Cabela's Still on Target for Growth

The sporting goods store scrambles to recover after this quarter's misfire.

May 1, 2014 at 8:54AM


Source: Cabela's. 

Sporting goods store Cabela's (NYSE:CAB) tried to get out ahead of the slowdown in guns and ammo sales, but got too carried away by the effort and ended up shooting itself in the foot. However, despite merchandise margins dropping 120 basis points and operating income getting nearly sliced in half as a result, investors can feel confident it remains on target for future growth.

There's nothing like a shooting tragedy to get politicians clamoring to make political hay out of it with calls for more gun control to spur action by shooting and hunting enthusiasts. Driven largely by the twin elections of President Obama, but also in the wake of the Sandy Hook school shooting in December 2012, calls for and fear of severely more restrictive gun laws spurred a sharp increase in firearms and ammunition sales.

In its first-quarter 2013 earnings report, Cabela's witnessed a 33% surge in revenues and same-store sales that jumped 24% year over year. Sure, it also saw increased sales in soft goods, footwear, optics, and archery, but it was firearms and ammo that drove the increased performance. For ex-guns and ammo, comps were only 9% higher.

Screen Shot

Source: Cabela's SEC filings.

That momentum continued over into the second quarter, with sales and comps rising 21% and 10.5%, respectively, but it was also apparent that while some states passed tough new gun laws, specifically Colorado, Connecticut, and New York, federal legislation would not be going anywhere. The FBI reported conducting over 19.6 million background checks on firearms purchasers in 2012, a 19% jump over the prior year, with December alone witnessing a massive 83% surge in checks.

Now, the FBI says background checks don't translate one-to-one into firearms purchases, but it's a pretty good proxy nonetheless in that someone undergoing the time and expense of applying is a motivated buyer upon approval.

The heightened demand placed on the FBI's resources continued largely over the first half of the year, but beginning in June, we see that demand began to wane. From January to May 2013, the agency processed 10.2 million applications, or almost 29% more than in 2012, but from June through December of that year, it processed 10.9 million applications, or 9% less than the year before. So even though the FBI still conducted almost 8% more checks total for the full year, it was because the results were front-loaded. Background checks are now also down 12% over the first three months of 2014.

Screen Shot

Source: FBI.

That's borne out by Cabela's results, which saw sales and comps tail off as the year progressed. In the third quarter, sales came in 15% higher, but comps were below 4%. By the fourth quarter, sales managed to rise just 5% higher, and comps tumbled some 10% from the year-ago period.

So, heading into the first quarter, management was expecting things to worsen even more as they were going up against last year's huge first quarter. They started off with really aggressive discounting to generate movement, but instead what they found was that sales weren't really fluctuating. Even as they throttled back on the promotions, sales maintained their pace, and Cabela's ultimately cut the knees out from under its margins for no good reason.

Having learned that, however, Cabela's anticipates sales will even out as the year progresses because the comparables it goes up against will normalize over time. The optics of the sales rise and crash look bad, but guns and ammo are still a relatively strong platform for growth even now, and the sporting goods store remains well positioned to capitalize on that trend going forward.

Another stock with iron sights on multibagger status
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year, his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252%, and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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