Looking at the revenue picture of both Big Five Sporting Goods
Same-store sales is an important retail metric that measures a company's organic growth, rather than growth realized from expansion. These sales fell 7.6% at Big Five, and dropped 1.6% at Cabela's. Profits per share were down 69% and 35%, respectively.
Now, Hidden Gems selection Cabela's does have an advantage. While it sports huge destination stores, and it's been growing its store base (which led to that top-line surge), it also has a direct sales division and a financial-services arm. Direct revenue rose 1.5% in the quarter to $207 million, but financial services took a hit as the worsening economy increased the amount of bad debts in the company's credit card portfolio.
Rising fuel costs are holding Cabela's back. The outdoor lifestyle retailer builds destination stores -- big, honking places featuring mock mountains, museums, and the like. It's not unlike a trip to a theme park. While Disney’s
Cabela's strategy has been to build fewer but bigger stores, but now it's discovering the new economic reality: People can't afford to drive 50 miles to a Cabela's to buy gear or be entertained.
Big Five isn't immune to any of these factors, either. Although its stores may be smaller and closer to the average consumer, the retailer is finding out just as harshly that when consumers have a choice between food and gas on the one hand, and exercise equipment on the other, it’s no surprise which one wins.
The economy is playing a big factor here, but it's not all doom and gloom, particularly if you're looking to pick up shares in a sporting-goods retailer. In that case, I'd have to recommend Cabela's. At seven times next year’s earnings, it's trading at a 30% discount to Big Five, a nearly 40% discount to Dick's Sporting Goods
Cabela's has started locating stores near more densely populated areas, and while that does carry a certain level of risk as well -- a lack of consumer desire to sit in traffic to get there, as well as a demographic perhaps not as disposed to hunting and the outdoors -- it opens its doors to a larger potential pool of customers.
Last month, the Hidden Gems team came away with the warm fuzzies for management after traveling to New York to hear Cabela's discuss its future plans. Yet what the analysts recommended to subscribers may be something of a surprise. You can find out the skinny by taking a free 30-day trial of the Motley Fool's leading small-cap investment service.
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Fool contributor Rich Duprey owns shares of Disney but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. Cabela’s is a Hidden Gems pick. Disney is a Stock Advisor selection. The Motley Fool has a disclosure policy.
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