Macro Tsimmis

intelligently hedged investment

Cabela’s (CAB) update #2—3Q08 results: record sales, but weaker outlook

Posted by intelledgement on Sun, 02 Nov 08

Another quarter, another sales record.

Cabela’s (CAB), our outdoors provision retailer and direct marketer, announced 3Q08 results Thursday and for the 18th time out of 18 quarters since the company went public in 2004, their revenues set an all-time record for that quarter. Sales in the quarter amounted to $612 million, 12% ahead of last year’s then-all-time-record-3Q sales of $547 million. Of course, the company has more outlets now than a year ago, most notably their first “next generation” 80,000 square foot store which opened in Rapid City this quarter. Same store sales were actually down 9% and profits declined 27% to $10 million from $13 million a year ago.

“The challenging macro-environment, general consumer concerns about the economy and the unprecedented events in the financial markets impacted sales trends in our business during the quarter,” stated CEO Dennis Highby. “We continue to monitor our business carefully and remain focused on managing factors within our control, including executing on our profit-improvement initiatives, implementing additional cost reductions and aggressively managing inventory levels. To that end, we have experienced significant improvements in inventory levels and cash generated from operations. Additionally, despite the difficult environment we continue to gain market share, grow our direct customer file and add Cabela’s CLUB Visa cardholders. The significant progress we have made in these areas positions us extremely well for future market share growth.”

The company cut their guidance on overall revenue growth for 2008 from around 15% to less-than-10% and slashed profit projections from a 5% increase over 2007 to a 10%-to-15% decline. The market reacted well to the report, with the stock up 7.6% on Thursday and, after opening sharply lower, finished the day Friday up another 2.4%. Of course this may have had more to do with the overall market rallying both days, after falling as much as 32% between 19 September—the day we bought CAB—and Tuesday.

In any event, we are licking our wounds here—now down 34% since buying the stock six weeks ago—but with sales holding up as well or better than expected and the basic business model extremely sound, we are here for the long haul.


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