Trading at almost 25 times earnings, Cabelas Inc (NYSE:CAB) is more expensive than rivals Dick’s Sporting Goods and Big 5, who trade at 22 times earnings and 17 times earnings, respectively, but the premium is deserved. You get what you pay for.
Cabelas Inc (NYSE:CAB) also has an unique asset that gives it a further advantage over its competitors as well.
The bank of Cabela’s?
It wasn’t just guns and outdoor goods that led an increase of over 30% in net income for the company’s most recent quarter.
According to Bloomberg, the Cabela’s-owned World’s Foremost Bank (WFB) is chartered in Nebraska, and offers consumers charge cards and even sells certificates of deposit of over $100,000. This allows its owner to not only avoid paying fees when its own credit cards are swiped, but also allows the company to collect revenue from interest payments.
Cabela’s credit cards were used in 30% of store transactions, and created a “stickier” customer base because they are tied to a loyalty program, according to . The company now manages over 1.7 million credit card accounts for its customers, with an average balance of around $2,000.
Fnancial revenue now accounts for an estimated 12% of overall sales, says Bloomberg, and these revenues maintain a nice 30% operating margin– which is 10% more than its retail margins.
Cabela’s has found a new lucrative revenue stream with its financial operations and a way to retain customers by issuing things such as its Club Rewards Visa card. The company also collects valuable data both in-store and online when customers sign up for a card, or join the company’s Club Rewards loyalty program. Customers who are part of the rewards program can then use accumulated points at checkout.
The bottom line
Many retailers have fallen victim to the likes of , but Cabela’s is unique in that it specializes in many items such as firearms that Amazon simply can’t or doesn’t want to sell. While this same argument could be extended to Dicks Sporting Goods Inc (NYSE:DKS) or Big 5– Cabela’s has the distinct advantage of owning its own bank.
This advantage over competitors creates a wider moat, and the increasing revenues from financial services should also help the company offset the potential weakening in firearms sales, especially since its financial margins are much higher. Cabela’s has a very bullish future.
The article Why This Retailer Has a Unique Advantage originally appeared on Fool.com and is written by Joseph Harry.
Joseph Harry owns shares of Wal-Mart Stores. The Motley Fool owns shares of Sturm, Ruger & Company. Joseph is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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