Author Topic: CAB - Cabela's Incorporated  (Read 11626 times)

tooskinneejs

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CAB - Cabela's Incorporated
« on: October 23, 2015, 05:47:20 PM »
Cabela's is a retailer of outdoor sporting goods equipment, such as hunting and camping equipment and clothing.  Their stores are extremely large, draw hard-core sporting enthusiasts and tourists alike, and are known for their displays of taxidermy.  I would not classify the company as an excellent business, as net profit margins and return on equity have averaged about 5% and 12%, respectively, in recent years.  Respectable, but not terrific.  Still, the Company has a great brand and has been slowly and steadily expanding.

This may be a positive or a negative, but they actually make a lot of their profit on Cabala's-branded Visa credit cards.  These cards are typical rewards-type cards, where customers earn points for spending on the cards. 

Cabala's common stock price has gotten pummeled recently as retail sales growth has slowed, with overall sales increasing due to store count expansion, but same store sales declining slightly.  Management expects earnings next year to be flat with 2015.  As a result, the stock has come down to earth (this was previously a high P/E stock).  The shares are now priced at about 10 to 12 times earnings and 1.2 times book value.  They own about 90% of their stores.

Anyway, to the extent this is just a temporary rough patch, this may be a decent opportunity.  Thoughts?
« Last Edit: October 23, 2015, 06:35:17 PM by tooskinneejs »


feynmanresearch

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Re: CAB - Cabela's Incorporated
« Reply #1 on: October 23, 2015, 06:01:47 PM »
Took a look at it. Are you comfortable with the relatively high debt level? They also  seem to be burning cash and their asset turnover ratio has been on a continuous downward trend.

tooskinneejs

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Re: CAB - Cabela's Incorporated
« Reply #2 on: October 23, 2015, 06:25:29 PM »
I believe the debt relates to, and is offset by, credit card receivables.  Per note 3 to their 2014 Form 10-K, finance assets were $4.7b and finance liabilities (including debt) were $3.5b.

http://www.sec.gov/Archives/edgar/data/1267130/000126713015000016/cab-2014122714x10kq4.htm

thepupil

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Re: CAB - Cabela's Incorporated
« Reply #3 on: October 23, 2015, 07:25:32 PM »
not knowing much about the biz or the stock, but from a quick glance at the 10-K, I see a significant % of sales are guns.

 I'm a big believer in the long term "peak gun" thesis that has made the gun stocks popular (and for the most part unprofitable) shorts over the past few years. I would make sure you aren't capitalizing unsustainable earnings or margin from lots of guns and ammo sales.

every time there's a mass shooting everyone goes out and buys up more MSR's and ammo, which is a big benefit to these guys, I would think. Eventually that stops and there will be oversupply (since a good weapon lasts a very long time and guns/person has been on the rise, i'd imagine there is a big risk of long term oversupply).

Like I said, I don't know much about the stock; I would just try to contextualize the importance of guns and ammo to their earnings and think about the impact of a more dramatic decrease in gun sales (I think they've been coming down after the huge sandy hook spike, but don't follow closely, looked at the gunmakers a long time ago as shorts but the borrow was too high and thought too crowded/too hard to tell the inflection point)

ItsAValueTrap

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Re: CAB - Cabela's Incorporated
« Reply #4 on: October 24, 2015, 08:38:36 AM »
re: gun demand

Historically, there's been a secular shift towards higher gun ownership with more women, kids, and minorities getting into guns. 

The whole kids thing: there is an increasing trend of parents seeing shooting as a fun, cool, wholesome activity that the whole family can enjoy.  Some parents think that guns help kids learn responsibility and a practical skill (self defense).  Some kids actually don't like shooting but they want to please their parents so they go anyways.  It's not just old white people and army vets, which is the traditional demographic.  Hunting for sustenance is in secular decline.

There have also been cycles in demand, as there was a huge gun surge that peaked in 2013.

Adjusted NICS for 2000-2014
7,199,282
7,411,707
7,003,858
6,998,748
7,234,219
7,516,826
7,955,604
8,083,470
8,993,964
9,534,131
9,436,182
10,791,275
13,780,285
14,796,872
13,090,383

For the trailing twelve months up to August, adjusted NICS are up 3.35%.

Eventually that stops and there will be oversupply (since a good weapon lasts a very long time and guns/person has been on the rise, i'd imagine there is a big risk of long term oversupply).
From what I can tell, gun hobbyists tend to buy multiple guns and get excited over new models of guns.  Hobbyists are into all sorts of guns.

The MSRs (modern sporting rifles / assault rifles) are the most sensitive to politics as they are the first thing that politicians will ban.  High capacity magazines are also politically sensitive / very cyclical.  Ammo (specific types/calibers) has seen bubble-like behaviour due to ammo shortages causing people to hoard ammo (which makes the shortages worse).  Ammo shortages tend to lower demand for guns of that caliber. 

In my opinion, the ammo shortages reflect the long term secular growth in gun popularity.  In the past few years, manufacturers have started opening new lines of productions and we've seen the pendulum swing the other way.  Some ammo manufacturers have rebate programs to move excess inventory.

2- I don't know why some people want to bet against gun demand.  Isn't it easier to bet against Gamestop, electronics retailers, phone books, etc.?  The latter markets are in more obvious secular declines.
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thepupil

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Re: CAB - Cabela's Incorporated
« Reply #5 on: October 25, 2015, 04:44:45 PM »
i personally think there is a limit to the number of people out there who feel the need to own many guns and upgrade with every innovation cycle.

