Cabela's-Bass Pro merger further in doubt as credit card business sale falters

Dive Brief:

Cabela's reiterated on Thursday that Capital One's inability to “timely obtain regulatory approvals for its purchase of World’s Foremost Bank, the retailer’s in-house credit-card issuer” could undermine its plans to be acquired by rival Bass Pro Shops in a $5.5 billion merger deal. In a conference call with financial analysts in January, Capitol One said it expects to withdraw its application to take over the credit card operation.
The struggling outdoor retailer on Thursday also reported a fourth quarter profit of $58.1 million, or 84 cents per share, down from $78.8 million, or $1.14 per share, a year ago. Adjusted earnings were $1.05 per share, down from $1.26 per share in the year-ago quarter. Q4 revenue fell 4.9% to $1.34 billion, as sales from stores dropped 4.3% to $888.2 million, and same-store sales fell 6.5%, according to a press release.
In December, Cabela's and Bass Pro Shops each received a request for additional information and documents (commonly known as a “second request”) from the Federal Trade Commission in connection with their proposed merger, according to a filing with the Securities and Exchange Commission, launching a more involved process that promises to delay proceedings for several months.

Dive Insight:

Cabela’s woes continued in the fourth quarter, and prospects may only dim this year. Retailers in general are facing the possibility of a 20% border adjustment tax that could hurt sales and profits. Gun sales, (which were choppy in recent years but would temporarily surge as gun enthusiasts stocked up whenever political discussion of gun control measures revived), are seen as likely to fall in a Trump administration that is widely viewed as strongly in favor of gun rights.

CEO Tommy Millner addressed some of that in his statement Thursday, saying executives were disappointed in the quarter's results, attributing some of it to falling traffic that many retailers are facing. "Our increase in average ticket was not enough to make up for a decrease in transactions," he said. "Similar to industry trends, we experienced strength in firearms and shooting-related categories primarily early in the quarter. Later in the quarter, firearms and shooting-related categories became challenging as we faced the headwind of lapping the impact that the San Bernardino tragedy had on these categories a year ago. We saw improved trends in apparel and other softgoods categories in the latter part of the quarter. We continue to be pleased with the performance and growth of our Cabela’s CLUB Visa program.”

Rumors of a Cabela’s sale brewed for months before privately held Bass Pro Shops agreed in October to acquire its rival with a bid that outpaced a competing offer from private equity firm Sycamore Partners, working with credit company Synchrony Financial. Now it looks like the deal is on less firm ground than ever.

Cabela's and Bass Pro Shops have a lot in common. Both were founded in roughly the same era and roughly the same area of the country, with a similar number of stores sharing a destination-like shopping approach. “This speaks to one of the greater trends in the industry, in retail but in sporting goods in particular, to create a customer experience that makes it worthwhile to go to a store," IBISWorld analyst Rory Masterson told Retail Dive last year. “It’s about bringing customers in to brick-and-mortar stores. It invites them to consider buying extra things that they might not have been considering going in."

There’s also considerable overlap in their customer bases: Bass Pro noted that 45% of its customers also frequent Cabela’s. The similarities and overlap make a merger both rational and a target of careful scrutiny from regulators, according to Scott Wagner, an antitrust expert and partner in law firm Bilzin Sumberg’s litigation group — and, clearly, close scrutiny is now ongoing. “[Bass Pro Shops and Cabela's] really are the best possible example of direct competitors," Wagner told Retail Dive last year. "And that always raises antitrust concerns, especially in a market of this size and a transaction of this size.”