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Cabela's reports strong profitability increases
Aug '10
Cabela's Incorporated reported record second quarter fiscal 2010 earnings.

For the quarter, consolidated operating income increased 62% to $30.7 million compared to $18.9 million in the second quarter of 2009. Operating margins increased 240 basis points to 5.8% compared to 3.4% in the second quarter of 2009. Increases in operating profit were due to the strong performance of World's Foremost Bank, higher merchandise gross margins and lower impairment and restructuring charges. For the quarter, net income increased 98% to $18.0 million, or $0.26 per diluted share, compared to $9.1 million, or $0.14 per diluted share, in the second quarter of 2009.

For the quarter, adjusted for divestitures, total revenue decreased 3.3% to $526 million; retail store revenue decreased 2.5% to $294 million; direct revenue decreased 11.7% to $172 million; and comparable store sales decreased 4.6%. Financial services revenue increased 28% to $56 million.

"We are pleased that our strong focus on improving return on capital is working," said Tommy Millner, Cabela's Chief Executive Officer. "This success is a result of our efforts to improve inventory productivity, expand the profitability of our retail stores and increase merchandise gross margins. While the number of transactions at retail was lower than our expectations during the quarter, we are pleased that average ticket in our retail business was up nearly 5%. For the quarter, retail profitability improved 270 basis points, return on invested capital improved 120 basis points and overall Company operating margin expanded 240 basis points. We expect these positive trends to continue for the remainder of the year."

"Merchandise margins expanded 80 basis points to 35.9% in the quarter, the biggest increase we have seen in recent years," Millner said. "It is particularly pleasing that margins increased in 4 of our 5 merchandise categories during the quarter. Three ongoing initiatives contributed significantly to margin expansion in the quarter: better inventory management, which reduced the need to mark down product, improvements in vendor collaboration and advancements in price optimization during the season. These broad-based improvements give us confidence that margin expansion will continue throughout this year and next."

"We are less pleased with the revenue decrease we experienced in our direct segment, since this was primarily of our own doing," Millner said. "We went a bit too far in our inventory reduction initiatives, which resulted in fill rates in our direct business being significantly lower than prior year. Additionally, we mailed fewer clearance catalogs in the quarter due to reduced levels of problematic inventory. Also, our direct business was impacted by a decrease in the sale of ammunition and reloading supplies. We expect the impact of these factors to largely disappear by the fall selling season."

Exclusive of impairment and other special charges, for the quarter, net income was $19.4 million compared to $11.2 million in the second quarter of 2009 and diluted earnings per share were $0.28 compared to $0.17 in the second quarter of 2009. A detailed reconciliation is provided at the end of this release.

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