Margins A Concern At Cabela’s

Score one for direct marketing – sort of. While in both fourth-quarter 2009, as well as the full year, Cabela’s DM activity threw off a higher margin than its retail counterpart, DM’s operating income as a percentage of sales slipped in both periods.

Total revenue for the outdoor activity supplies marketer increased in the fourth quarter, from $879.4 million a year ago to $919.2 million during the quarter just ended. Similarly, while fiscal 2008 saw the company pull in $2.55 billion, during the year just ended Cabela’s generated $2.63 billion.

Admittedly, much of this top-line growth was in its retail operations, which rose from $429.5 million in fourth quarter 2008 to $463.8 million for the quarter just ended. Direct sales actually fell between the two quarters, from $410.4 million, or 46.7% of its sales, to $407.6 million, or 44.3%. The remainder of the company’s revenue came from financial services operations.

Additionally, the company recorded a 53rd week during its most fiscal year, which contributed $17 million in revenue to its direct segment and $34 million to its retail results, Cabela’s treasurer Chris Gay said during an earnings teleconference. For those keeping track, the retail figure is the entire difference between 2008 and 2009.

So where is the good news for direct marketing? During both the quarter and the year, its operating income made up a higher percentage of its sales than retail operations. For the quarter, DM operating income was 15.9% ($64.8 million), and for the year, it was 15.2% ($161.1 million).

But the fourth-quarter figure represented a decline from the previous year’s figure. In fourth-quarter 2008, DM operations yielded a 16.5% operating margin ($67.9 million). The company did show an increase in DM margin for the full year, which in 2008 was 14.7% ($161.2 million).

Retail’s operating income rose in both instances, from 14.5% in fourth-quarter 2008 to 15.2% for the quarter just ended, and from 11% for all of 2008 to 11.7% in 2009.

All told, the company recorded net income of $16.6 million, down from net income of $49.4 million, primarily due to $52.8 million in impairment and restructuring charges during its most recent fourth quarter. For the year, the company racked up $49.6 million in net income, down from $76.4 million in 2008.

The Eavesdropper’s Take: While not good news for vendors, Cabela’s president and CEO Tommy Milner said during an earnings call that it had trimmed direct marketing costs from 14.7% of direct revenue in 2008 to 14.2% in 2009. What is good news for DM vendors? Going forward, the company does not expect to be as aggressive in cutting catalog page counts as it had been, although it will be shifting spending from traditional paper marketing to electronic means, Milner added. He went on to say the cuts made in page counts for individual books than in actual circulation. As CFO and executive VP Ralph Castner said, “We lost some unprofitable sales because our catalogs were too big.”