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TheStreet Open House

Cabela's Inc. Reports Record Third Quarter 2013 Results

Stocks in this article: 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 expanding retail square footage at a low to mid-teens rate over the next several years, Direct business in the fourth quarter declining at a mid-single digit rate, comp store sales declining at a mid-single digit rate in the fourth quarter and managing expense levels consistent with these expectations, the fourth quarter tax rate being between 31.5% and 32.5%, the 2014 tax rate being between 31.5% and 33.5%, generating even further improvements in return on invested capital, comfort with the current external earnings estimates for the fourth quarter of 2013, and 2014 earnings per share being the sixth consecutive year of double-digit earnings per share growth. 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     Nine Months Ended
September 28, 2013   September 29, 2012 September 28, 2013   September 29, 2012
Revenue:
Merchandise sales $ 749,141 $ 652,313 $ 2,124,538 $ 1,730,252
Financial Services revenue 98,403 85,932 272,753 248,654
Other revenue 3,284   2,933   12,839   13,030  
Total revenue 850,828   741,178   2,410,130   1,991,936  
Cost of revenue:
Merchandise costs (exclusive of depreciation and amortization) 469,614 409,929 1,341,706 1,100,431
Cost of other revenue 318     386   634  
Total cost of revenue (exclusive of depreciation and amortization) 469,932 409,929 1,342,092 1,101,065
Selling, distribution, and administrative expenses 304,293 264,136 844,448 719,354
Impairment and restructuring charges     937    
 
Operating income 76,603 67,113 222,653 171,517
 
Interest expense, net (4,979 ) (5,227 ) (14,249 ) (16,175 )
Other non-operating income, net 1,028   1,288   3,675   4,139  
 
Income before provision for income taxes 72,652 63,174 212,079 159,481
Provision for income taxes 22,766   20,389   67,801   54,000  
Net income $ 49,886   $ 42,785   $ 144,278   $ 105,481  
 
Earnings per basic share $ 0.71   $ 0.61   $ 2.05   $ 1.51  
Earnings per diluted share $ 0.70   $ 0.60   $ 2.01   $ 1.47  
 
Basic weighted average shares outstanding 70,575,804   69,894,538   70,412,479   69,794,416  
Diluted weighted average shares outstanding 71,757,901   71,555,862   71,717,894   71,624,451  
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands Except Par Values)

(Unaudited)

 

           
September 28, 2013 December 29, 2012 September 29, 2012
ASSETS
CURRENT
Cash and cash equivalents $ 409,733 $ 288,750 $ 265,675
Restricted cash of the Trust 26,009 17,292 16,709
Held-to-maturity investment securities 135,000
Accounts receivable, net 29,367 46,081 20,773
Credit card loans (includes restricted credit card loans of the Trust of $3,591,844, $3,523,133, and $3,193,162), net of allowance for loan losses of $57,370, $65,600, and $65,750 3,567,423 3,497,472 3,151,647
Inventories 815,594 552,575 721,701
Prepaid expenses and other current assets 95,382 132,694 143,930
Income taxes receivable and deferred income taxes 53,693   54,164   52,261  
Total current assets 5,132,201 4,589,028 4,372,696
Property and equipment, net 1,201,662 1,021,656 971,401
Land held for sale 18,271 23,448 39,437
Economic development bonds 79,260 85,041 92,744
Other assets 30,671   28,990   29,091  
Total assets $ 6,462,065   $ 5,748,163   $ 5,505,369  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT
Accounts payable, including unpresented checks of $23,745, $28,928, and $18,819 $ 284,934 $ 285,039 $ 366,992
Gift instrument, credit card rewards, and loyalty rewards programs 248,711 262,653 218,068
Accrued expenses 153,287 180,906 129,869
Time deposits 357,314 367,350 310,617
Current maturities of secured variable funding obligations of the Trust 325,000
Current maturities of long-term debt 8,414   8,402   8,398  
Total current liabilities 1,052,660 1,429,350 1,033,944
Long-term time deposits 790,664 680,668 763,938
Secured long-term obligations of the Trust, less current maturities 2,452,250 1,827,500 1,827,500
Long-term debt, less current maturities 524,149 328,133 443,199
Deferred income taxes 14,329 10,571 33,712
Other long-term liabilities 102,063 95,962 99,593
 
