Dive Brief:

• Cabela’s on Thursday reported first quarter net income fell 16.7% to $19.1 million, down from $22.9 million in the year-ago quarter; earnings were 28 cents per diluted share, compared to 33 cents in the year-ago quarter. Adjusted earnings in the period were $27.6 million or 40 cents per diluted share, down from $29.5 million and 43 cents per diluted share a year ago, according to a company press release.

• Q1 total revenue fell 3.4% to $834.9 million and same-store sales fell 8.9%, with U.S. same-store sales falling 9.1%, as firearms and ammunition dropped due to the presidential election and ongoing concerns about guns from last year’s San Bernardino shooting, the company said. Home and gifts sales also decreased, as did apparel sales, though apparel fared better than overall same-store sales.

• The average number of active credit card accounts in Cabela’s CLUB Visa program rose 2.4%  in the quarter compared to the year-ago period, while the average balance per active credit card account rose 8.3%. The average balance of credit card loans grew 11% to approximately $5.4 billion, up from $4.9 billion in the year-ago quarter. Overall financial services revenue rose 6.5% to $150.0 million.

Dive Insight:

Cabela’s CEO Tommy Millner, in his statement Thursday, said the company was disappointed with merchandise sales impacted by the broader challenges in retail, but he added that cost-cutting efforts have paid off.

“Similar to broader retail industry trends, we continued to experience challenging traffic patterns in the first quarter. Our growth in average ticket was more than offset by continued decreases in transactions,” he said. “We continue to be very pleased with the results of our expense and process improvement initiatives. We are particularly encouraged by the sustainable impact of these initiatives from their implementation in 2015 through the first quarter.”

But Cabela’s troubles run deeper than cost-cutting or the slump in firearm sales, said GlobalData Retail analyst Håkon Helgesen. In addition to the same-store sales drop in the period, Q1 revenue from retail store sales fell 3.9% to $542.0 million, and internet and catalog sales fell 12.6% to $136.1 million, the company said Thursday.

“Cabela's attributes this deterioration to poor sales of firearms since the election, and tough comparatives from the prior year on both guns and home and gifts. There is some truth in these assertions, but given comparable sales in the same period last year were down by 3.8%, we are not entirely convinced by the company's line of reasoning,” Helgesen said in a note emailed to Retail Dive.

As Cabela’s and Bass Pro Shops await word from the Federal Trade Commission regarding their proposed $5 billion merger, initiated last year, the deal looks to be a boon to Cabela’s shareholders, but a challenge for Bass Pro, he said.

“[I]t increasingly looks like Bass Pro will, if the deal goes ahead, inherit a business that needs some work to perk up performance,” Helgesen said. “We also have concerns about the extent to which Bass Pro will gain new customers from the acquisition. While the geographical overlap of stores is minimal, there is much more sharing of customers within the direct business. This does not completely kill the rationale for the takeover, but it does suggest that Bass Pro will need to work hard to find cost savings if it is to make the financials stack up.”

The rivals have worked hard to smooth the deal. Cabela’s last month entered into agreements with subsidiaries of Synovus Financial Corp. and Capital One Financial Corp. to sell assets and liabilities of its wholly owned bank subsidiary, World’s Foremost Bank; Capital One’s difficulty receiving approval for an outright takeover had threatened the tie-up between the outdoor retail rivals. 

The merger is far from done, though: 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 FTC in connection with their proposed merger, according to a filing with the Securities and Exchange Commission, launching a more involved process that could continue to delay proceedings for several months. 

Cabela's and Bass Pro Shops have much in common: Both were founded in roughly the same era and the same area of the country, with a similar number of stores sharing a destination-like 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: Some 45% of Bass Pro's customers also frequent Cabela’s. The similarities and overlap make a merger both rational and a target of scrutiny from regulators, according to Scott Wagner, an antitrust expert and partner in law firm Bilzin Sumberg’s litigation group—and 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. "That always raises antitrust concerns, especially in a market of this size and a transaction of this size.” 

But other sports gear retailers have muscled into that territory as well, making Cabela's uphill climb that much steeper, and the challenge to Bass Pro that much greater. "Although the brand and concept are far from broken, we do feel that [Cabela's] has fallen behind in an increasingly competitive outdoor goods segment," Helgesen noted. "Traditional players like Dick's have stepped up their game, while players like REI have gained ground over recent years. This is increasingly putting the squeeze on Cabela's, which remains very reliant on the rather cyclical niche of hunting and shooting. Whoever takes charge of the brand over the next year has much work to do to reinvent and reenergize the proposition."