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Cabelas Inc (CAB), Dicks Sporting Goods Inc (DKS): Why This Destination Retailer Will Continue to Shoot Higher

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My favorite childhood book  was “My Side of The Mountain,” about a boy who lives off the land, hunting and fishing. If there had been a Cabelas Inc (NYSE:CAB), the outdoors retailer, around me I would have haunted the place. Even if you’re not outdoorsy Cabela’s is a great place to visit with huge dioramas, cafeterias featuring game dishes, classes, wildlife art and gun museums, duck ponds, and archery ranges.

While taking a photo at the Hamburg, PA store the greeter shouted over the din,”You’ll never get a shot of this place empty!” It is a destination with cars and trucks from all over the US in the full parking lots. When a new Cabelas Inc (NYSE:CAB) opens in Canada or the US it’s an event attracting thousands.

The stock has been on a tear since 2011 on fears that an Obama reelection would promote action on gun legislation. Since the reelection gun stocks as well as Cabela’s have risen with Cabelas Inc (NYSE:CAB) up 62.35% over 52 weeks. This is despite some horrific gun-related tragedies over the last year.

Why this retailer is shooting out the lights

Cabela’s is not just about guns. It carries everything for fishing, camping, paddling, and hunting with experts available for questions. Analysts expect a 16.67% five year EPS growth rate and a recent analyst/investor day, at which they preannounced earnings and guided higher, took the stock to a 52 week high. Since it is an outdoors retailer the stock is not as volatile as the gun stocks, Smith & Wesson and Sturm, Ruger & Co. , which move on any political activity on gun control.

Cabela’s has grown from 40 stores four years ago to 225 with a strong internet and catalog business and has doubled its EPS from $1.36 to $2.72 in that time. At that analyst/investor day CEO Thomas Millner said that expansion would be in the range of 10-12 stores a year and likened themselves to Nordstrom’s with their measured expansion and dedication to customer service. Millner said most chain retailers attempt to grow quickly at the expense of knowing their customers, but Cabelas Inc (NYSE:CAB) knows, ” … (if) a customer walks in and he knows on Lake whatchamacallit 10 miles from his house, everybody fishes with a wooly booger and that store doesn’t have it, they’re dead. They will never go back. It’s that simple and yet, that difficult.” (source)

Obviously, competitor Dicks Sporting Goods Inc (NYSE:DKS) doesn’t believe there is excessive headline risk with carrying guns for sale as it will be opening a Field & Stream hunting, fishing, and camping store with one location. But significant for Cabela’s was that Dick’s reported hunting was a such strong category that it exceeded  their expectations.

Cabelas Inc (NYSE:CAB) has little to worry from Dicks Sporting Goods Inc (NYSE:DKS) for now. Their Cabela’s Outpost stores, which are half the size of a legacy store like the Cabela’s in Hamburg, PA, are averaging $550 per square foot in sales compared to $347 for the much larger stores. Gross margin for Cabela’s stands at 36.3%, better than Dick’s at 32.6%. Cabela’s Direct sales from internet and catalog are much better than privately held competitors like Gander Mountain at $900 million to $50 million.

Soon, Cabela’s will also be making in-store inventory available to the Direct customers. Cabela’s has their own branded products which generate $700 million in sales and a focus going forward will be to bring that up to a billion. These branded items give an 800-1,200 basis point margin advantage over national brands they carry. These strategic initiatives and more, including investing in mobile, improving digital, leveraging their Cabelas Inc (NYSE:CAB) Club Loyalty card members, and on Apr. 7 premiering a special ad at the Country Music Awards. All this  prompted Credit Suisse to rate Cabela’s Outperform after the analyst day.

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