New York, Aug 8 (Newswire): Few companies have benefited more from the record number of gun sales in the U.S. than hunting, fishing and outdoor products retailer Cabela's (CAB).
Its shares are up more than 67 percent over the last year, in large part because of what the company called "extraordinary" demand for firearms and ammunition in the wake of mass shootings in Colorado and Connecticut. FBI background checks of gun purchasers - considered the best proxy for retail gun sales - are up nearly 29 percent over the last year ending in June, for a total of 11.4 million.
But amid the fervor over gun sales, which have jumped by an estimated 20 percent at Cabela's over the last 12 months, analysts and fund managers cite another reason for the company's success: its use of customer data. And they say this should allow the shares to rise further when the overall growth in firearm sales slips.
Leveraging data to increase revenue is common in retailing. But experts say Cabela's, a $4.7 billion market-cap company whose roots trace back to the direct mail business selling fishing flies that Dick and Mary Cabela started at their kitchen table in 1961, has one of the most sophisticated customer-tracking and analytics programs in the industry.
As a result, Cabela's sales at its 44 stores average $370 per square foot, while the typical big-box sporting goods store averages closer to $200 per square foot, according to Reed Anderson, director of equity research at Northland Capital Markets. Five smaller, so-called "next generation" Cabela's stores - which range between 80,000 and 100,000 square feet - topped $500 per square foot in sales in 2012, he said.
"They have one of the best flows of information on someone who is involved in camping or hunting," Anderson said. "They may live in remote Wyoming, but Cabela's knows precisely how much they spend on an annualized basis. Their data gives them the precision to locate stores like no one in the industry."
While data alone won't insulate the company from any downturns, of course, analysts say that Cabela's is beating its competition by tying together the strength of its data program with a high quality service model similar to upper-end retailers like Nordstrom (JWN). When it reports earnings, Cabela's is expected to show earnings per share growth of 32 percent from the same time last year, compared with a median 13.4 percent among specialty retailers.
While Amazon.com (AMZN) may have mastered the art of so-called suggested selling online, Cabela's has decades of customer data at its fingers that allow it to open a 200,000 square foot store in a lightly-populated area and know which mix of the approximately 225,000 products it carries will make it profitable. Many of these items - ranging from rifles to kayaks - are tough to impossible to buy online, limiting the competition from Amazon.
Data collection begins as customers, whether in-store, online or from one of the more than 100 catalogs the company publishes each year, are lured into joining Cabela's Club Rewards loyalty program or sign up for its Club Rewards Visa card. Customers are prompted to use accumulated points at checkout, creating a positive feedback loop.
All told, 29 percent of sales at the company are made using its Cabela's credit card, which is issued by a company-owned bank called The World's Foremost Bank and accounts for 10 percent of revenues. Competitors like Dick's Sporting Goods (DKS) and Target (TGT), by comparison, do not own their own banks.
"This is by far the easiest and best loyalty rewards program that I've ever seen," Anderson said, noting that customers do not need rebates or face other restrictions on purchases.
In 2007, Cabela's launched a new data analytics program, built by Teradata Corp (TDC), that integrated figures from across all of its retail channels. The system allows someone in the marketing department, say, to access a single day's sales data by the next morning, and launch an email marketing campaign to boost sales. Previously, that process would have taken several days.
Few retailers streamline their data to the same degree, says Jeff Tanner, a professor of marketing at Baylor University who has studied retailers' use of data.
"The problem, of which Wal-Mart is an exemplar, is that they treat the various channels as separate businesses, which makes data integration incredibly difficult," Tanner said. One anonymous retailer Tanner studied described meetings between executives in which each had different figures on market penetration, leading to a range of conflicting conclusions. Target Corp has the most similar emphasis on data collection and modeling, though it is not at the same level as Cabela's, he said.
Online, meanwhile, Cabela's has examined how the order in which customers place items in their basket influences the probability of purchase, Tanner said. A customer that begins a basket with a hunting call that attracts predators like coyote, for instance, suggests a specific kind of hunt. The customer will then be prompted to buy lightweight camouflage that can be worn year-round (as opposed to camouflage for deer hunting, which is only done in the winter) or a spotlight with a red filter that helps hunters spot coyotes at night.
Cabela's ability to seemingly know what its customers want at all times has helped the company become "central to their lifestyle," said Mark Mulholland, manager of the $630 million Matthew 25 fund. Mulholland began buying shares at around $6 per share in late 2008 - giving him an approximately 1,000 percent return since - and has added to his position in the last 30 days, in anticipation that the company's share price will continue to see percentage growth in the mid-teens for the next several years. The company makes up the second-largest position in his fund, behind Apple Inc.
Anderson, the Northland Capital Markets analyst, has a target price of $80 for the shares, more than a 20 percent jump above the market close at $65.80 on June 23 and almost 10 percent higher than Wall Street's average price target of $73.50.
Overall, eight analysts who cover the company rate it a buy or strong buy, compared with five who have hold ratings on the company.
Customer loyalty should bolster shares over the long run, said Matt Nemer, an analyst at Wells Fargo (WFC) who has an outperform rating for the stock.
"The stock is definitely sensitive to firearms data in the short-term," Nemer said. The overall rate of gun sales "will slow down, but everybody knows that, and some of its baked into the stock. Guns aren't going to jump by 30 percent forever."
