4 Strategic Initiatives Will Drive Cabela's Business Forward

Cabela's has the lowest valuation when growth is factored in. Urban Outfitters and Dick's Sporting Goods have higher PEG valuations with lower expected earnings growth.

Feb 10, 2014 at 12:42PM

In the outdoor-retailing industry, Cabela's (NYSE:CAB) has significantly outperformed the general market and industry peers, including Urban Outfitters (NASDAQ:URBN) and Dick's Sporting Goods (NYSE:DKS). In the past five years, while Cabela's total return reached more than 1,000%, Urban Outfitters and Dick's Sporting Goods delivered total returns of only 130.8% and 424.4%, respectively. At nearly 17.4 times its forward earnings, could Cabela's stock price go higher in the future? Or is it expensive already?

Cabela's consistently improving performance
Most of the Cabela's business, around 45.3% of its total revenue, comes from sales of hunting equipment. General outdoor items and clothing and footwear are next, representing 29.8% and 24.9%, respectively, of total revenue in 2012. What makes long-term investors excited is the company's consistently improving operating performance since 2009. In the past four years, the company has keyed in on on four main strategic initiatives such as focusing on fundamentals, creating a dominant omnichannel model, speeding up retail expansion, and having the best loyalty program to attract and retain customers.

Cabela's has managed to increase its merchandise margin from 34.6% in 2009 to 36.3% in 2012. Its non-generally accepted accounting principles earnings per share have also been on the rise, from $1.36 per share in 2009 to $2.72 in 2012. Interestingly, Cabela's seems to generate more profits from reinvestments, which was illustrated by a growing return on invested capital. In the past four years, its ROIC has moved up by 480 basis points, from 11% to 15.8%.

Omnichannel strategy is the key for future growth
Second, Cabela's has a dominant omnichannel model. Customers can be reached in different ways including by radio, TV, catalogs, emails, and other digital communications. Then customers could reach the company and purchase products via retail stores or online via Cabelas.com. Cabela's also provides in-store pickup services for customers. In order to improve its retail business model, it plans to expand omnichannel fulfillment in around 20 retail stores by the middle of this year.

As a part of its omnichannel strategy, Dick's Sporting Goods also utilizes cash flow to invest in technology and processes to enhance its ability to create online orders in stores, provide a convenient shopping experience for customers, and ship orders for free. Actually, to further improve inventory turnover, Dick's Sporting Goods has asked vendors to ship directly to shoppers in the past few years. In the near future, it will try the model of online order and in-store pickup, driving more customers into the stores.

Urban Outfitters also invested in systems to combine inventory across both retail stores and direct channels. Chief investment officer Calvin Hollinger commented that the company could take orders from different sources such as the company's website, call center, and customers' mobile devices -- or even from an out-of-stock situation in the store. With that capability, a store could sell products from other stores' inventory as well.

Third, investors benefited by the rapid retail expansion of Cabela's. The new retail square footage has grown significantly, from 80,000 to an estimated range of 900,000 to 1.1 million by 2014. Last but not least, with the loyalty program, Cabela's has managed to have more than 1.6 million active members in its Cabela's Club Visa, which contributed around 29% of the company's total sales. The members have used Cabela's Club Visa in other places to generate points so that they could be awarded company's free merchandise, which was worth around $200 million in total in 2013. . 

My Foolish take
Cabela's does not trade at a significantly higher earnings multiple than both Urban Outfitters and Dick's Sporting Goods. Urban Outfitters' and Dick's Sporting Goods' forward earnings valuations are a bit lower than that of Cabela's, at 16.8 and 17.1, respectively. However, if the growth was factored in, Cabela's is the cheapest, valued at only 1.1 times its PEG ratio. While Dick's Sporting Goods has the highest PEG ratio at 1.3, the PEG ratio of Urban Outfitters stays at 1.2. As Cabela's has experienced improving performance over time and has the lowest PEG ratio, , it could fit well in the growth portfolios of long-term investors.

More sustainable growth stocks for your portfolio
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Urban Outfitters. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information