Cabela's Inc. reported that adjusted for certain items, net income in the fourth quarter increased 9.5 percent to $86.8 million, or $1.26 a share, exceeding Wall Street's consensus estimate of $1.21 with the help of cost control initiatives.
Highlights of the period:
Adjusted Fourth Quarter Diluted EPS of $1.26, Exceeded External ExpectationsTotal Revenue Increased 10.5 percent to $1.4 BillionAdjusted SD&A as a Percentage of Total Revenue Decreased 130 Basis PointsU.S. Comp Store Sales Decreased 3.5 percent, Consolidated Comp Store Sales Decreased 4.9 percent, Both on a 14 Week vs. 14 Week BasisCabela's CLUB?Avg. Receivables Grew 14.4 percent and Charge-Offs Remained at Historically Low LevelsFor the quarter, total revenue increased 10.5 percent to $1.4 billion; Retail store revenue increased 14.3 percent to $926.5 million; Direct revenue increased 0.5 percent to $351.5 million; and Financial Services revenue increased 15.7 percent to $131.1 million. During the period, on a 14 week versus 14 week basis, U.S. comparable store sales decreased 3.5 percent and consolidated comparable store sales decreased 4.9 percent.
For the quarter, adjusted for certain items, net income increased 9.5 percent to $86.8 million compared to $79.3 million in the year ago quarter, and earnings per diluted share were $1.26 compared to $1.11 in the year ago quarter. The company reported GAAP net income of $78.8 million and earnings per diluted share of $1.14 as compared to GAAP net income of $78.6 million and earnings per diluted share of $1.10 in the year ago quarter. Fourth quarter 2015 GAAP results included impairment and restructuring charges and other items of $0.12 in earnings per diluted share. See the supporting schedules to this earnings release labeled "Reconciliation of GAAP Reported to Non-GAAP Adjusted Financial Measures" for a reconciliation of the GAAP to non-GAAP financial measures.
For fiscal 2015, net income was $204.7 million compared to $207.1 million last year, and earnings per diluted share were $2.88 compared to $2.88 a year ago, each adjusted for certain items. The company reported GAAP net income of $189.3 million and earnings per diluted share of $2.67 as compared to GAAP net income of $201.7 million and earnings per diluted share of $2.81 a year ago. Fiscal 2015 GAAP results included impairment and restructuring charges and other items of $0.21 in earnings per diluted share. See the supporting schedules to this earnings release labeled "Reconciliation of GAAP Reported to Non-GAAP Adjusted Financial Measures" for a reconciliation of the GAAP to non-GAAP financial measures.
"During the second half of 2015, we deepened our focus on profitable growth, expense leverage, and better balance sheet utilization," said Tommy Millner, Cabela's Chief Executive Officer. "In the fourth quarter, we were excited to see the early results of these initiatives. Specifically, we outperformed external estimates for revenue, expenses, and earnings per share."
"U.S. comparable store sales were down 3.5 percent," Millner said. "Consolidated comparable store sales were down 4.9 percent for the quarter. In both the United States and Canada, weather impacted fall and winter apparel and footwear products. We were encouraged by positive comp performance in many of our core categories, including camping, powersports, home and gifts, firearms, and ammunition."
"We clearly faced a challenging environment in the fourth quarter," Millner said. "However, we were able to drive better than anticipated merchandise revenue as the result of several initiatives, including expanded drop ship programs, retail inventory visibility online, and a focus on key merchandise categories. We are confident that a continued focus on key merchandise categories as well as new initiatives, such as optimization of store formats and digital and mobile leadership, will continue to drive merchandise revenue performance."
For the quarter, adjusted for certain items, SD&A expenses as a percentage of sales decreased 130 basis points to 29.5 percent as compared to 30.8 percent in the same quarter a year ago. This expense leverage was attributable to lower costs resulting from the company's third quarter launch of new initiatives aimed at lowering its expense base to increase return on invested capital. These cost reduction initiatives are expected to provide a significant benefit to our 2016 results. Fourth quarter cost reductions were slightly offset by increased incentive compensation expense as compared to the fourth quarter a year ago, which had no incentive compensation expense.
In addition to its initiatives to reduce costs, the company has seen meaningful progress in efforts to optimize its balance sheet. As part of this process, the company plans to reduce working capital and sell unproductive assets. Lower inventory levels will be a major source of the reduction in working capital. At year end 2015, days inventory on hand decreased by approximately four days as compared to the prior year.
The Cabela's CLUB Visa program had another excellent quarter. During the quarter, growth in the average number of active credit card accounts was 6.6 percent. Growth in the average balance per active credit card account was 7.3 percent, and growth in the average balance of credit card loans was 14.4 percent to $4.8 billion. For the quarter, net charge-offs remained at historically low levels of 1.76 percent. Fourth quarter financial services revenue increased 15.7 percent, driven by increases in interest and fee income as well as interchange income.
"We have been very pleased with the results realized from both our revenue and expense initiatives implemented in 2015," Millner said. "As a result, for full-year 2016, we expect a high-single-digit growth rate in revenue and a high-single-digit or low-double-digit growth rate in earnings per diluted share as compared to full-year 2015 adjusted earnings per diluted share of $2.88."
On Dec. 2, 2015, the company issued a press release announcing that its Board of Directors was initiating a process to explore and evaluate a wide range of strategic alternatives to enhance value for the company's shareholders. That process has continued and is ongoing.
