Cabela's (CAB) Q3 Earnings And Revenues Miss Estimates

Cabela's Incorporated (NYSE:CAB) reported dismal results for the third-quarter of 2016, wherein earnings missed the estimate for the second consecutive quarter. Revenues also fell short of the estimate, after beating the same in the previous quarter.

The company recorded earnings per share of 53 cents, which came way below the Zacks Consensus Estimate of 80 cents, and also declined 25.4% year over year.

Including one-time items, the company’s third-quarter earnings came in at 41 cents per share, plunging 33.9% year over year.

On the other hand, the top line increased 7.6% year over year to $929.9 million but missed the Zacks Consensus Estimate of $1,014 million. The year-over-year increase in revenues was driven by a surge in revenues from retail stores, Internet and catalogs as well as Financial Services.

Consolidated comparable store sales (comps) dipped 2.3% in the quarter primarily due to weakness in the company’s apparel categories which offset the gains in powersports, firearms, shooting, camping and optical categories. In the previous quarter, the company had reported positive consolidated comparable store sales for the first time since third-quarter 2013. Moreover, U.S. comps slipped 1.8% in the quarter under review.

Merchandise gross margin contracted 420 basis points (bps) to 31.4% in the quarter. The decline was mainly due to increase in discounts, merchandise mix, aggressive pricing and proper inventory levels.

The company’s total operating income for the quarter slumped 32.5% to $49.2 million, whereas operating income fell 300 basis points to 4.9%.

Bass Pro Shops to Acquire Cabela's

Bass Pro Shops and Cabela's have entered into a deal, whereby the former will acquire the latter in an all-cash deal valued at $5.5 billion. The acquisition, which is expected to conclude in the first half of 2017, will result in a retail giant that will control over 20% of the U.S. hunting, camping, and fishing market. Cabela's was exploring strategic alternatives, including a potential sale, after it came under pressure from an activist fund, Elliot Management Corp.

Segment Details

Total Merchandise sales, which include revenues from retail stores as well as internet and catalogs, went down 7.2% to $855.9 million in the third quarter. Retail store revenues rose 8.1% to $688.6 million while Internet and catalog revenues improved 3.6% to $167.4 million. Further, the segment’s operating margin (as a percentage of segment revenues) was 370 basis points to 0.3%.

Financial services revenues surged 8.8% to $134.5 million, reflecting a 24.3% surge in interest and fee income as well as a 3.1% rise in interchange income, partially offset by an increase in the provisional losses for loans. The average number of active credit card accounts grew 6.8%, while average balance of credit card loans of $5.2 billion increased 14.8%. Additionally, the average balance per active credit card account rose 7.6%. Further, the segment’s operating margin came in at 36.3% in comparison to 34.2% in the prior-year quarter.

Other Financial Aspects

Cabela’s ended the quarter with cash and cash equivalents of $136.5 million, long-term debt (excluding current maturities) of roughly $820.7 million and shareholders’ equity of $1,955.2 million.

Zacks Rank & Other Stocks to Consider

Cabela’s currently has a Zacks Rank #3 (Hold). Other stocks worth considering in the retail sector include Big 5 Sporting Goods Corp. (NASDAQ:BGFV) , Dick's Sporting Goods Inc. (NYSE:DKS) and Hibbett Sports, Inc. (NASDAQ:HIBB) .

Big 5 Sporting currently has a Zacks Rank #1 (Strong Buy) and a long-term earnings growth rate of 12%. The stock has jumped nearly 49% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dick's Sporting, with a long-term earnings growth rate of 12.3%, has gained roughly 55.8% year to date. The company also sports a Zacks Rank #1.

Hibbett Sports which hold a Zacks Rank #2 (Buy) has a long-term earnings growth rate of 11.1%.

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