SIDNEY, Neb. – Cabela’s today reported nearly across the board increases in sales and revenue over the last quarter, including the first positive comparable store sales since 2013 mostly attributed to increased firearms and shooting product sales.
For this quarter, Cabela’s total revenue increased 11.2 percent to $929.9 million; revenue from retail store sales increased 13.3 percent to $644.9 million; Internet and catalog sales increased 3.3 percent to $141.3 million; and financial services revenue increased 8.1 percent to $135.1 million.
During the period, adjusted for the shift in weeks, U.S. comparable store sales increased 2 percent and consolidated comparable store sales increased 1.5 percent.
For the quarter, net income decreased 5.7 percent to $37.8 million compared to $40.1 million in the year ago quarter, and earnings per diluted share were $0.55 compared to $0.56 in the year ago quarter.
“Success in our expense management efforts allowed us to take a more aggressive price and promotion approach in the second quarter,” said Tommy Millner, Cabela’s chief executive officer. “This approach led to improvements in transaction trends, positive comparable store sales, growth in Internet and catalog sales, and market share improvements. As we look to the balance of the year, we will continue to weigh opportunities to drive revenue through the utilization of our expense initiative savings.”
Also for the quarter, consolidated comparable store sales increased 1.5 percent and U.S. comparable store sales increased 2 percent as compared to the same quarter a year ago. This marks the first quarter of positive comparable store sales since the third quarter of 2013.
This increase was attributable to strength in firearms and shooting related categories as well as the camping, power sports, and fishing categories. Internet and catalog sales increased 3.3 percent in the quarter as a result of strength in the aforementioned categories as well as the home/gifts and hunting apparel categories.
Unfortunately, the celebratory news may have been clouded for any investors watching for signs of a Bearish economy because of mixed results by the company’s customer credit arm.
While the company’s Cabela’s CLUB experienced growth of its credit cards, an increase in the loan loss reserve was not good news. Due to higher delinquency rates, the reserve for loan losses increased by $9.2 million in the quarter.
The company experienced both growth in the average number of active credit card accounts at 7.3 percent and growth in average balances per active credit card account at 7.7 percent. But, the average balance of credit card loans grew 15.5 percent to almost $5 billion. For the quarter, net charge-offs were 2.13 percent. Second quarter financial services revenue increased 8.1 percent, driven by increases in interest and fee income as well as interchange income, both of which were partially offset by the increase in the provision for loan losses.
Merchandise gross margins decreased by 290 basis points in the quarter to 32.9 percent compared to 35.8 percent in the same quarter a year ago. This decrease was the result of a purposeful plan to right size inventory levels, improve transaction trends, drive positive comparable store sales, and generate positive Internet and catalog sales, all of which occurred in the quarter.
The 290 basis point decline was attributable to more aggressive pricing, increased discounts, merchandise mix, and timing of promotions. This strategy was possible due to expense management initiatives, which resulted in GAAP basis SD&A expenses as a percentage of total revenue decreasing 280 basis points to 35.5 percent as compared to 38.3 percent and on a non-GAAP basis decreasing 330 basis points to 35 percent as compared to 38.3 percent in the same quarter a year ago.
“Our expense and process improvement activities have exceeded our expectations,” Millner said. “It is important to note that the second quarter marks the third consecutive quarter of expense leverage at Cabela’s and the rate is accelerating. We have not only lowered our expense levels, but have also implemented process improvement activities to ensure that these savings are permanent. We are in the early stage of many of these initiatives and expect ongoing benefit in the balance of 2016 and beyond.”
The second quarter effective tax rate was 39.3 percent compared to 34.1 percent in the same quarter a year ago. The increase in the effective tax rate was primarily due to increases in nondeductible expenses, tax adjustments attributable to changes in the mix of taxable income between the United States and foreign tax jurisdictions, and state income taxes and a decrease in research and development tax credits received.
“We continue to be very pleased with the success of our expense initiatives and our ability to generate top-line improvement through the reinvestment of expense savings,” Millner said. “As a result, for full-year 2016, we continue to expect a high-single-digit growth rate in revenue and a high-single-digit or low-double-digit growth rate in earnings per diluted share as compared to full-year 2015 adjusted earnings per diluted share of $2.88.”
On December 2, 2015, the Company issued a press release announcing that its board of directors was initiating a process to explore and evaluate a wide range of strategic alternatives to enhance value for the company’s shareholders. That process has continued, and is ongoing.