Cabelas : Cabela's Inc. Announces Fourth Quarter 2014 Financial Results

Cabela's Incorporated (NYSE:CAB) today reported financial results for fourth quarter fiscal 2014.

For the quarter, total revenue increased 7.2% to $1.3 billion; Retail store revenue increased 13.9% to $810.6 million; Direct revenue decreased 5.4% to $349.9 million; and Financial Services revenue increased 9.9% to $113.3 million. During the period, comparable store sales decreased 5.5%.

For the quarter, adjusted for certain items, net income decreased 16.4% to $79.3 million compared to $94.7 million in the year ago quarter, and earnings per diluted share were $1.11 compared to $1.32 in the year ago quarter. The Company reported GAAP net income of $78.6 million and earnings per diluted share of $1.10 as compared to GAAP net income of $80.1 million and earnings per diluted share of $1.12 in the year ago quarter. Fourth quarter 2014 GAAP results included incremental expenses related to the relocation of our distribution center in Winnipeg, Manitoba, Canada, of $0.01 per diluted share. Fourth quarter 2013 GAAP results included provisions for interest and taxes related to an increase in tax reserves of $0.16 per diluted share and an impairment loss of $0.04 per diluted share related to a retail store site. See the supporting schedules to this earnings release labeled “Reconciliation of GAAP Reported to Non-GAAP Adjusted Financial Measures” for a reconciliation of the GAAP to non-GAAP financial measures.

For fiscal 2014, net income was $207.1 million compared to $238.3 million last year, and earnings per diluted share were $2.88 compared to $3.32 a year ago, each adjusted for certain items. The Company reported GAAP net income of $201.7 million and earnings per diluted share of $2.81 as compared to GAAP net income of $224.4 million and earnings per diluted share of $3.13 a year ago. Fiscal 2014 GAAP results included provisions for interest and taxes related to an increase in tax reserves of $0.05 per diluted share and incremental expenses related to the relocation of our distribution center in Winnipeg, Manitoba, Canada, of $0.02 per diluted share. Fiscal 2013 GAAP results included adjustments to the Visa antitrust settlement liability resulting in a $0.03 per diluted share benefit, impairment and expense adjustments primarily related to two retail locations of $0.06 per diluted share, and provisions for interest and taxes related to an increase in tax reserves of $0.16 per diluted share. See the supporting schedules to this earnings release labeled “Reconciliation of GAAP Reported to Non-GAAP Adjusted Financial Measures” for a reconciliation of the GAAP to non-GAAP financial measures.

"For the quarter, we experienced growth in merchandise sales, solid performance from Cabela's CLUB, ongoing strong performance from our next generation stores, and normalization of firearm and ammunition sales," said Tommy Millner, Cabela's Chief Executive Officer. "To achieve these results, we invested more in advertising and promotional spending than we had originally planned. This led to lower merchandise margins and earnings per share, but resulted in measurable market share gains. We are encouraged that comparable store sales thus far in 2015 have improved."

During the quarter, merchandise gross margin decreased 150 basis points to 35.1% from 36.6% in the same quarter a year ago. The decrease in margin was primarily attributable to more aggressive discounting. Additionally, approximately 50 basis points of the decrease was due to the previously announced adjustment in the presentation of reimbursement between segments. As a reminder, this new presentation, initiated in the second quarter, will be ongoing and has no impact on consolidated operating income or earnings per diluted share. See the "Selected Financial Data" table located herein for a more detailed explanation of this adjustment.

"For fiscal 2014, our 18 next generation stores opened for the full period averaged sales per square foot of $449 compared to sales per square foot of $313 in our legacy stores or 43% better performance," Millner said. "Similarly, for the same period, our next generation stores averaged profit per square foot that was 59% better than our legacy stores. With this strong new store performance, we look forward to continuing our retail store expansion and are excited to begin opening our slate of 2015 stores in March."

Direct revenue decreased 5.4% in the quarter. Better in-stock levels of ammunition and shooting related products in our retail stores eased our customers' needs to acquire ammunition online. We were pleased with the 630 basis point sequential improvement in Direct revenue over the third quarter. During the fourth quarter, continued improvements to the omni-channel model, including simplified checkout and growth in mobile traffic, further enhanced our customers' omni-channel experience.

