Cabela's 2006 Annual Report Download - page 11

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7
merchandise selection questions. We believe that our ability to establish and maintain long-term relationships with
our customers and encourage repeat visits and purchases is due, in part, to the strength of our customer support and
service operations.
Financial Services Business
Through our wholly-owned subsidiary, World’s Foremost Bank, we issue and manage the Cabela’s CLUB
Visa card and related customer loyalty rewards program. We believe the Cabela’s CLUB Visa card loyalty rewards
program is an effective vehicle for strengthening our relationships with our customers, enhancing our brand name
and increasing our merchandise revenue. The primary purpose of our financial services business is to provide our
merchandise customers with a rewards program that will enhance revenue, profitability and customer loyalty in our
direct and retail businesses.
Our bank subsidiary is an FDIC-insured, special purpose, Nebraska state-chartered bank. Our bank’s charter is
limited to issuing credit cards and selling brokered certificates of deposit of $100,000 or more and it does not accept
demand deposits or make non-credit card loans. During fiscal 2006, we had an average of 853,187 active accounts
with an average balance of $1,591. See Note 17 to our consolidated financial statements and our “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for financial information regarding our
financial services business.
The Cabela’s CLUB Visa card loyalty program is a rewards-based credit card program, which we believe
has increased brand loyalty among our customers and has helped reduce customer attrition in our merchandising
businesses. Our rewards program is a simple loyalty program that allows customers to earn points whenever and
wherever they use their credit card and then redeem earned points for products and services through our direct
business or at our destination retail stores. Our rewards program is integrated into our store point of sale system
which adds to the convenience of the rewards program as our employees can inform customers of their number of
accumulated points when making purchases at our stores.
Financial Services Marketing. We adhere to a low cost, efficient and tailored credit card marketing program
that leverages the Cabela’s brand name. We market the Cabela’s CLUB Visa card through a number of channels,
including inbound telemarketing, retail locations, catalogs and the Internet. Customer service representatives at our
customer care centers offer the Cabela’s CLUB Visa card to qualifying customers. This card is marketed throughout
our catalogs and offers are inserted in purchases when shipped to a customer. Our customers can apply for the
Cabela’s CLUB Visa card at our destination retail stores through our instant credit process and, if approved, receive
reward points available for use on merchandise purchases the same day.
Underwriting and Credit Criteria. We underwrite high-quality credit customers and have historically
maintained attractive credit statistics compared to industry averages. We adhere to strict credit policies and target
consistent profitability in our financial services business. The scores of the Fair Isaac & Company, or FICO, are a
widely-used tool for assessing a person’s credit rating. As of the end of fiscal 2006, our cardholders had a median
FICO score of 785, which is well above industry averages. We had net charge-offs as a percent of total outstanding
balances of approximately 1.86% in 2006, compared to a 2005 industry average of 5.62%, which we believe is due
to our credit and operating practices.
The table below illustrates the historically high credit quality of our managed credit card portfolio, presenting
additional data on our credit card portfolio’s performance in 2006 and 2005 compared with 2005 industry averages.
As a Percentage of Managed Loans 2006 2005 Industry 2005(1)
Delinquencies .................................................. 0.75% 0.67% 4.17%
Gross charge-offs ............................................... 2.29% 2.54% 6.39%
Net charge-offs ................................................. 1.86% 2.15% 5.62%
(1) Source: 2005 data from The Nilson Report, February 2006; industry includes all Visa and MasterCard accounts.
This report is not available for 2006 until March 2007.