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Cabela’s Valuation

Cabela’s Valuation. Wilbur Benitez April 23, 2014. Cabela’s overview. Was founded in 1961 and has been a leader in outdoor gear since Leading retailer in hunting, fishing and outdoor gear Went public in June 2004 Market Cap of 4.6B Total revenues of 3.6M in 2013 Two main segments

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Cabela’s Valuation

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  1. Cabela’s Valuation Wilbur Benitez April 23, 2014

  2. Cabela’s overview • Was founded in 1961 and has been a leader in outdoor gear since • Leading retailer in hunting, fishing and outdoor gear • Went public in June 2004 • Market Cap of 4.6B • Total revenues of 3.6M in 2013 • Two main segments • Merchandise sales and financial services • Currently seeking to expand with smaller stores • Traditionally has operated using large “Legacy” stores

  3. Current expansion • Current retail segment consists of 50 stores • 2013: Seven next generation stores opened • New stores are more productive and generate higher returns on invested capital • 12.5% increase in retail space (5.8 million square feet in 2013) • Future plans • 2014: fourteen next generation stores are scheduled to open • 2015: three next generation stores have been announced

  4. Store Locations

  5. Industry Risk • Decline in discretionary consumer spending (non-essential goods) • Unseasonal weather conditions • Difficult economic conditions • Consumer spending, oil prices, unemployment rates, etc. • Cyber security breaches (Target) • Decreased consumer confidence • Political and economic uncertainty in foreign countries • Many vendors are located in countries such as China, Mexico and various Eastern Asian and European countries • Political unrest, wars, work stoppages etc. • Current and future government regulations (firearms) • Laws and regulations related to hunting and fishing licenses • State and Federal regulations related to items such as firearms and ammunition

  6. Business Segments • 2013 revenues increased for all three segments • Financial service revenue has been fluctuating due to write-offs • Total credit cards loans increased in 2013

  7. Special Purpose Entity • 2009: • Recently adopted amendments to accounting standards will require us to consolidate previous and future securitization transactions, which will have a significant impact on our consolidated financial statements, and could cause us to reallocate capital from our Retail and Direct businesses to meet the capital needs of our Financial Services business. • We have evaluated the provisions of these two statements and believe that their application will result in the consolidation of the Cabela’sMaster Credit Card Trust and related entities (collectively referred to as the “Trust”)     For example, if the Trust was consolidated using the carrying amounts of Trust assets and liabilities as of June 27, 2009, total assets would increase approximately $1.9 billion, total liabilities would increase approximately $2 billion, and approximately $100 million, after tax, would be recorded as a decrease to retained earnings and other comprehensive income.  These standards will be effective for us at the beginning of our 2010 fiscal year.

  8. Financial Service Segment • The increase in interest and fee income of $42 million was due to an increase in credit card loans. • The increase in interest expense of $10 million was due to the issuances of securitization and certificates of deposit in 2013, which were used to fund growth. • The increases in interchange income of $53 million and customer rewards costs of $23 million were primarily due to an increase in credit card purchases.

  9. Credit Card Loans Net of Allowance

  10. Loans are being issued to higher creditworthy individuals

  11. Merchandise Sales • Retail – Merchandise sold in stores • Direct – E-Commerce and direct mail

  12. Financial Statement Adjustments • Adjustments are needed due to: • Share-based compensation • Operating leases

  13. Adjusted Statements

  14. Common-size analysis • Annual adjustment to EPM increases valuation accuracy • Same can be done for EATO • Forecast can be enhanced by breaking down line items

  15. Balance Sheet example

  16. Full information assumptions • Assumptions: • EPM will reach a steady state in 2018 • EATO will also reach a steady state in 2018 • Can’t expect these performance measures to improve indefinitely

  17. Three Valuation Models

  18. Value Breakdown • Enterprise value is the same with all three models

  19. Investment Decision • Sensitivity analysis illustrates that Cabela’s is undervalued if sales growth is remotely close to what it has been • Final Decision: BUY

  20. Questions?

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