Cabela's 2004 Annual Report Download - page 37

format destination retail stores we currently plan to open in 2005 will add approximately 750,000, or 57%,
to our retail square footage in 2005.
Saturation of our credit card. We anticipate that Financial Services revenue will increase as our
portfolio of managed receivables matures, and we will seek to further increase Financial Services revenue
by attracting new cardholders through low cost targeted marketing and enhancing our loyalty program to
encourage increased customer usage of our credit cards. We are also exploring the further expansion of our
Financial Services segment by oÅering to manage co-branded VISA credit cards for selected other
businesses, similar to our recent arrangements with International Speedway Corporation and Woodworkers
Supply, Inc. See ""Business Ì Financial Services Business Ì Third Party Card Programs''. We will seek to
control costs in our Financial Services segment by managing default rates, delinquencies and charge-oÅs
by continuing our underwriting and account management standards and practices. We anticipate that we
will continue to sell our credit card loans in the securitization markets and manage those customer
accounts at the bank.
Automated payment opportunities for consumers and fee changes. In our Financial Services
segment, we have experienced a downward trend in the quantity of transactions and the amount of fee
income as a percentage of outstanding managed credit card loans. We believe that the reason for this trend
is the increase in the number of payment options, such as payment via the Internet, which has decreased
the amount of fee income collected. During Ñscal 2004, in response to the declines in the quantity of fee
transactions, we adjusted our fee schedules to reduce further decline in fee income as a percentage of
managed credit card loans. We do not believe that this trend will have a material eÅect on the results of
our Financial Services segment in the future.
We have also experienced an increase in interchange fee income as VISA has raised the interchange
rate charged to merchants. In 2004, this change accounted for a $1.4 million increase in revenue, or 1.8%
of our total Financial Services revenue.
InÖuences on Period Comparability
We believe that the following factors have the potential to materially impact the comparability of our
results of operations if they diÅer from period to period:
‚New destination retail store openings. The timing and number of our new destination retail store
openings will have an impact on our results. First, we incur one-time expenses related to opening
each new destination retail store. New store expenses for our large-format destination retail stores,
the majority of which are incurred prior to the store's opening, have averaged approximately
$4.3 million per store and are expensed as incurred. Historically, we have received support from our
vendors in a variety of forms including merchandise, purchase volume discounts and cooperative
advertising allowances. This support has helped to oÅset the cost of opening our new destination
retail stores and is typically recorded in selling, general and administrative expenses, but as we
begin to open more than one destination retail store in a year the support that we receive is likely
to decrease on a per store basis. Second, most destination retail store expenses vary proportionately
with revenue, but there is also a Ñxed cost component, consisting primarily of occupancy costs,
utilities and management overhead. These Ñxed costs typically result in lower store proÑtability
when a new destination retail store opens. Due to both of these factors, a new destination retail
store opening may result in temporary declines in operating income, both in dollars and/or as a
percentage of revenue. As the number of destination retail stores increases, the Ñxed costs will be
spread over a broader Retail revenue base and should not represent the same disproportionate
percentage of revenue in the future.
‚Securitization of credit card receivables. During the Ñrst quarter of 2003, we completed two
securitization transactions, which resulted in a reduction in securitization income of $1.3 million.
We completed a securitization transaction in the second quarter of 2004 in which we sold
$75.0 million of Ñxed rate notes and $175.0 million of Öoating rate notes, which contributed to a
reduction in securitization income of $3.1 million. These reductions in securitization income do not
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