How Cabela's Proves Dick's Sporting Goods Was Right About Hunting

Hunting and fishing retail chain Cabelas Inc CAB reported 4th quarter earnings last week. Comparable profits fell from $1.32 per share last year to $1.11 this holiday period on what the company is calling "Higher Advertising and Promotional Spend."

Increased marketing costs may be part of the story, but that doesn't explain the 5.5 percent drop in same store sales. Cabela's pulls in more than a third of its revenue during the holiday quarter, which makes this miss mildly more painful.

Contributing analysts on Estimize had expected Cabela's to report $1.35 in earnings per share, which is in-line with Wall Street expectations. The Estimize consensus was slightly lower than the Street's on revenue. When investors' estimates on Estimize are lower than the Wall Street consensus, that often signals investors willing to give the company a bit of a pass.

Cabela's earnings were shockingly low, even after considering the lowered expectations.

Cabela's isn't the only one reporting weakness in hunting. Dicks Sporting Goods Inc DKS has cited headwinds in hunting as a limiting factor three quarters in a row. Dick's is a larger, more diversified, and indirect competitor but the fact that Dick's is singling out hunting as a weak spot not a good sign for the future.

Cabela's CEO Tommy Millner had a more upbeat tone on the earnings call. He believes that the ramped up marketing costs will yield tangible results instantly. Millner said, "We are encouraged that comparable store sales thus far in 2015 have improved."

"We expect to return to a low-double-digit growth rate in revenue and a high-single to low-double-digit growth rate in diluted earnings per share for full-year 2015 as compared to full-year 2014 non-GAAP diluted earnings per share of $2.88," he added.

Before last week's report, Wall Street was looking for earnings of $3.50 on the year. Cabela's would need to record growth on pace with the upper end of its guidance to keep up with the Street's consensus.

To be exact, Cabela's will need to improve earnings by 21.5 percent to match the Street's current outlook.

Cabela's fiscal year gets off to an easy start. In the first quarter of 2015 the outdoors retailer faces off against a comp which saw earnings per share sink 49 percent and revenue drop 10 percent last year.

With same store sales up in the first part of the year, Cabela's should be able to get past the next hurdle unless we see another massive increase in ‘Higher Advertising and Promotional Spend.'

Image credit: ZachMorris, Wikimedia