Cabela's Management Discusses Q2 2012 Results - Earnings Call Transcript

Cabela's (CAB)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET


Chris Gay - Director of Treasury & Investor Relations and Treasurer

Thomas L. Millner - Chief Executive Officer, President and Director

Ralph W. Castner - Chief Financial Officer, Principal Accounting Officer and Executive Vice President


Reed Alan Anderson - Northland Capital Markets, Research Division

Sean P. Naughton - Piper Jaffray Companies, Research Division

Lee J. Giordano - Imperial Capital, LLC, Research Division

Matthew R. Nemer - Wells Fargo Securities, LLC, Research Division

David G. Magee - SunTrust Robinson Humphrey, Inc., Research Division

Joe Edelstein - Stephens Inc., Research Division

Jonathon N. Grassi - Longbow Research LLC

Jim Duffy - Stifel, Nicolaus & Co., Inc., Research Division

Mark E. Smith - Feltl and Company, Inc., Research Division



Good day, everyone, thank you for standing by. Welcome to the Cabela's Inc. Second Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions]. I would like to remind everyone this call is being recorded. I will now turn the conference over to Chris Gay, Director, Treasury and Investor Relations. Please go ahead.

Chris Gay

Thank you. Good morning. I welcome, everyone listening today, both on the conference call and by webcast. A replay of today's call will be archived on our website at With me on today's call are Tommy Millner, Cabela's Chief Executive Officer; and Ralph Castner, Cabela's Executive Vice President and Chief Financial Officer.

This conference call will include forward-looking statements. These statements are made on the basis of our views and assumptions as of this time and are not guarantees of future performance. Actual events or results may differ materially from those statements. For information about certain factors that could cause such differences, investors should consult our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission and available on our website, including the information set forth under the captions Risk Factors and Special Note Regarding Forward-looking Statements. Additionally, this conference call may include certain non-GAAP financial measures. Please refer to our website to find reconciliations of these non-GAAP financial measures to GAAP.

Now I will turn the call over to Tommy Millner, Cabela's Chief Executive Officer.

Thomas L. Millner

Thanks, Chris, and good morning, everyone. Normally, great news like today, takes my breath away. Today, it seems like great news and the worst cough and cold I've had in 5 years is doing the trick. So if during the script or during the call, I sound like I'm dying, I'm actually not, but bear with me. Well on with the script.

Our record second quarter financial results validate that our growth strategy is working well. For the quarter, we realized strong growth in comp store sales, improved revenue performance in our Direct business, higher merchandise and operating margins, strong revenue and profit growth in our Cabela's CLUB Visa program and increases in market share. This strong performance led to record second quarter earnings and further increases in return on invested capital.

We are particularly pleased with continued strength in comp store sales, which increased 4.7% in the quarter. The increase in comp store sales was broad-based as sales increased in 25 of our 30 comp stores, and in 12 of 13 merchandising subcategories. For the quarter, average ticket increased 4% and we are particularly pleased that transactions increased for the first time in 5 quarters.

In addition to strong comp store sales, we also realized very strong performance from our new stores. For the quarter, sales per foot in the 6 new stores, not in the comp base, was meaningfully higher than our legacy store base. This is extremely encouraging as we continue to accelerate retail store expansion.

For the quarter, merchandise gross margin increased 70 basis points to 37.4%. This is the highest second quarter merchandise margin in more than 6 years. Similar to last quarter, we continued to see significant strength in the firearms and shooting categories, which caused a material mix shift into these lower margin categories. For the quarter, these adverse mix resulted in roughly 24 basis point headwind to merchandise margin.

Now let me turn to retail profitability, which is a key initiative in our retail growth strategy. For the quarter, retail profitability increased 230 basis points to 18.5%, a new second quarter record. This is the 13th consecutive quarter of retail profit improvement. Improvements in retail profitability were due mostly to higher merchandise margin and continued improvements in labor productivity.

Since our last call, we opened one next-generation store in Saskatoon, Saskatchewan Canada in May. The opening was a huge success with literally thousands of people waiting to shop the store on grand opening day. All 3 of our Canadian stores continue to perform very well and Canada is proving to be a great market for Cabela's. We have strong brand recognition, significant participation in outdoor activities and because of the climate, a very favorable merchandise mix. In short, we couldn't be more pleased with the success we are seeing in Canada, and we look forward to further accelerating our growth there.

For the remainder of 2012, we plan to open next-generation stores in Rogers, Arkansas and Charleston, West Virginia. And we will open our first, 40,000-square-foot outpost store in Union Gap, Washington in October.

Looking forward to 2013, we expect to open 6 domestic next-generation stores and 2 outpost stores. Additionally, we will be relocating our existing 45,000-square-foot Winnipeg store to a more desirable location and increasing its size to 70,000 square feet. We have announced all of our domestic next-generation store locations for 2013. And just this morning, announced the location of our first 2013 outpost store location in Saginaw, Michigan.

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