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 – 70,604,935, 70,545,558, and 70,545,524 shares
Outstanding – 70,604,705, 70,053,144, and 70,019,501 shares 706 705 705
Additional paid-in capital 339,752 351,161 344,541
Retained earnings 1,180,705 1,036,427 968,395
Accumulated other comprehensive income 4,802 5,542 8,917
Treasury stock, at cost – 230, 492,414, and 526,023 shares (15 ) (17,856 ) (19,075 )
Total stockholders’ equity 1,525,950   1,375,979   1,303,483  
Total liabilities and stockholders’ equity $ 6,462,065   $ 5,748,163   $ 5,505,369  
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
SEGMENT INFORMATION
(Dollars in Thousands)
(Unaudited)
 
           
Three Months Ended Nine Months Ended
September 28, 2013 September 29, 2012 September 28, 2013 September 29, 2012
 

Revenue:

Retail $ 550,878 $ 455,965 $ 1,521,550 $ 1,185,989
Direct 198,596 196,818 603,878 545,466
Financial Services 98,403 85,932 272,753 248,654
Other 2,951   2,463   11,949   11,827  
Total revenue $ 850,828   $ 741,178   $ 2,410,130   $ 1,991,936  
 

Operating Income (Loss):

Retail $ 103,658 $ 85,438 $ 279,409 $ 200,889
Direct 29,284 30,220 104,912 93,559
Financial Services 29,182 23,230 79,198 73,508
Other (85,521 ) (71,775 ) (240,866 ) (196,439 )
Total operating income $ 76,603   $ 67,113   $ 222,653   $ 171,517  
 

As a Percentage of Total Revenue:

Retail revenue 64.8 % 61.5 % 63.1 % 59.5 %
Direct revenue 23.3 26.6 25.1 27.4
Financial Services revenue 11.6 11.6 11.3 12.5
Other revenue 0.3   0.3   0.5   0.6  
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
 

As a Percentage of Segment Revenue:

Retail operating income 18.8 % 18.7 % 18.4 % 16.9 %
Direct operating income 14.7 15.4 17.4 17.2
Financial Services operating income 29.7 27.0 29.0 29.6
Total operating income as a percentage of total revenue 9.0 9.1 9.2 8.6
                             
 
 
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 Nine Months Ended
September 28, 2013   September 29, 2012 September 28, 2013   September 29, 2012
 
Interest and fee income $ 87,945 $ 76,944 $ 250,383 $ 222,137
Interest expense (17,075 ) (13,799 ) (46,863 ) (40,379 )
Provision for loan losses (8,404 ) (10,387 ) (33,030 ) (29,231 )
Net interest income, net of provision for loan losses 62,466   52,758   170,490   152,527  
Non-interest income:
Interchange income 88,963 77,022 252,290 220,388
Other non-interest income 1,430   3,055   4,113   11,075  
Total non-interest income 90,393 80,077 256,403 231,463
Less: Customer rewards costs (54,456 ) (46,903 ) (154,140 ) (135,336 )
 
Financial Services revenue $ 98,403   $ 85,932   $ 272,753   $ 248,654  
 

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 Nine Months Ended
September 28, 2013 September 29, 2012 September 28, 2013 September 29, 2012
 
Interest and fee income 9.9 % 9.8 % 9.7 % 9.8 %
Interest expense (1.9 ) (1.8 ) (1.8 ) (1.8 )
Provision for loan losses (0.9 ) (1.3 ) (1.3 ) (1.3 )
Interchange income 10.0 9.8 9.8 9.7
Other non-interest income 0.2 0.4 0.2 0.5
Customer rewards costs (6.1 ) (6.0 ) (6.0 ) (5.9 )
Financial Services revenue 11.2 % 10.9 % 10.6 % 11.0 %
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP REVENUE MEASURES OF FINANCIAL SERVICES SEGMENT
(Dollars in Thousands)

(Unaudited)

 

 

In July 2012, the parties to the Visa antitrust litigation entered into a memorandum of understanding to enter into a settlement agreement to resolve their claims. In November 2012, the settlement received preliminary court approval. The court held a hearing for final approval of the settlement in September 2013 but the settlement has not yet received final 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. In 2013, certain plaintiffs opted out of the proposed settlement resulting in management re-evaluating the impact of the reduction of default interchange. In addition, the Company received its first interchange reduction report from Visa for the period July 29, 2013, through August 31, 2013. As a result of management re-evaluations and analysis relating to the merchant charge volume per the August 2013 Visa interchange reduction report, it was determined that the estimated effect for the proposed settlement should be reduced by $1.65 million and $2.85 million, respectively, in the three and nine months ended September 28, 2013.

