Cabela's Quarter Setback

When economic times get tough, discretionary items are the first things that get crossed off the "must buy" list. When you're selling outdoor gear like Cabela's (NYSE: CAB  ) does, you must expect that your catalog is going to be in the bulls-eye for such cutbacks.

So while the World's Foremost Outfitter, as Cabela's bills itself, still reported yet another quarter of double-digit sales growth, it was actually much lower than we've seen in past quarters. Third-quarter revenues came in at $546.8 million, as it preannounced a few weeks ago, missing analyst estimates by about $300,000. Earnings, meanwhile, fell 12% to $13.2 million, reflecting higher promotional costs, store expansion, plus two stores that were just opened last year not performing up to expectations.

Is there a warning label to be found here? The Motley Fool Hidden Gems recommendation was, and is, primarily a catalog-based retailer that began in the last few years to expand its brick-and-mortar footprint. Its stores are tourist destination spots all by themselves, and there's a lot of sunk costs that go into building a veritable nature preserve inside one of its big boxes. They have been opened with great fanfare, and the company is keeping to an ambitious plan of opening new stores in prime locations. It's gotten to the point where the retail operations now supercede the catalog in terms of percentage of total sales.

We have to start looking at Cabela's more and more like Dick's Sporting Goods (NYSE: DKS  ) and Big 5 Sporting Goods (Nasdaq: BGFV  ) , but also start questioning if they're taking on too much. Cabela's negotiates favorable deals for land, requiring localities to float bonds to pay for its storefronts, but there's a backlash building to such arrangements. Those deals may be harder to come by in the future.

Cabela's is going to have to try to wring more profits out of its current locations to get through these rough spots, and it seems that some of its activities haven't been paying off in terms of greater traffic. While same-store sales did increase 4.6% in the quarter, the rate of growth slowed precipitously. Check out how the segments have reported for the past year.

Quarterly Segment Growth, % YoY

Q307

Q207

Q107

Q406

Q306

Direct

4.20%

4.50%

3.90%

6.20%

4.70%

Retail

17.70%

31.80%

27.10%

27.30%

25.80%

Financial

19.70%

24.20%

25.20%

33.10%

29.00%

Source: Cabela's SEC filings.

While its catalogs have been performing consistently, retail and financial have seen their business contracting. With the major fall-off in retail, however, it looks like Cabela's expansion plans may just have to be put on the shelf. Investing during a slowdown can certainly help position a company for when the recovery begins. Yet focusing on what you do best also ensures that you don't become distracted when times get tough and your operations become a target for cutbacks.

For further related Foolishness:


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539673, ~/Articles/ArticleHandler.aspx, 12/22/2014 5:49:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement