CABELAS INC CAB
February 13, 2013 - 5:20pm EST by
bruin821
2013 2014
Price: 49.99 EPS $2.12 $3.15
Shares Out. (in M): 70 P/E 23.0x 16.0x
Market Cap (in $M): 3,490K P/FCF 9.0x 11.0x
Net Debt (in $M): 453,000 EBIT 1,198 1,131
TEV ($): 3,150K TEV/EBIT 11.0x 9.0x

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  • Retail
  • Sports
  • Fragmented market

Description

Cabelas is a best in class retailer, in a highly fragmented market that is successfully transitioning from a family run direct business to  a professional retailer. The company is growing annual square footage at a double digit rate and aggresively opening higher margin new stores at a rapid pace. 
 
Cabelas is a leading hunting, fishing and sportswear retailer.  They have approximately 40 stores and are aggressively opening new stores with substantial more profits than legacy stores.  They are a destination retailer that began as direct mail catalog business and are in the early stages of building out their retail footprint.
 
The company was founded in 1961 as a small seller of fly fish equipment through advertisements in magazines.  In 1963 they introduced their first catalog and the first destination store was opened in 1987.  In 1998 the first online store was opened. Through the differing distribution channels catalog, Internet, destination and retail stores the company has over 225,000 SKUs which includes hunting and fishing, marine and camping merchandise, casual and outdoor apparel, vehichle accessories, and home furnishing with outdoor theme.  The museum type destination features wildlife exhibitions and large acquariums. 
 
Under new management, the margins are starting to significantly improve, and are seeing double digit revenue growth.
 
Obviously, the firearm segment of the business has seen a sharp spike up in response to possible gun control legistation, but that is a low margin, small percentage of their business. They do not sell assault weapons and the majority of their business is shotguns and hunting gear.
 
The financial segment is valuable with their private label credit card and rewards program.
 
We estimate they will do approximately $3.15 in FY 2013 with a little over 2/3 of their business coming from merchandise and 1/3 from financial services. If you apply a 20 multiple to the retail business and a 13 multiple to the financial services business you have a $60 stock in the near term, which is a low multiple to their prospective growth rate.  This of course gives them only modest credit for all of the growth iniatitives.
 
The closest comp is Dicks Sporting (DKS) which trades at a 19 multiple with slow revenue growth.
 
Importantly, their new next generation stores are performing 30-40% profit per square foot better than their legacy stores and they plan to open approximately 9 new stores in 2013 and so far have committed to 8 new stores in 2014.
 
The industry is highly fragmented with the great majority of competitors being mom and pop shops so it should be relatively easy for them to gain market share.
 
Management has provided guidance of 13-14% square footage growth in 2013 and 14-17% square footage growth in 2014.
 
Credit card growth has been strong with 12% growth and a 200% + improvement in spread margins, and according to the company they hedged/perhaps over-hedged to rising interest rates.
 
Growth in Cabelus branded merchandise.
 
Shooting and hunting is starting to grow as a sport for the first time in 20+ years, including among women.
 
NICS background checks have been strong as well as permit applications.
 
The prospects for gun control legislation should be an extra impetus for sales in 2013.
 
 
 Risks
 
Biggest risks are potential gun law legislation, but the guns that would be most likely affected are only 2% of sales with lower margins.
If the economy weakens it would obviously put pressure on the business.
 
I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

 1) Square footage growth.
 2) Substantial increase in next generation stores.
 3) Potential of "category killer" as the industry is highly fragmented.
 4) Clarity on gun law legislation.
 5) Upcoming investor day.
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