 

 

To supplement the Company's revenue components of its Financial Services segment presented according to generally accepted accounting principles ("GAAP"), the Company has disclosed two non-GAAP measures of operating results that exclude the adjustments of $1.65 million and $2.85 million recorded in the three and nine months ended September 28, 2013, as an increase to interchange income for the proposed Visa settlement. Interchange income and total Financial Services revenue are presented below both as reported (on a GAAP basis) and excluding the adjustment to interchange income for the proposed Visa settlement. In light of the nature and magnitude, the Company believes these items should be presented separately to enhance a reader's overall understanding of the Company's ongoing operations as they relate to its Financial Services segment. The following non-GAAP financial measures should be considered in conjunction with the GAAP financial measures.

         

September 28, 2013

September 29, 2012

Increase

(Decrease)

% Change

Three Months Ended:

Interchange income $ 88,963 $ 77,022 $ 11,941 15.5 %
Adjustment for Visa antitrust settlement (1,650 )   (1,650 )
Interchange income - 2013 non-GAAP adjusted $ 87,313   $ 77,022   $ 10,291   13.4
 
Total Financial Services revenue $ 98,403 $ 85,932 $ 12,471 14.5
Adjustment for Visa antitrust settlement (1,650 )   (1,650 )
Total Financial Services revenue - 2013 non-GAAP adjusted $ 96,753   $ 85,932   $ 10,821   12.6
 
Interchange income as a percentage of average total credit card loans - 2013 non-GAAP adjusted 9.8 % 9.8 % %
Financial Services revenue as a percentage of average total credit card loans - 2013 non-GAAP adjusted 10.9 % 10.9 % %
 

Nine Months Ended:

Interchange income $ 252,290 $ 220,388 $ 31,902 14.5 %
Adjustment for Visa antitrust settlement (2,850 )   (2,850 )
Interchange income - 2013 non-GAAP adjusted $ 249,440   $ 220,388   $ 29,052   13.2
 
Financial Services revenue $ 272,753 $ 248,654 $ 24,099 9.7
Adjustment for Visa antitrust settlement (2,850 )   (2,850 )
Financial Services revenue - 2013 non-GAAP adjusted $ 269,903   $ 248,654   $ 21,249   8.5
 
Interchange income as a percentage of average total credit card loans - 2013 non-GAAP adjusted 9.7 % 9.7 % %
Financial Services revenue as a percentage of average total credit card loans - 2013 non-GAAP adjusted 10.5 % 11.0 % (0.5 )%
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
KEY STATISTICS OF FINANCIAL SERVICES BUSINESS
(Unaudited)
 
 

Key statistics reflecting the performance of the Financial Services business are shown in the following charts for the periods presented below.

         
Three Months Ended
September 28, 2013   September 29, 2012 Increase %
(Decrease) Change

(Dollars in Thousands Except Average Balance per Account)

 
Average balance of credit card loans (1) $ 3,551,109 $ 3,129,897 $ 421,212 13.5 %
Average number of active credit card accounts 1,694,334 1,539,150 155,184 10.1
 
Average balance per active credit card account (1) $ 2,096 $ 2,034 $ 62 3.0
 
Net charge-offs on credit card loans (1) $ 15,312 $ 13,376 $ 1,936 14.5
Net charge-offs as a percentage of average

credit card loans (1)

    1.72 %   1.71 %     0.01 %    
(1) Includes accrued interest and fees
 
Nine Months Ended
September 28, 2013 September 29, 2012 Increase %
(Decrease) Change

(Dollars in Thousands Except Average Balance per Account)

 
Average balance of credit card loans (1) $ 3,429,045 $ 3,033,243 $ 395,802 13.0 %
Average number of active credit card accounts 1,659,724 1,504,545 155,179 10.3
 
Average balance per active credit card account (1) $ 2,066 $ 2,016 $ 50 2.5
 
Net charge-offs on credit card loans (1) $ 46,776 $ 42,170 $ 4,606 10.9
Net charge-offs as a percentage of average

credit card loans (1)

    1.82 %   1.85 %     (0.03 )%    
(1) Includes accrued interest and fees
 
 
CABELA'S INCORPORATED AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
 
 

