Cabela's shares jump on strong 1st-qtr earnings and margins

Sporting goods retailer Cabela's Inc. saw its shares jump Friday after the company said improved margins helped lift quarterly profit 40 percent.

The Sidney, Neb., chain said late Thursday its revenue rose 16 percent in the first quarter while earnings per share of 15 cents blew past the average Thomson Financial estimate of 5 cents per share.

Stephens Inc. analyst Rick Nelson wrote in a client note that management attributed the growth in operating margins _ which increased 120 basis points _ to fewer discounts, vendor support and targeted advertising.

"We are not sure how sustainable this improvement might be, and indeed, the company's guidance continues to incorporate lower gross margins over the remainder of the year," Nelson said.

But he continues to rate the stock "Overweight," noting that while the broader economic slowdown is likely to continue pressuring the specialty retailer, Cabela's "brand strength, customer loyalty and multichannel marketing advantages" will benefit it in the long term.

Cabela's sells hunting, fishing, camping and related outdoor merchandise in stores and catalogs.

Christopher Svezia of Susquehanna Financial Group maintained a "Neutral" rating on Cabela's shares, warning that tightening credit markets will continue to hurt Cabela's financial service revenue in the second and third quarters.

Additionally, "we believe the sluggish traffic environment thus far in the second quarter, in addition to higher inventory levels (up 23 percent), has increased the level of promotional activity," the analyst wrote.

Cabela's shareholders shrugged off the concern, though. The stock rose 83 cents, or 5.9 percent, to close at $15.03. The stock has lost 40 percent of its value in the past 52 weeks.