Foolish Forecast: Calling a Cab for Cabela's

Sporting goods outfitter and retailer Cabela's (NYSE: CAB  ) will report second-quarter financial results tomorrow. Should we hail a cab and take a ride with Cabela's?

What analysts say:

• Buy, sell, or waffle? A baker's dozen of analysts cover this Motley Fool Hidden Gems recommendation, with eight of them rating it a hold. Half as many say "buy," and one contrarian says "sell."
• Revenues. Sales are expected to grow at a healthy 16% clip, rising to $450.4 million.
• Earnings. Profits, as well, are expected to grow 15%, to $0.15 per share.

What management says:
As one of the leading outdoor brands, Cabela's realizes some 37% from its eponymous line of products, which CEO Dennis Highby says provides "us with a significant competitive advantage." It certainly helps against the likes of similarly situated but privately held Bass Pro Shops and other rivals in the crowded sporting-goods field. Its competitive advantages also led Motley Fool retail editor David Meier to think it was a much better value than, say, Gander Mountain (Nasdaq: GMTN  ) . Yet having to go up against Dick's Sporting Goods (NYSE: DKS  ) and Big Five Sporting Goods (Nasdaq: BGFV  ) -- which reports its earnings today after the market's close -- means it will need to maintain those advantages.

What management does:
To do that, Cabela's has been achieving fairly stable levels of profitability, even as it has been expanding its store base, adding an additional 29% to its square footage this year. What was essentially a catalog company has now become a viable retailer with a three-pronged approach, and it's enjoying high rates of return on its capital. That's something Gander Mountain hasn't been able to duplicate, as David points out.

Margin	04/06	07/06	10/06	01/07	04/07
Gross	41.0%	41.3%	41.3%	41.6%	41.5%
Operating	6.5%	6.7%	6.5%	7.1%	6.9%
Net	4.0%	4.0%	3.8%	4.2%	4.0%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
While Cabela's is opening new stores, it's not brashly covering the landscape with them. The company's choosing locations that will generate high traffic, even if it means putting them in places typically not associated with its hunting and fishing roots. There's one planned for my area in a densely populated suburb just outside of New York City. That could mean some smart marketing to attract a broader clientele to its stores.

Yet stores are only a small component of the overall growth plan, while creating shareholder value comprises a larger part. Being careful with the money was highlighted in the Fool's interview with the CEO:

We tend to be an equity-stingy firm and are reluctant to dilute our existing shareholders with a stock offering, which would increase the share count. I think it's important to point out that our debt-to-total-capital ratio (capitalizing leases) is slightly above 30%. We believe our weighted average cost of capital is optimized at a debt-to-total-cap ratio closer to 50%. Therefore, we believe we have significant opportunity to continue to access the debt markets to fund our retail expansion. While we generate significant cash flow from operations, I'd anticipate some form of debt deal in 2008.

A conservative use of cash highlighting a sense of responsibility to shareholders is a very Foolish company indeed.

Related Foolishness:

• The Underperform Case for Gander Mountain
• Fool on the Street: Cabela's Has an Advantage

Cabela's has earned a four-star rating from the 60,000-strong investor intelligence community at Motley Fool CAPS. You can add your voice to the new stock-rating service by joining today. It's totally free.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.