generating even further improvements in return on invested capital, and comfort with current external earnings estimates for the third and fourth quarter of 2013. Forward-looking statements involve risks and uncertainties that may cause the Company's actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or financial condition that the Company expresses or implies in any forward-looking statements. These risks and uncertainties include, but are not limited to: the state of the economy and the level of discretionary consumer spending, including changes in consumer preferences and demographic trends; adverse changes in the capital and credit markets or the availability of capital and credit; the Company's ability to successfully execute its omni-channel strategy; increasing competition in the outdoor sporting goods industry and for credit card products and reward programs; the cost of the Company's products, including increases in fuel prices; the availability of the Company's products due to political or financial instability in countries where the goods the Company sells are manufactured; supply and delivery shortages or interruptions, and other interruptions or disruptions to the Company's systems, processes, or controls, caused by system changes or other factors; increased or adverse government regulations, including regulations relating to firearms and ammunition; the Company's ability to protect its brand, intellectual property, and reputation; the outcome of litigation, administrative, and/or regulatory matters (including a Commissioner's charge the Company received from the Chair of the U. S. Equal Employment Opportunity Commission in January 2011); the Company's ability to manage credit, liquidity, interest rate, operational, legal, and compliance risks; the Company's ability to increase credit card receivables while managing credit quality; the Company's ability to securitize its credit card receivables at acceptable rates or access the deposits market at acceptable rates; the impact of legislation, regulation, and supervisory regulatory actions in the financial services industry, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; and other risks, relevant factors, and uncertainties identified in the Company's filings with the SEC (including the information set forth in the "Risk Factors" section of the Company's Form 10-K for the fiscal year ended December 29, 2012), which filings are available at the Company's website at www.cabelas.com and the SEC's website at www.sec.gov. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. The Company's forward-looking statements speak only as of the date they are made. Other than as required by law, the Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

 
CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands Except Earnings Per Share)
(Unaudited)
 
   

Three Months Ended

 

Six Months Ended

June 29, 2013   June 30, 2012 June 29, 2013   June 30, 2012
Revenue:
Merchandise sales $ 663,684 $ 542,662 $ 1,375,397 $ 1,077,939
Financial Services revenue 88,578 79,267 174,350 162,722
Other revenue 4,543   5,325   9,555   10,097  
Total revenue 756,805   627,254   1,559,302   1,250,758  
Cost of revenue:
Merchandise costs (exclusive of depreciation and amortization) 413,465 339,782 872,092 690,502
Cost of other revenue   595   68   634  
Total cost of revenue (exclusive of depreciation and amortization) 413,465 340,377 872,160 691,136
Selling, distribution, and administrative expenses 275,468 229,049 540,155 455,218
Impairment and restructuring charges 937     937    
 
Operating income 66,935 57,828 146,050 104,404
 
Interest expense, net (3,914 ) (6,444 ) (9,270 ) (10,948 )
Other non-operating income, net 1,108   1,450   2,647   2,851  
 
Income before provision for income taxes 64,129 52,834 139,427 96,307
Provision for income taxes 19,584   18,964   45,035   33,611  
Net income $ 44,545   $ 33,870   $ 94,392   $ 62,696  
 
Earnings per basic share $ 0.63   $ 0.48   $ 1.34   $ 0.90  
Earnings per diluted share $ 0.62   $ 0.47   $ 1.32   $ 0.87  
 
Basic weighted average shares outstanding 70,503,889   70,034,486   70,330,817   69,744,356  
Diluted weighted average shares outstanding 71,687,776   71,542,102   71,607,333   71,995,918  
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Par Values)
(Unaudited)
     
June 29, 2013 December 29, 2012 June 30, 2012
ASSETS
CURRENT
Cash and cash equivalents $ 345,504 $ 288,750 $ 347,389
Restricted cash of the Trust 19,412 17,292 15,826
Held-to-maturity investment securities 135,000
Accounts receivable, net 24,243 46,081 24,400

Credit card loans (includes restricted credit card loans of the Trust of $3,477,891,

  $3,523,133, and $3,038,415), net of allowance for loan losses of $62,500,

  $65,600, and $67,050

3,442,685 3,497,472 2,994,459
Inventories 696,101 552,575 577,120
Prepaid expenses and other current assets 85,547 132,694 134,999
Income taxes receivable and deferred income taxes 40,090   54,164   31,142  
Total current assets 4,788,582 4,589,028 4,125,335
Property and equipment, net 1,125,591 1,021,656 928,442
Land held for sale 18,708 23,448 36,666
Economic development bonds 79,043 85,041 88,335
Other assets 31,296   28,990   28,919  
Total assets $ 6,043,220   $ 5,748,163   $ 5,207,697  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT
Accounts payable, including unpresented checks of $24,571, $28,928, and $23,287 $ 337,389 $ 285,039 $ 273,662
Gift instrument, credit card rewards, and loyalty rewards programs 254,968 262,653 221,449
Accrued expenses 137,551 180,906 109,699
Time deposits 364,487 367,350 261,340
Current maturities of secured variable funding obligations of the Trust 325,000
Current maturities of long-term debt 8,410   8,402   8,394  
Total current liabilities 1,102,805 1,429,350 874,544
Long-term time deposits 825,023 680,668 796,704
Secured long-term obligations of the Trust, less current maturities 2,154,750 1,827,500 1,827,500
Long-term debt, less current maturities 374,854 328,133 331,725
Deferred income taxes 13,401 10,571 31,084
Other long-term liabilities 101,539 95,962 98,473
 