The Cabela's CLUB Visa program had another solid quarter and continued to build a base of extremely loyal customers. CLUB members shop more frequently and have higher average spend. During the quarter, growth in the average number of active credit card accounts was 7.3% due to new customer acquisitions in our Retail and Internet channels. Growth in the average balance per active credit card account was 4.5%, and growth in the average balance of credit card loans was 12.1% to $4.2 billion. For the quarter, net charge-offs remained at historically low levels of 1.74% compared to 1.76% in the prior year quarter. Increased Financial Services revenue was driven by increases in interest and fee income as well as interchange income.

"While we took a more aggressive approach to promotions than originally planned, we are pleased with market share gains, next generation store performance, and solid growth at Cabela’s CLUB," Millner said. "As a result, we expect to return to a low-double-digit growth rate in revenue and a high-single to low-double-digit growth rate in diluted earnings per share for full-year 2015 as compared to full-year 2014 non-GAAP diluted earnings per share of $2.88.”

Conference Call Information

A conference call to discuss fourth quarter and fiscal 2014 operating results is scheduled for today (Thursday, February 12, 2015) at 11:00 a.m. Eastern Time. A webcast of the call will take place simultaneously and can be accessed by visiting the Investor Relations section of Cabela's website at www.cabelas.com. A replay of the call will be archived on www.cabelas.com.

About Cabela's Incorporated

Cabela's Incorporated, headquartered in Sidney, Nebraska, is a leading specialty retailer, and the world's largest direct marketer, of hunting, fishing, camping and related outdoor merchandise. Since the Company's founding in 1961, Cabela's^® has grown to become one of the most well-known outdoor recreation brands in the world, and has long been recognized as the World's Foremost Outfitter^®. Through Cabela's growing number of retail stores and its well-established direct business, it offers a wide and distinctive selection of high-quality outdoor products at competitive prices while providing superior customer service. Cabela's also issues the Cabela's CLUB^® Visa credit card, which serves as its primary customer loyalty rewards program. Cabela's stock is traded on the New York Stock Exchange under the symbol "CAB".

Caution Concerning Forward-Looking Statements

Statements in this press release that are not historical or current fact are "forward-looking statements" that are based on the Company's beliefs, assumptions, and expectations of future events, taking into account the information currently available to the Company. Such forward-looking statements include, but are not limited to, the Company's statements regarding returning to a low-double-digit growth rate in revenue and a high-single to low-double-digit growth rate in diluted earnings per share for full-year 2015 as compared to full-year 2014 non-GAAP diluted earnings per share of $2.88. Forward-looking statements involve risks and uncertainties that may cause the Company's actual results, performance, or financial condition to differ materially from the expectations of future results, performance, or financial condition that the Company expresses or implies in any forward-looking statements. These risks and uncertainties include, but are not limited to: the state of the economy and the level of discretionary consumer spending, including changes in consumer preferences, demand for firearms and ammunition, and demographic trends; adverse changes in the capital and credit markets or the availability of capital and credit; the Company's ability to successfully execute its omni-channel strategy; increasing competition in the outdoor sporting goods industry and for credit card products and reward programs; the cost of the Company's products, including increases in fuel prices; the availability of the Company's products due to political or financial instability in countries where the goods the Company sells are manufactured; supply and delivery shortages or interruptions, and other interruptions or disruptions to the Company's systems, processes, or controls, caused by system changes or other factors; increased or adverse government regulations, including regulations relating to firearms and ammunition; the Company's ability to protect its brand, intellectual property, and reputation; the Company's ability to prevent cybersecurity breaches and mitigate cybersecurity risks; the outcome of litigation, administrative, and/or regulatory matters (including a Commissioner's charge the Company received from the Chair of the U. S. Equal Employment Opportunity Commission in January 2011, audits by tax authorities, and compliance examinations by the Federal Deposit Insurance Corporation); the Company's ability to manage credit, liquidity, interest rate, operational, legal, regulatory capital, and compliance risks; the Company's ability to increase credit card receivables while managing credit quality; the Company's ability to securitize its credit card receivables at acceptable rates or access the deposits market at acceptable rates; the impact of legislation, regulation, and supervisory regulatory actions in the financial services industry, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; and other risks, relevant factors, and uncertainties identified in the Company's filings with the SEC (including the information set forth in the "Risk Factors" section of the Company's Form 10-K for the fiscal year ended December 28, 2013, and Form 10-Q for the quarterly period ended March 29, 2014), which filings are available at the Company's website at www.cabelas.com and the SEC's website at www.sec.gov. Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. The Company's forward-looking statements speak only as of the date they are made. Other than as required by law, the Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

Financial Services revenue consists of activity from the Company's credit card operations and is comprised of interest and fee income, interchange income, other non-interest income, interest expense, provision for loan losses, and customer rewards costs. The following table details the components and amounts of Financial Services revenue as reported for the periods presented below.

