Cabela's renews variable funding

Outdoor recreation retailer is positioned for strong growth.

By Apr 3, 2012 2:22PM

Image: Snowboard (© Photodisc Blue/Getty Images)By Zacks Equity Research

In a move to tone down liquidity risk, World's Foremost Bank, a fully owned subsidiary of Cabela's Inc. (CAB), recently announced the renewal of a $225 million accord for three years with Wells Fargo Bank, a unit of Wells Fargo & Company (WFC).

The renewal is aligned to the variable funding notes issued by Cabela's Credit Card Master Note Trust.

Earlier, the outdoor apparel retailer announced that its Credit Card Master Note Trust had concluded the sale of secured Notes worth $500 million. The company distributed the issuance into three parts, including $275 million of Class A-1 Notes carrying a fixed rate of 1.63% per annum, and $150 million of Class A-2 Notes with a floating rate interest equal to one-month LIBOR along with 0.53% per annum.

Further, Caela's sold three subordinated classes of notes totaling $75 million. Each of the subordinated classes of notes was procured by World's Foremost Bank.

The issued notes have a maturity of roughly five years as well as legal maturity of eight years. The move will boost Cabela's financial services segment and will escalate the growth of the credit card portfolio for the World's Foremost Bank.

Boasting a sturdy balance sheet, feasible strategy and operating efficiencies, Cabela's offers its investors one of the strongest growth profiles. Cabela's next-generation store format, multi-channel strategy and seasonal product assortments enable it to focus on increasing stores productivity and sales per square foot while lowering its labor costs.

In addition, the company aims to capitalize on the under-penetrated markets and unveiled its new "Outpost" store format. The relatively smaller size store will provide shoppers with Cabela's retail experience.

Further, Cabela's CLUB Visa program continues to register strong growth, reflecting increase in average active accounts with enhancements in delinquencies and net charge-offs along with lower funding cost.

However, the outdoor recreation and casual apparel and footwear markets are highly fragmented and competitive. Cabela's faces stiff competition from discount stores, such as Wal-Mart Stores (WMT) and Target Corporation (TGT).

Currently, we maintain a long-term "outperform" rating on the stock. Moreover, Cabela's holds a Zacks No. 1 Rank that translates into a short-term "strong buy" recommendation.

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