One destination store at a time, outdoor sporting goods retailer Cabela's
Cabela's goal is mid-teen growth, and the first quarter was on target as revenue increased 14% to $462 million. Profits, however, were down to $0.11 per share from the $0.14 recorded last year, as the company recorded higher store opening costs, as well as higher stock option expenses.
In the future, the sporting goods retailer expects store opening costs to be lower. It also says that it frontloaded compensation expenses to the first half of the year. With eight new stores planned for opening this year, investors can probably expect profits next quarter to be below last year's numbers, although on a full year basis, things should even out.
There were increases in revenues in all three of Cabela's segments, with retail continuing to grow in significance as it increases its store count. Revenues there were up 27% to $185 million even as same-store sales declined by less than one percentage point. Direct sales continued to move along, growing 4% to $238 million, while financial services -- which comprise less than 8% of total revenues -- grew 25% to nearly $36 million. It was a fairly solid showing.
After three straight quarters of rising comps, the downtick in same-store sales, while not troublesome, is disappointing. Part of the problem was laid at the feet of the weatherman who knocked fishing sales off track, as well as softness in its soft goods line. Cabela's, though, expects to sell through that inventory over the next few quarters. It probably shouldn't have been unexpected, since other sporting goods companies like Hibbett's
One thing that's probably not of major concern, but jumped out at me nonetheless, was that Cabela's was changing the way it valued its inventory, moving from last-in, first-out (LIFO) to first-in, first-out (FIFO). Although the retailer notes it didn't amount to a material change, I always keep an eye on such changes because FIFO is considered a more aggressive accounting technique.
FIFO can have a big impact on the cost of sales. When matching FIFO costs of goods sold against sales, it can result in an artificial increase in earnings (but also in taxes paid, too). There's no right or wrong way to value inventory -- both LIFO and FIFO are used throughout business -- but I like to watch for such effects when a company decides to change its policies.
Cabela's has shown it can still reel in sales. With revenues increasing in all areas, including its banking arm, which hasn't felt any effects from the downturn in the subprime lending business, look for the retailer to continue landing good results.
Fool contributor Rich Duprey owns shares of K2 but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.