The following table sets forth the components of Financial Services revenue as reported as a percentage of average total credit card loans, including any accrued interest and fees, for the periods presented below.

In July 2012, the parties to the Visa antitrust litigation entered into a settlement agreement to resolve their claims. In December 2013, the settlement agreement received final court approval which, among other things, required the distribution to class merchants of an amount equal to 10 basis points of default interchange for a period of eight consecutive months. As a result, we recorded a liability of $12.5 million in fiscal year 2012 to accrue for the settlement as a reduction of interchange income in the Financial Services segment. Based on re-evaluations due to certain plaintiffs opting out of the settlement, and analysis of the merchant charge volume from Visa interchange reduction reports, we reduced the settlement liability by $0.317 million and $3.167 million, respectively, in the three months and fiscal year ended December 28, 2013. The remaining related liability for this settlement agreement was settled in the first half of fiscal year 2014.

To supplement the revenue components of our Financial Services segment presented according to generally accepted accounting principles ("GAAP"), we have disclosed three non-GAAP measures of operating results that exclude these adjustments to interchange income for the Visa settlement. Interchange income, total Financial Services revenue, and total revenue are presented below both as GAAP reported and excluding the adjustments to interchange income for the Visa settlement. In light of the nature and magnitude, we believe these items should be presented separately to enhance a reader's overall understanding of the Company's ongoing operations as they relate to its Financial Services segment. The following non-GAAP revenue amounts should be considered in conjunction with the GAAP revenue amounts.

Key statistics reflecting the performance of the Financial Services business are shown in the following charts for the periods presented below.

Return on invested capital (“ROIC”) is not a measure of financial performance under generally accepted accounting principles ("GAAP") and may not be defined and calculated by other companies in the same manner. ROIC should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP. We use ROIC as a measure of efficiency and effectiveness of our use of total capital.

We calculate ROIC by dividing adjusted net income by average total capital. Adjusted net income is derived by adding interest expense, rent expense, and Retail segment depreciation and amortization (all after tax) to reported GAAP net income excluding: (1) any losses on sales of assets, (2) any impairment charges or fixed asset write-downs, and (3) any accumulated amortization of deferred grant income caused by other than temporary impairment losses of economic development bonds (all after tax). Total capital is derived by adding current maturities of long-term debt (excluding debt of the Financial Services segment), operating leases capitalized at eight times next year’s annual minimum lease payments, and total stockholders’ equity to long-term debt (excluding debt of the Financial Services segment), and then subtracting cash and cash equivalents (excluding cash and cash equivalents of the Financial Services segment). Average total capital is calculated as the sum of current and prior year ending total capital divided by two. The following table reconciles the components of ROIC to the most comparable GAAP financial measures.

To supplement our consolidated statements of income presented in accordance with generally accepted accounting principles ("GAAP"), we are providing non-GAAP adjusted financial measures of operating results that exclude certain items. Total revenue; selling, distribution, and administrative expenses; impairment and restructuring charges; operating income; interest expense, net; operating income as a percentage of total revenue; income before provision for income taxes; provision for income taxes; net income; and earnings per diluted share are presented below both as GAAP reported and non-GAAP financial measures excluding (i) adjustments to interchange income for the Visa settlement recognized in 2013, (ii) incremental expenses primarily related to the transition to a third-party logistics provider and the closing of our current Canada distribution center recognized in 2014, and certain employee related expenses recognized in 2013, (iii) impairment and restructuring charges recognized in 2014 and 2013, (iv) adjustments to interest expense on certain unrecognized tax positions recognized in 2013, and (v) adjustments to the provision for income taxes related to changes in our assessments of uncertain tax positions recognized in 2014 and 2013. In light of the nature and magnitude, we believe these items should be presented separately to enhance a reader's overall understanding of the Company's ongoing operations. These non-GAAP adjusted financial measures should be considered in conjunction with the GAAP financial measures.

We believe these non-GAAP adjusted financial measures provide useful supplemental information to investors regarding the underlying business trends and performance of our ongoing operations and are useful for period-over-period comparisons of such operations. In addition, we evaluate results using non-GAAP adjusted operating income, adjusted net income, and adjusted earnings per diluted share. These non-GAAP adjusted financial measures should not be considered in isolation or as a substitute for operating income, net income, earnings per diluted share, or any other measure calculated in accordance with GAAP. The following tables reconcile these financial measures to the related GAAP adjusted financial measures for the periods presented.