A trip to a Cabela's store is like a mini-excursion to a theme park, but its big box stores haven't fared well in a market trending toward smaller footprints. Image source: Cabela's.
Outdoors gear and sporting goods shop Cabela's (CAB) is reportedly about to be acquired by privately held rival Bass Pro Shops. While The New York Post said last week a deal was near, sending Cabela's shares higher, it's an acquisition that's been rumored to be imminent before: back in April Reuter's said Bass Pro Shops had teamed up with Goldman Sachs to make a bid and before that it was said to be sniffing around to make one.
That nothing has happened since doesn't mean a deal won't take place. Last year activist hedge fund investor Elliott Management disclosed an 11% stake in the sporting goods retailer and immediately began agitating for a sale of the company or divestiture of its ancillary operations such as its credit card business. The Post says Cabela's has reportedly lined up a separate buyer for that division, and in a recent filing with the SEC it was the sale of that unit that seemed more concrete, though it did admit a sale of the entire company was possible.
But with Cabela's scheduled to report second quarter earnings on July 28, whether a deal does take place or not will likely be a topic of discussion.
King of the mountain
It's also a deal that looks to be a really good fit, not only because of their obvious similar business models, but because of the opportunities for expansion it provides Bass without undermining its own stores.
Sporting goods companies have run into difficulties despite changing consumer tastes that would seem to favor them. Consumers are looking for more active, healthier lifestyles, which accounts for retailers like Under Armour and Nike delivering strong returns for investors over the long haul. Even the rise of wearable tech companies like Fitbit speaks to the underlying consumer demand that ought to keep the industry in top shape.
Yet as the demise of Sports Authority and Eastern Mountain Sports indicates, not all sporting goods companies are equal. While there was nothing distinguishing about Sports Authority's in-store experience that you couldn't find elsewhere, even online, that's something that shouldn't have been a problem for Cabela's with its distinctive mountain display, in-store museum, and indoor shooting ranges. Its stores were destination locations all by themselves.
But its weak performance hints at the trouble at play with all big-box retailers. Whether it's Cabela's voluminous sales floor or Wal-Mart super centers, consumers are looking for smaller, more convenient, more curated product selections than the end-all, be-all retail experience.
The problem for Cabela's is that a Bass Pro Shops store isn't completely dissimilar, and with its strong presence in the south, Bass has remained the outdoorsman favorite. Image source: Bass Pro Shops.
Dog-eat-dog world
That could explain why Cabela's suffered another period of falling same-store sales in the first quarter. Total revenue increased 4.5% to $864.7 million, but that was due to having 15 more stores open than it did a year ago; consolidated comps fell 4.3% in the period.
Moreover, each time it opened a new location, it likely cannibalized sales at existing stores. I used to visit a location in Hamburg, Penn. but when one opened in Newark, Del. I opted to shop that one instead because it was closer. I had been excited at the prospect of one opening in the Meadowlands in New Jersey, but that mall construction collapsed and Cabela's (and other retailers) pulled out.
While Cabela's has committed to building smaller stores, the impact of e-commerce from retailers like Amazon.com can't be ignored either, though that should apply equally to Cabela's, Dick's Sporting Goods -- which acquired Sports Authority's intellectual property in bankruptcy auction -- or the other niche players, like Hibbett's Sports and Big 5 Sporting Goods.
Take it on credit
Because of the diversity of its offerings, simply shedding the credit card business rather than selling out to Bass Pro Shops might be the ultimate outcome. It's reported Cabela's is the only retailer left that still owns its own credit card operations. Nordstrom got out of the business last October when it sold the division to Canada's Toronto-Dominion Bank while others like Target got out years ago.
Still, a Cabela's tie-up with Bass Pro Shops does make sense and it may allow the latter to expand without cannibalizing its existing footprint by keeping Cabala's open in states where Bass doesn't exist (as Cabela's expanded into the southeast, it began encroaching on Bass territory), and despite its troubles the nameplate still has a lot of value. It would also bring its biggest competitor in-house, making for a huge national sporting goods company that would dwarf rivals like REI, which reported $2.4 billion in net sales in 2015. Cabela's alone had $4 billion in sales.
A concentrated theme park experience in a fragmented industry may be just what the outdoors world and sporting goods industry needs, but it's likely that an experience such as this can only support one such player.