Its shares are up more than 67 percent over the last year, in large part because of what the company called "extraordinary" demand for firearms and ammunition in the wake of mass shootings in Colorado and Connecticut. FBI background checks of gun purchasers - considered the best proxy for retail gun sales - are up nearly 29 percent over the last year ending in June, for a total of 11.4 million.
But amid the fervor over gun sales, which have jumped by an estimated 20 percent at Cabela's over the last 12 months, analysts and fund managers cite another reason for the company's success: its use of customer data. And they say this should allow the shares to rise further when the overall growth in firearm sales slips.
Leveraging data to increase revenue is common in retailing. But experts say Cabela's, a $4.7 billion market-cap company whose roots trace back to the direct mail business selling fishing flies that Dick and Mary Cabela started at their kitchen table in 1961, has one of the most sophisticated customer-tracking and analytics programs in the industry.
As a result, Cabela's sales at its 44 stores average $370 per square foot, while the typical big-box sporting goods store averages closer to $200 per square foot, according to Reed Anderson, director of equity research at Northland Capital Markets. Five smaller, so-called "next generation" Cabela's stores - which range between 80,000 and 100,000 square feet - topped $500 per square foot in sales in 2012, he said.
"They have one of the best flows of information on someone who is involved in camping or hunting," Anderson said. "They may live in remote Wyoming, but Cabela's knows precisely how much they spend on an annualized basis. Their data gives them the precision to locate stores like no one in the industry."
While data alone won't insulate the company from any downturns, of course, analysts say that Cabela's is beating its competition by tying together the strength of its data program with a high quality service model similar to upper-end retailers like Nordstrom (JWN). When it reports earnings, Cabela's is expected to show earnings per share growth of 32 percent from the same time last year, compared with a median 13.4 percent among specialty retailers.
While Amazon.com (AMZN) may have mastered the art of so-called suggested selling online, Cabela's has decades of customer data at its fingers that allow it to open a 200,000 square foot store in a lightly-populated area and know which mix of the approximately 225,000 products it carries will make it profitable. Many of these items - ranging from rifles to kayaks - are tough to impossible to buy online, limiting the competition from Amazon.
Data collection begins as customers, whether in-store, online or from one of the more than 100 catalogs the company publishes each year, are lured into joining Cabela's Club Rewards loyalty program or sign up for its Club Rewards Visa card. Customers are prompted to use accumulated points at checkout, creating a positive feedback loop.
All told, 29 percent of sales at the company are made using its Cabela's credit card, which is issued by a company-owned bank called The World's Foremost Bank and accounts for 10 percent of revenues. Competitors like Dick's Sporting Goods (DKS) and Target (TGT), by comparison, do not own their own banks.
"This is by far the easiest and best loyalty rewards program that I've ever seen," Anderson said, noting that customers do not need rebates or face other restrictions on purchases.
In 2007, Cabela's launched a new data analytics program, built by Teradata Corp (TDC), that integrated figures from across all of its retail channels. The system allows someone in the marketing department, say, to access a single day's sales data by the next morning, and launch an email marketing campaign to boost sales. Previously, that process would have taken several days.
Few retailers streamline their data to the same degree, says Jeff Tanner, a professor of marketing at Baylor University who has studied retailers' use of data.
"The problem, of which Wal-Mart is an exemplar, is that they treat the various channels as separate businesses, which makes data integration incredibly difficult," Tanner said. One anonymous retailer Tanner studied described meetings between executives in which each had different figures on market penetration, leading to a range of conflicting conclusions. Target Corp has the most similar emphasis on data collection and modeling, though it is not at the same level as Cabela's, he said.
Online, meanwhile, Cabela's has examined how the order in which customers place items in their basket influences the probability of purchase, Tanner said. A customer that begins a basket with a hunting call that attracts predators like coyote, for instance, suggests a specific kind of hunt. The customer will then be prompted to buy lightweight camouflage that can be worn year-round (as opposed to camouflage for deer hunting, which is only done in the winter) or a spotlight with a red filter that helps hunters spot coyotes at night.
Cabela's ability to seemingly know what its customers want at all times has helped the company become "central to their lifestyle," said Mark Mulholland, manager of the $630 million Matthew 25 fund. Mulholland began buying shares at around $6 per share in late 2008 - giving him an approximately 1,000 percent return since - and has added to his position in the last 30 days, in anticipation that the company's share price will continue to see percentage growth in the mid-teens for the next several years. The company makes up the second-largest position in his fund, behind Apple Inc.
Anderson, the Northland Capital Markets analyst, has a target price of $80 for the shares, more than a 20 percent jump above the market close at $65.80 on June 23 and almost 10 percent higher than Wall Street's average price target of $73.50.
Overall, eight analysts who cover the company rate it a buy or strong buy, compared with five who have hold ratings on the company.
Customer loyalty should bolster shares over the long run, said Matt Nemer, an analyst at Wells Fargo (WFC) who has an outperform rating for the stock.
"The stock is definitely sensitive to firearms data in the short-term," Nemer said. The overall rate of gun sales "will slow down, but everybody knows that, and some of its baked into the stock. Guns aren't going to jump by 30 percent forever."
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