There are certainly a lot of those people out there (my uncle owns over 30 firearms for example), but the percentage of households that own guns is and has been in decline according to a number of surveys.

I never did short them but I do think the short thesis is compelling. I remember looking at RGR or something and it had an 80% ex cash ROE or something insane and its margins and turns had done nothing but go up. If you can short something at a growth multiple, that is over earning based on a temporary spike in demand (from dems in whitehouse plus hoarding and people scared of more gun control from increased coverage of mass shootings) that makes a product with a vibrant used market that basically last forever, it could work out quite nicely.

 I could envision a scenario where coverage o shootings dies down a bit and people get less scared of bans and you see sales, margins, and earnings all collapse at once (I know the used AR-15 market had a little mini bubble and collapse for example).

A bull or bear could interpret the relentless climb of NICS along with the survey results showing decreasing gun ownership in a number of ways.

One problem with the short thesis is that making guns is so hated (with the big public pensions shitting on the PE owners of them and divesting the stocks) that you're unlikely to see any new entrants. It's pretty consolidated too as i understand it.

http://www.newsweek.com/us-gun-ownership-declines-312822

Quote
Though the number of firearm purchases has most likely gone up, according to data from the FBI’s National Instant Criminal Background Check system, those firearms are owned by fewer individuals. In other words, the average gun owner probably owns more guns.

RGR trades for about $1B, 5X tangible book. The question is what's a normal year/long term ROE? Unless you think 2012 / 2013 are, I don't see why wouldn't want to be short.

Pretax income , Free Cash Flow using guru focus
2010 $44MM     $13MM
2011 $63MM     $35MM
2012 $112MM   $59MM
2013 $175MM   $65MM
2014 $57MM     $10MM
TTM  $37MM      $61MM
« Last Edit: October 25, 2015, 05:28:57 PM by thepupil »

ItsAValueTrap

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Re: CAB - Cabela's Incorporated
« Reply #6 on: October 25, 2015, 05:53:21 PM »
I remember looking at RGR or something and it had an 80% ex cash ROE or something insane and its margins and turns had done nothing but go up.
RGR trades for about $1B, 5X tangible book.

My opinion is that they were better managed than some of their peers.  Ruger was profitable was Colt entered bankruptcy.  The difference in ROEs between the various gun manufacturer shows variation in how well they were run, though all benefited from the gun surge in 2013.  What Ruger did was to put in the R&D + elbow grease to get its costs down. 

Their inventory+pricing strategy was quite different than their peers, which seems to be a wash in the end.  If they didn't run their inventory so lean they'd have more stock going into the gun boom; coming off the boom, they were able to sell more guns because they didn't price gouge during the boom.  Ruger did its own version of trying to fight the phenomenon of wildly fluctuating inventory levels at the warehouse and retailer level.

*Sorry for going off topic.  Should probably talk about Cabela's.
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thepupil

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Re: CAB - Cabela's Incorporated
« Reply #7 on: October 28, 2015, 07:09:43 AM »

Cabela's pops after Elliott Associates takes stake

    Cabela's (CAB +14.2%) rallies after Elliott Associates discloses it holds a position of 11% in retailer.
    Elliott says the robust environment for private equity investment in retail companies and potential strategic interest in Cabela's make a sale an enticing option.
    SEC Form 13D


tede02

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Re: CAB - Cabela's Incorporated
« Reply #8 on: October 28, 2015, 07:40:17 AM »
I've been a regular customer of Cabelas for years.  I also got lucky in 2009 when I bought some shares for under $7 and sold in the twenties.  Here are some general thoughts for those looking to invest. 

First, I'm personally not interested in a long-term investment here because of the risk of competition from the likes of Amazon.  You pay a significant premium buying anything from Cabelas.  Since becoming an Amazon Prime member in recent years, I've become painfully aware of how much the mark-up is at Cabelas.  My rule of thumb is you pay a 25% premium buying anything from Cabelas. 

I would also be a bit cautious looking at the financials since the Sandy Hook incident.  Gun and ammo purchases went crazy for several years and have only recently been tailing off.  Retailers like Cabelas benefited from this significantly but it can't be relied upon going forward. 

I should also note that gun purchases are not immune from internet forces.  I bought my first rifle from an online merchant this year (and I did so because there was a significant discount buying online vs. from a retailer). 

Lastly, I'll note that I've read that the Cabelas culture changed dramatically since the company went public.  I've read a number of accounts and have heard directly from long-time employees that the company is now focused on the bottom line now more than anything (in other words, employees have expressed that the company has greatly moved away from the "family owned" culture).  This is understandable, but I think notable none-the-less.

The company also has historically been known for its extremely generous return policy.  This has been scaled back since the public offering which certainly is a financial decision, but also will impact customer loyalty. 

On the flip side, and this is true for other retailers like Best Buy, I personally still enjoy shopping at Cabela's, especially for things like footwear.  It's nice to be able to check the products out.  But again, I'll admit that I have found what I like in the store and gone on to order it off Amazon for much cheaper. 

I'll also note that Cabelas has their Visa card which I believe is very popular.  I've had one since 2003.  There is a rewards program which creates some loyalty. 

I hope some of this insight is helpful.  Retailers are tough, perhaps more so now than ever. 

bookie71

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Re: CAB - Cabela's Incorporated
« Reply #9 on: October 28, 2015, 09:10:03 AM »
We have a fairly new (open for about a year or so) Cabala's in Anchorage and it is very busy, but we have a new Bass Pro Shop and it is giving them a run for their money. That saying the knowledge of the employees at Cabala's is excellent.
Like most big box stores the two have hurt the local family owned stores the most.
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