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

Images

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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers