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 Breaking Headlines

Cabela's Making Progress On Comp Improvement

MAY 05, 2006 -- (11:00) Cabela's (CAB) total 1Q revenue 2006 increased 15.5% to a record $404.8 million compared to $350.6 million for the same period last year. First quarter net income was $9.1 million, or 14¢ per diluted share, compared to $7.8 million, or 12¢ per diluted share for the same period a year ago. Comp-store sales fell only 0.3% as compared to -6.3% in 1Q05. (Conference call details below)

Direct revenue decreased 0.8% to $228.9 million, primarily due to less intensive promotions in the quarter. Total retail revenue for the quarter increased 49.6% to $145.3 million, and same-store sales decreased 0.3%. The Owatonna, MN store was impacted in 1Q by CAB's new store in Rogers, MN. Excluding Owatonna, comps would have been +1.9%. The company has aggressively expanded in Minnesota, the home state of rival Gander Mountain. Financial services revenue increased 38.9% to $28.5 million for 1Q06.

On March 22, CAB and its wholly owned bank subsidiary, World's Foremost Bank (WFB), changed the fee structure between the bank and the company's other segments to more appropriately reflect current market conditions. This change was effective January 1, 2006. This updated fee structure includes an increased fee for origination of new credit card accounts, an increase in the amount the bank pays for rewards earned by its cardholders and an additional fee paid for marketing.

"Our solid first quarter results reflect the continued rapid growth of our retail business, the ongoing strength in our financial services segment and the continuing expansion of our operating margin," said Dennis Highby, CEO. "Revenue in our direct business decreased slightly during the first quarter of 2006 compared to the first quarter of 2005. This decrease was due to a higher level of promotional activity in the first quarter last year. However, we remain pleased with the pace of our direct business and expect positive gains for the remainder of the year."

In 1Q, CAB opened doors in Adairsville, GA and Montreal. Both large-format stores represent the first CAB retail stores in those areas. In FY06, it will open a total of four stores, bringing the store total to 18.

CONFERENCE CALL DETAILS: CAB maintains an arm's length relationship between its merchandise businesses and WFB to comply with banking regs. A third-party consultant was brought in to examine the relationship, examining the payments made by other retailers with credit card operations. He found that WFB had been under-compensating the merchandise business. CAB initiated the new allocation methodology that lessons WFB's revenues, but increases that of the merchandise side. Total revenues are unaffected.

The financial services unit had an 18% increase in active accounts to 810,000 and a 5.7% increase in average balances.

CAB has been concerned about the negative comps it has posted for a number of quarters. It has a number of initiatives, including increasing average tickets, increased sales training, improved advertising and better in-stock positions.

To that end, CAB has completed Phase 1 of a new replenishment system that focused on getting merchandise from a DC to the store. CAB believes this will greatly improve inventory levels at the store level. CAB expects to see consistently better in-stock positions with lower average inventory. Over this year, CAB will be implementing Phase 2 (vendor to DC) and Phase 3 (vendor to store). CAB has opened electronic portholes to expand communication with vendors.

Current inventory is up 20% Y/Y. That was attributed to the inventory build-up for 2006's new stores. The new replenishment system will ultimately bring inventory in line with sales growth, CAB said.

The company launched an aggressive direct promotion in January 2005, which was very successful. A smaller promotion this year was "less rich." Catalog costs as a percent of total revenues were 14.5% in 2006 vs 13.7% in 2005.

Retail sales rose from $97.1 million to $145.3 million as a result of four new doors. The two new Texas stores, which were affected by the hurricanes, have improved but remain slightly below plan. The Rogers store has been "impressive." The Lehi, UT door is "taking incredible market share," the company said.


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Quick links: One-click access to topics in this article.

Sporting goods industry
Retail sales

Cabela's Inc.
Gander Mountain Inc.
World's Foremost Bank

financial services
credit card
in-stock positions
replenishment system

Dennis Highby

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