Cabela’s 4Q15 Earnings Call Notes

Thomas L. Millner – Chief Executive Officer & Director

Exploring strategic alternatives

“I would like to begin by reminding everyone that we issued a press release in December announcing that our board had initiated a process to explore strategic alternatives.”

Apparel hurt by weather

“Throughout the quarter, we saw softness in our apparel categories, as our fall and winter assortments were met with unseasonably warm weather across most of our major markets. ”

Sales cadence has been better since December

“Well, the cadence during the quarter, the first two months of the quarter were tough, obviously weather driven, and we saw a real nice improvement in December. And those December trends have continued into the first quarter. We’ve seen acceleration in comp performance and gross profit dollar performance. Rate is better and we continue to see really favorable improvement in operating expenses.”

Ralph W. Castner – Executive Vice President & Chief Financial Officer

Saw a shift in trend in delinquencies in credit card portfolio

“For the quarter, average credit card loans increased by 14.4% to approximately $4.8 billion. And at the end of the year, total loans exceeded $5 billion for the first time in history. Net charge-offs as a percentage of average credit card loans increased 2 basis points from the year-ago quarter and were 1.76% for the quarter.

During the quarter, we saw a shift in the trends in delinquencies. Greater than 30-day delinquencies were 0.82% as compared to 0.68% a year ago, greater than 60-day delinquencies were 0.51% as compared to 0.41% a year ago, and greater than 90-day delinquencies were 0.26% as compared to 0.22% a year ago.”

We think we’ve reached the trough of charge offs

” we’re certainly not alarmed by it, but we think we’ve reached the trough of charge-offs and we expect them to go up. I don’t know, as I’ve told other people forever, the historic range of charge-offs at our bank has been somewhere between 2% and 2.25% and we think over a number of years we’re going to return to that range.”

Only 3% of card spend is in their stores

“remember, on our card, only about 3% of the spend is in our stores. So there’s almost no correlation (59:55) comp store sales and average balance on the card.”

Outstanding balances keep going up and up and up

“Now another phenomenon that we’re seeing and watching very closely is revolving rate keeps going up. Now that also increases as an account matures, but we’ve been surprised, I guess, as to that how that continues to go up and up and up. We’re watching it closely to make sure that it’s not an early indicator of bad debts or delinquencies or some other problems we’re seeing in the portfolio. But the trends in that business from a receivable standpoint are extraordinarily strong and we expect them to continue for the foreseeable future.”

Cabela’s Investor Day Notes March 2013

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General Thoughts on Growth:

“At breakfast this morning, one of the folks sitting at the table was talking about new store locations and all of that. And I said, does anybody realize how hard it is to be right in assortment in one Outpost store in Saginaw, Michigan? It may sound easy. Well, why don’t you just stamp these things out? You do 30, 40 of them a year, you scale big time, get a competitive advantage. It is really difficult. If we’re going to be excellent at what we do so that when the customer walks in, the Union Gap or Saginaw or in the next gen store in Columbus, Ohio, that we have the assortment that they know as passionate anglers or hunters or campers, they need for that marketplace. That is much harder work than you can possibly imagine.

So when I hear companies say they’re going to roll out 30 of these and 20 of those and 40 of those, I’ve been in the outdoor industry long enough to know, that’s an easy thing to say, it is a really hard thing to do. In fact, I would argue, it’s probably not doable because the second that 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. So I think the best path for us, we have enormous regard for Nordstrom. Nordstrom has 225 stores in the United States. They don’t try to build 50 stores a year. They build a few stores and they do it really well. And I think, as we look forward and start this next chapter of growth, that’s what you can expect from us and that’s why you should expect that from us. It’s that relentless focus on being exceptional, so that when our customer walks in the front door, they’re going to talk to somebody that absolutely knows what they’re talking about in any category in the store and that the merchandise assortment match that expertise. And I think, we think, 15,000 of us think, that’s the best answer for our company.”

“This is an example of a next-generation store that we’ve actually opened. The store costs $20 million to $24 million to build, that would be with net inventory net of accounts payable. It’s an 80,000 square foot store. Our new next generation stores you’ll see, we expected to somewhere around $480 a foot. But one of these stores would do roughly $38 million of sales.”

Supply Chain:

“So what we’ve seen over the last couple years is a sort of a unique divide in overseas manufacturing. You got 2 camps. You got 1 camp that is still sort of tied to that old school model, where they’re very interested in making products for you. They — and that’s really all that they do. You’ve got another camp that realized — I think in late 2008, 2009, that just manufacturing product wasn’t going to be enough to sustain themselves.”

I think some of the really good strategic manufacturers are starting to realize it’s not always volume that’s going to drive sales and margins. It’s got to be newness, it’s got to be differentiation, and it’s got to be being able to get the product into a customer’s hands quickly. And so what we’re seeing is a real shift in some of our strategic partners’ thoughts around how they develop and build manufacturing facilities. So we’re now seeing minimums come down. We’re able to get product into work quickly, test that product maybe in a few stores before we roll it out to the entire chain, so another good opportunity to utilize the differentiation that I think real strategic thinkers overseas are coming up with.

we got some questions about what we’re doing overseas in terms of investment in the manufacturing and development process. We’re going to continue to invest more heavily overseas because we think that’s where the opportunity is.

We’re constantly evaluating new factories. This is just a fact of life when you’re manufacturing your own product. We need to make sure that we’re in the right factories.

$2 out of every $3 that we spend in the supply chain is spent on moving products from one place to another. And what we think is going to happen here is that, that volatility in that regulation is probably going to push a lot of the smaller guys out. It’s going to be hard — this is going to be a hard industry to be a part of. And then also, what we expect over time is that some of the larger guys are probably going to consolidate. So it’s going to be their way of trying to manage what’s going on here, but a lot of volatility coming up in the future.

Marketing:

Mobile is a big deal. Mobile is a big deal. You can read a lot of articles that the growth in mobile is probably surpassing expectations. And the expectations were high. And it’s going even faster. What I would tell you is that we do have a lot of access to our site via both smartphones and tablet experience that is growing rapidly and it’s very important for us to have a best-in-class mobile experience. It’s a headline initiative for us in 2013 and the customer’s moving fast.