Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Cabelas (NYSE:CAB) are trading about 5% lower today after a brief attempt to recover from an opening-bell drop of 10% finally petered out. The company reported its fourth-quarter earnings this morning, and they were simply not good enough for investors who had expected more from the outdoor goods retailer.
So what: Cabelas reported a 7.2% uptick in revenue to $1.27 billion for the quarter, but the company's marketing expenses pushed adjusted earnings all the way from the year-ago quarter's $1.32-per-share result to a mere $1.11 per share today. Wall Street's analysts had been looking for $1.26 billion in revenue and $1.35 in EPS, so Cabelas' disappointing bottom line overwhelmed its narrow top-line beat. The company offset an ugly fourth-quarter comparable-store sales decline of 5.5% by opening more stores, as overall retail store revenue grew by 13.9% in the fourth quarter.
Cabelas executives expect that the current marketing-intensive strategy will pay off in 2015, and they are now anticipating "low-double-digit" growth in revenue as well as "a high-single to low-double-digit growth rate" for adjusted EPS. That would work out to perhaps $3.6 billion in full-year revenue, and perhaps $3.17 in full-year adjusted EPS based on the company's reported full-year revenue of $3.2 billion and 2014 adjusted EPS of $2.88.
Now what: The fact that Cabelas' shares have staged a mini-rally from 10% down suggests investors have begun to decide that missed estimates won't be the end of the world. Cabelas is still reasonably valued at an 18.5 P/E, according to S&P Capital IQ, but it's worth noting that the company's free cash flow has tanked over the past two years, and its EPS projections for 2015 wouldn't even bring it back to 2013's result of $3.32. This company isn't going anywhere, but it's not moving briskly enough in the right direction to call today's drop a buying opportunity.