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Mixed results for Cabela in second quarter

By Cabela's Incorporated

SIDNEY, Neb.--  Cabela's Incorporated (NYSE:CAB) today reported financial results for second quarter fiscal 2014.

For the quarter, total revenue increased 0.6% to $761.2 million; Retail store revenue increased 3.4% to $500.4 million; Direct revenue decreased 18.3% to $147.1 million; and Financial Services revenue increased 23.5% to $109.4 million. During the period, comparable store sales decreased 14.2%. Net income was $43.5 million compared to $44.5 million in the year ago quarter, and earnings per diluted share were $0.61 compared to $0.62 in the year ago quarter.

“Second quarter profit and record 9.5% operating margin were excellent," said Tommy Millner, Cabela's Chief Executive Officer. "We are pleased in our ability to achieve record levels of profitability as firearms and ammunition normalize. As we approach the anniversary of the end of the firearms and ammunition surge, we are encouraged that expense initiatives, new store performance and accelerating Cabela's CLUB® growth more than offset sales weakness caused by lower than expected ammunition, shooting, optics, and firearms category performance."

"Expense reductions resulted in significant benefits in the quarter," Millner said. "They were launched in late 2013 and encompass all areas of our Company, including incentive compensation, contract labor and other corporate overhead. Accordingly, we expect further benefit in the remainder of 2014 and full year 2015. We are delighted with the entire organization's ongoing actions to lower costs."

"Comparable store sales declined 14.2% in the quarter; slightly below our internal expectations," Millner said. "We were encouraged to see comparable store sales trends improve versus last year each month during the quarter. We expect this trend to continue throughout 2014."

New format stores outperformed the legacy store base by 45% to 55% in both sales and profit per square foot on a rolling four quarter basis ending with the second quarter. For the trailing twelve months, the 16 new stores opened for the full period averaged sales per square foot of $474. Furthermore, on a comparable store sales basis, new format stores that have been in the comp base for one year or less outperformed the consolidated comp base by 360 basis points for the quarter. With this strong new store performance, retail store expansion remains on track with plans to open 13 to 15 new stores per year over the next several years.

"For the quarter, our Softgoods and General Outdoors categories each realized a 160 basis point increase in Cabela’s branded product sales penetration," Millner said. "The launch of XPG (Extreme Performance Gear) has been a success with positive customer reactions to this new innovative line of products. Along with the XPG line, we have had great customer response to our Cabela’s Guidewear®, Cabela’s Instinct, and Wildlife and Land Management products. These results give us confidence in the prospects for future growth in Cabela’s branded products."

During the quarter, merchandise gross margin decreased 70 basis points to 37.0% from 37.7% in the same quarter a year ago. The decrease is entirely due to an adjustment in the presentation of reimbursement between segments for certain operating and promotional costs. This new presentation 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.

Direct revenue declined 18.3% for the quarter as a result of the greater than expected decline in ammunition and other shooting related categories. Direct sales of hunting equipment and powersports were encouraging. For the quarter, visitor traffic to the mobile site via handheld and tablet devices increased at a high-teens rate as compared to the same quarter a year ago.

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 7.7% due to new customer acquisitions in our Retail and Internet channels. Growth in the average balance per active credit card account was 4.4%, and growth in the average balance of credit card loans was 12.4%. For the quarter, net charge-offs remained at historically low levels of 1.67% compared to 1.87% in the prior year quarter. Additionally, greater than 30-day delinquencies continued to improve and were just 0.65% compared to 0.66% at the end of the year ago quarter. Increased Financial Services revenue was driven by increases in interest and fee income as well as interchange income.

"Second quarter results provide us with confidence in attaining our full year 2014 earnings growth targets," Millner said. "We are pleased with our performance in the second quarter; however, due to the unsettled retail environment, we are not raising our full year guidance. Accordingly, we reaffirm our previous full year guidance and continue to expect 2014 earnings per diluted share to increase at a high single-digit to low double-digit rate versus 2013 adjusted earnings per diluted share of $3.32. We are updating the balance between quarters and now expect third quarter revenue to increase at a high single-digit to low double-digit rate and earnings per diluted share to be between $0.80 and $0.90."

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