To supplement the Company's condensed consolidated statements of income presented in accordance with generally accepted accounting principles ("GAAP"), management of the Company has disclosed non-GAAP measures of operating results that exclude certain items. Total revenue; selling, distribution, and administrative expenses; impairment and restructuring charges; operating income; provision for income taxes; net income; and earnings per basic and diluted share are presented below both as reported (on a GAAP basis) and excluding (i) adjustments to interchange income for the proposed Visa settlement recorded in the three and nine months ended September 28, 2013, (ii) certain employee related expenses recorded in the three and nine months ended September 28, 2013, and (iii) the impairment and restructuring charges recorded in the nine months ended September 28, 2013, respectively. The impairment and restructuring charges relate to the closure of our former Winnipeg retail store in conjunction with the opening of the new Winnipeg next-generation store in May 2013. In light of the nature and magnitude, the Company believes these items should be presented separately to enhance a reader's overall understanding of the Company's ongoing operations. These non-GAAP financial measures should be considered in conjunction with the GAAP financial measures.

 

Management believes these non-GAAP financial results provide useful supplemental information to investors regarding the underlying business trends and performance of the Company's ongoing operations and are useful for period-over-period comparisons of such operations. In addition, management evaluates results using non-GAAP adjusted operating income, adjusted net income, and adjusted earnings per diluted share. These non-GAAP measures should not be considered in isolation or as a substitute for operating income, net income, earnings per diluted share, or any other measure calculated in accordance with GAAP. The following table reconciles these financial measures to the related GAAP financial measures for the periods presented.

      Three Months Ended
September 28, 2013    

September 29,

2012

GAAP Basis   Amounts   Non-GAAP GAAP Basis
As Reported Added Back As Adjusted As Reported
(Dollars in Thousands Except Earnings Per Share)
 
Total revenue (1) $ 850,828 $ (1,650 ) $ 849,178 $ 741,178
 
Total cost of revenue (exclusive of depreciation and amortization) 469,932 469,932 409,929
Selling, distribution, and administrative expenses (2) 304,293 (521 ) 303,772 264,136
Impairment and restructuring charges        
 
Operating income 76,603 (1,129 ) 75,474 67,113
 
Interest expense, net (4,979 ) (4,979 ) (5,227 )
Other non-operating income, net 1,028     1,028   1,288  
Income before provision for income taxes 72,652 (1,129 ) 71,523 63,174
Provision for income taxes 22,766   (354 ) 22,412   20,389  
 
Net income $ 49,886   $ (775 ) $ 49,111   $ 42,785  
 
Earnings per basic share $ 0.71   $ (0.01 ) $ 0.70   $ 0.61  
 
Earnings per diluted share $ 0.70   $ (0.01 ) $ 0.69   $ 0.60  
 
Nine Months Ended
September 28, 2013

September 29,

2012

GAAP Basis Amounts Non-GAAP GAAP Basis
As Reported Added Back As Adjusted As Reported
(Dollars in Thousands Except Earnings Per Share)
 
Total revenue (1) $ 2,410,130 $ (2,850 ) $ 2,407,280 $ 1,991,936
 
Total cost of revenue (exclusive of depreciation and amortization) 1,342,092 1,342,092 1,101,065
Selling, distribution, and administrative expenses (2) 844,448 (735 ) 843,713 719,354
Impairment and restructuring charges (3) 937   (937 )    
 
Operating income 222,653 (1,178 ) 221,475 171,517
 
Interest expense, net (14,249 ) (14,249 ) (16,175 )
Other non-operating income, net 3,675     3,675   4,139  
Income before provision for income taxes 212,079 (1,178 ) 210,901 159,481
Provision for income taxes 67,801   (377 ) 67,424   54,000  
 
Net income $ 144,278   $ (801 ) $ 143,477   $ 105,481  
 
Earnings per basic share $ 2.05   $ (0.01 ) $ 2.04   $ 1.51  
 
Earnings per diluted share $ 2.01   $ (0.01 ) $ 2.00   $ 1.47  
 
(1) Reflects adjustments recorded through interchange income to the Company's proposed settlement of the Visa antitrust litigation primarily due to certain plaintiffs opting out of the proposed settlement in 2013 and analysis of the Company's merchant charge volume in Visa's first interchange reduction report to WFB for the month of August 2013.
(2) Reflects certain employee related expenses primarily related to severance benefits.
(3) Reflects charges related to the closure of the former Winnipeg retail store in conjunction with the opening of the new Winnipeg next-generation store in May 2013.
 




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