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.
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.
Caveats for Cabela’s
CFO Ralph Castner said growth of same store sales would be stable at 2-3%. Also, he added that the company hopes to refinance at a lower rate some debt issues when they come due in 2015 and 2016. Cabelas Inc (NYSE:CAB) does trade at a higher P/E than Dicks Sporting Goods Inc (NYSE:DKS), 25.33 to 20.57, and Dick’s offers a 1.10% yield. Dicks Sporting Goods Inc (NYSE:DKS) analysts estimate a 5 year EPS growth rate of 15.49%. However, the PEG of Cabela’s is barely higher at 1.16 than Dick’s at 1.07.
Dicks Sporting Goods Inc (NYSE:DKS) has underperformed even the S&P 500, only up 0.15% over 52 weeks.The Street also didn’t like that Dick’s cold weather inventory unsold in the warm holiday period wasn’t available to be sold during January and February. It should come as no surprise that the short interest is high at 11% with the Livestrong merchandise associated with Lance Armstrong not selling either.
While an association with a cheater is no good for business partnering up with a gun company like Sturm, Ruger is good for business. Cabelas Inc (NYSE:CAB) has been arranging travel events and experiences like visits to the Ruger Gunsite Academy in which Cabela’s Club members tried out limited production firearms, had dinner with the Ruger CEO, and other fun shooting events.
Speaking of Ruger, at a 15.08 P/E and almost a 3.00% yield it’s also an interesting proposition. It is off almost 10% from its 52 week high likely with the gun control measures moving through the Senate but is more reactive to gun control chatter than Cabela’s. Ruger has also outperformed the last year up some 26.46%, but it has a huge short interest of 30%.
Eats, shoots, and leaves
At the end Millner explained the company issued a press release the day before as the quarter was so good in the cause of transparency they had to say something. Millner, ever the gracious host to analysts, joshed with them , “Now I hope you enjoyed today. I don’t want to be in the way of analysts shooting guns and eating…those are 2 dangerous places to be.” (source).
Analysts have all the fun…but seriously, the company is doing so many right things it’s not surprising that there are no underperforms or sells. Buying Cabelas Inc (NYSE:CAB) on a pullback is a good idea. And make way for hungry, gun-totin’ analysts upgrading right and left.
The article Why This Destination Retailer Will Continue to Shoot Higher originally appeared on Fool.com and is written by AnnaLisa Kraft.
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