Fishing for Value at Cabela's

Over the past year, shares of Cabela's (NYSE: CAB) have been on what seems like a deep-sea dive, sinking nearly 44%. However, as management tames store base expansion to focus on existing operations, investors may be curious if bottom fishing for this stock will finally reel in market-beating returns.

Following the trend of most specialty retailers, Cabela's is finding free-spending customers to be out of season. The company did generate positive revenue growth of 13.9% for the fourth quarter by expanding its store base. But despite its loyal customers and nationally recognized brand -- both major strengths -- comps plummeted 5.9% during the quarter.

To align its growth strategies with the changing economic environment as consumers continue to pull back discretionary spending, Cabela's now plans to open just two stores in 2008 and two more in 2009. Rather than aggressively expanding to fuel growth, management plans to improve financial performance with strategies such as enhanced promotional activity and better merchandise and inventory management. This is a prudent decision since consumer spending seems to be only slowing. 

The capital expenditures the company incurred when growing its location base in 2007 burgeoned long-term debt 39%, pushing the interest expense 41% higher. Taming store growth will allow the company to fund near-term growth through a previous debt offering and operating cash flow. Further, cutting back fixed opening costs should help improve the profitability of retail stores, as net income rose just 5.4%, much slower than the top line.

Cabela's is by no means a lost camper, yet it's trading at a trailing P/E multiple of just 11.34. That's half of what Dick's Sporting Goods (NYSE: DKS) sells for and still considerably lower than Hibbett Sports (Nasdaq: HIBB). Rival Gander Mountain (Nasdaq: GMTN) has even turned a profit in the last 12 months.

Cabela's management certainly seems in tune with how to adapt its operations and growth strategy during this current difficult retail period. And at this value price, I'd say picking up shares and camping out for the storm to pass will be worth the wait.

More Foolishness:

• Cabela's Bags a Big One: Fool by Numbers
• Cabela's Quarter Setback
• The Underperform Case for Gander Mountain
• Dirty Deeds Done Dirt Cheap