Zacks_Analysts' Blog : Liquidity Risk Shrinked at Cabela's - Analyst Blog

In a move to tone down liquidity risk, World’s Foremost Bank, a fully owned subsidiary of Cabela’s Inc. (CAB), recently announced that it has entered into a $411.7 million accord with Royal Bank of Canada aligned with variable funding notes issued by Cabela’s Credit Card Master Note Trust.

The three-year accord involves payment at variable rate of the commercial paper in addition to a spread.

Few months back, Cabela’s announced that its Credit Card Master Note Trust has concluded the sale of secured Notes worth $300 million. The company distributed the issuance into three parts, including $155 million of Class A-1 Notes carrying a fixed rate of 2.39% per annum, and $100 million of Class A-2 Notes with a floating rate interest equal to one-month LIBOR along with 0.60% per annum. The issued notes have a maturity of roughly five years, with legal maturity of eight years. The move will boost its financial services segment while escalating the growth of the credit card portfolio for the World’s Foremost Bank

Moreover, the company sold three subordinated classes of notes totaling $45 million. World's Foremost Bank procured each of the subordinated classes of notes.

Cabela’s Looks Lucrative

Cabela’s, which faces stiff competition from discount stores, such as Wal-Mart Stores Inc. (WMT) and Target Corporation (TGT), possesses a healthy balance sheet, feasible strategy and improving operating efficiencies.

Cabela’s multi-channel model facilitates consumers to purchase directly from retail stores or order products through catalog and Internet channels, and have them delivered to the retail store of their choice without incurring shipping costs. This multi-channel approach gives the company an advantage over its competitors.

Next generation store format and seasonal product assortments enable the company to focus on increasing stores productivity and sales per square foot, while lowering its labor costs.

Moreover, the company’s Financial Services Business segment plays a vital role in supporting the merchandising business by encouraging customer loyalty rewards program that will result in increase in revenue, profitability and customer retention at its Retail and Direct businesses, leading to overall growth in sales and earnings.

Currently, we maintain a long-term ‘Outperform’ rating on the stock. Moreover, Cabela’s holds a Zacks #1 Rank that translates into a short-term ‘Strong Buy’ recommendation.