Cabela's 2005 Annual Report Download - page 51

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the United States may have had some impact on our two new stores in Texas, however the primary impact was
the hurricanes’ effect on gasoline prices. The product categories that contributed the largest dollar volume
increase to our Retail revenue growth in fiscal 2005 included hunting equipment, camping and footwear.
Financial Services Revenue. Financial Services revenue increased by $38.0 million, or 48.6%, to $116.1
million in fiscal 2005 from $78.1 million in fiscal 2004 primarily due to an increase in securitization income of
$36.6 million. The 37.9% increase in securitization income was primarily a result of interchange income
increasing by $26.0 million as our customers’ VISA net purchases increased by 22.2%. In addition, our
participation in a new reward program with VISA increased our interchange income by $5.7 million for the fiscal
year. Customer reward costs, which are netted against Financial Services revenue, generally increase at the same
rate as VISA net purchases. However, in fiscal 2005, customer reward costs increased only $9.8 million, or
18.5% over fiscal 2004. The decrease in the growth rate of customer reward costs as compared to VISA net
purchases was caused by changes in some of our promotional event campaigns, the implementation of the instant
credit program in our destination retail stores in the second fiscal quarter of 2005 and a cost sharing program
implemented with our retail stores whereby our retail stores cover a larger portion of the customer reward costs
for special events. Instant credit allows customers to find out within minutes if they are approved for credit.
Changes in our customer rewards program implemented in connection with instant credit have reduced the
customer rewards costs related to the acquisition of new accounts. Compared to fiscal 2004, the number of
average active accounts in fiscal 2005 grew by 17.3% to 726,214 and the average balance per active account
grew by 5.1% to approximately $1,509.
Gross Profit
Gross profit increased by $105.0 million, or 16.7%, to $735.3 million in fiscal 2005 from $630.3 million in
fiscal 2004. As a percentage of revenue, gross profit increased to 40.9% for fiscal 2005, compared to 40.5% in
fiscal 2004. Our Financial Services revenue growth of $38.0 million, which does not have any corresponding
increase in cost of revenue, provided for an increase of 1.0% to gross profit as a percent of revenue. However,
this was offset by a decline in merchandising gross profit of 0.5% of merchandise revenue, as discussed below,
and a decline of 0.1% in gross profit as a percent of revenue on our other revenue due to sales of land at
relatively low gross profit.
Merchandising Business. The gross profit of our merchandising business increased by $62.4 million, or
11.3%, to $613.9 million in fiscal 2005 from $551.5 million in fiscal 2004. As a percentage of merchandise
revenue, gross profit declined by 0.5% to 37.0% in fiscal 2005 from 37.5% in fiscal 2004. The decline was
attributable to increased freight costs due to higher fuel prices. Freight costs increased by 0.6% of merchandise
revenue to 2.9% of merchandise revenue in fiscal 2005 compared to 2.3% of merchandise revenue in fiscal 2004.
Declines in gross profit due to freight costs were offset by improved merchandising practices and less
discounting as a percentage of merchandise revenue over the prior year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $87.3 million, or 16.4%, to $620.4 million in
fiscal 2005 from $533.1 million in fiscal 2004. Selling, general and administrative expenses were 34.5% of
revenue in fiscal 2005, compared to 34.3% in fiscal 2004. The most significant factors contributing to the
increase in selling, general and administrative expenses included:
• Selling, general and administrative expenses attributed to shared services comprised $22.7 million of the
total increase in selling, general and administrative expense and increased primarily as a result of the
addition of new employees, which increased salary and wages, related taxes, insurance and benefits, and
401(k) matching expense by $10.6 million. The additional new employees were hired primarily in the
distribution department, relating to expansion of retail distribution and increases in the direct business.
In addition, we hired additional personnel in management information systems, finance, legal and
human resources to support our growing infrastructure. Bonuses increased by $4.5 million due in part to
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