STOCKHOLDERS’ EQUITY
Preferred stock, $0.01 par value; Authorized – 10,000,000 shares; Issued – none
Common stock, $0.01 par value:
Class A Voting, Authorized – 245,000,000 shares;
Issued – 70,563,558, 70,545,558, and 70,542,289 shares;
Outstanding – 70,549,821, 70,053,144, and 69,742,289 shares 706 705 705
Additional paid-in capital 338,397 351,161 346,007
Retained earnings 1,130,819 1,036,427 925,610
Accumulated other comprehensive income 1,674 5,542 4,322
Treasury stock, at cost – 13,737, 492,414, and 800,000 shares (748 ) (17,856 ) (28,977 )
Total stockholders’ equity 1,470,848   1,375,979   1,247,667  
Total liabilities and stockholders’ equity $ 6,043,220   $ 5,748,163   $ 5,207,697  
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
SEGMENT INFORMATION
(Dollars in Thousands)
(Unaudited)
                           
                 

Three Months Ended

Six Months Ended
June 29, 2013 June 30, 2012 June 29, 2013 June 30, 2012
 

Revenue:

Retail $ 483,923 $ 384,693 $ 970,672 $ 730,024
Direct 180,124 158,453 405,282 348,648
Financial Services 88,578 79,267 174,350 162,722
Other 4,180   4,841   8,998   9,364  
Total revenue $ 756,805   $ 627,254   $ 1,559,302   $ 1,250,758  
 

Operating Income (Loss):

Retail $ 91,073 $ 71,224 $ 175,751 $ 115,451
Direct 30,731 29,165 75,628 63,339
Financial Services 25,915 21,276 50,016 50,278
Other (80,784 ) (63,837 ) (155,345 ) (124,664 )
Total operating income $ 66,935   $ 57,828   $ 146,050   $ 104,404  
 

As a Percentage of Total Revenue:

Retail revenue 63.9 % 61.3 % 62.2 % 58.4 %
Direct revenue 23.8 25.3 26.0 27.9
Financial Services revenue 11.7 12.6 11.2 13.0
Other revenue 0.6   0.8   0.6   0.7  
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
 

As a Percentage of Segment Revenue:

Retail operating income 18.8 % 18.5 % 18.1 % 15.8 %
Direct operating income 17.1 18.4 18.7 18.2
Financial Services operating income 29.3 26.8 28.7 30.9
Total operating income as a percentage of total revenue 8.8 9.2 9.4 8.3
 
       
CABELA'S INCORPORATED AND SUBSIDIARIES
COMPONENTS OF FINANCIAL SERVICES SEGMENT REVENUE
(Dollars in Thousands)
(Unaudited)
 
 

  Financial Services revenue consists of activity from the Company's credit card operations and is comprised of interest and fee income, interchange income, other non-interest income, interest expense, provision for loan losses, and customer rewards costs. The following table details the components and amounts of Financial Services revenue for the periods presented below.

 
Three Months Ended Six Months Ended
June 29, 2013 June 30, 2012 June 29, 2013 June 30, 2012
 
Interest and fee income $ 81,189 $ 72,085 $ 162,438 $ 145,193
Interest expense (15,937 ) (12,689 ) (29,788 ) (26,580 )
Provision for loan losses (11,851 ) (12,198 ) (24,626 ) (18,844 )
Net interest income, net of provision for loan losses 53,401   47,198   108,024   99,769  
Non-interest income:
Interchange income 85,697 74,939 163,327 143,366
Other non-interest income 1,400   3,981   2,683   8,020  
Total non-interest income 87,097 78,920 166,010 151,386
Less: Customer rewards costs (51,920 ) (46,851 ) (99,684 ) (88,433 )
 
Financial Services revenue $ 88,578   $ 79,267   $ 174,350   $ 162,722  
 

  The following table sets forth the components of Financial Services revenue as a percentage of average total credit card loans, including any accrued interest and fees, for the periods presented below.

 

Three Months Ended

Six Months Ended

June 29, 2013

June 30, 2012

June 29, 2013

June 30, 2012

 

Interest and fee income

9.6

%

9.6

%

9.7

%

9.8

%

Interest expense

(1.9

)

(1.6

)

(1.8

)

(1.8

)

Provision for loan losses

(1.4

)

(1.6

)

(1.5

)

(1.2

)

Interchange income

10.1

10.0

9.7

9.6

Other non-interest income

0.2

0.4

0.2

0.6

Customer rewards costs

(6.1

)

(6.4

)

(5.9

)

(6.0

)

Financial Services revenue

10.5

%

10.4

%

10.4

%

11.0

%

 
CABELA'S INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP REVENUE MEASURES OF FINANCIAL SERVICES SEGMENT
(Dollars in Thousands)
(Unaudited)

On July 13, 2012, the parties to the Visa antitrust litigation announced that they had entered into a memorandum of understanding to enter into a settlement agreement to resolve their claims. On November 9, 2012, the settlement received preliminary court approval. The settlement agreement requires, among other things, the distribution to class merchants of an amount equal to 10 basis points of default interchange across all credit rate categories for a period of eight consecutive months. As a result of the preliminary court approval, the Company recorded a liability of $12.5 million as of December 29, 2012, to accrue for the proposed settlement as a reduction of interchange income in the Financial Services segment. However, in May 2013, a group of plaintiffs opted out of the proposed settlement. Consequently, the Company re-evaluated the impact of the 10 basis point reduction of default interchange and determined that its estimated liability for the proposed settlement be reduced by $1.2 million in the second quarter ended June 29, 2013, resulting in a liability of $11.3 million outstanding as of June 29, 2013. Upon final approval, it is expected that the Company's merchandising business will benefit modestly from this interchange reduction and receive its share of the cash payment related to the settlement agreement, which has not been accrued.

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