Cabela's 2014 Annual Report Download - page 31

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21
It may be difficult to sustain the historical growth and profitability of our Financial Services segment,
and we will be subject to various risks as we attempt to grow the business.
We may not be able to retain existing cardholders, grow account balances, or attract new cardholders and the
profits from our Financial Services segment could decline, for a variety of reasons, many of which are beyond our
control, including:
x credit risk related to the loans we make to cardholders and the charge-off levels of our credit
card accounts;
x inability of cardholders to make payments to us due to economic conditions and limited access to other
credit sources;
x inability to manage credit risk and keep credit models up to date with current consumer credit trends;
x lack of growth of potential new customers generated by our Retail and Direct businesses;
x liquidity and funding risk relating to our ability to create the liquidity necessary to extend credit to our
cardholders and provide the capital necessary to meet the requirements of government regulators and Visa;
x operational risk related to our ability to acquire the necessary operational and organizational
infrastructure, manage expenses as we expand, and recruit management and operations personnel with
the experience to run an increasingly complex and highly-regulated business; and
x the credit card industry is highly competitive with increased use of advertising, target marketing, reward
programs, mobile payment solutions, and pricing competition in interest rates and cardholder fees as both
traditional and new credit card issuers seek to expand or to enter the market and compete for customers.
Economic downturns and social and other factors could cause our credit card charge-offs and
delinquencies to increase, or credit card balances to decrease, which would decrease our profitability.
The general economic environment may worsen, unemployment may increase, the housing market may
decline, and consumer credit availability may decrease. The ability and willingness of cardholders to pay could
be adversely affected, which would increase delinquencies and charge-offs. In addition, if economic conditions
deteriorate, the number of transactions and average purchase amount of transactions on the credit card accounts
may be reduced, which would reduce the revenue of our Financial Services segment. A variety of social and other
factors also may cause changes in credit card use, payment patterns, and the rate of defaults by cardholders. These
social factors include changes in consumer confidence levels, the public’s perception of the use of credit cards,
changing attitudes about incurring debt, and the stigma of personal bankruptcy. Our underwriting criteria and
portfolio management, product design, and collection operations may be insufficient to protect the growth and
profitability of our Financial Services segment during a sustained period of economic downturn or recession or a
material shift in social attitudes, and may be insufficient to protect against these additional negative factors.
The performance of our Financial Services segment may be negatively affected by the performance of
our merchandising businesses.
Negative developments in our Retail and Direct businesses could affect our ability to grow or maintain our
Financial Services segment. We believe our ability to maintain cardholders and attract new cardholders is highly
correlated with customer loyalty to our merchandising businesses and to the strength of the Cabela’s brand. In
addition, transactions on cardholder accounts produce loyalty points which the cardholder may apply to future
purchases from us. Adverse changes in the desirability of products we sell, negative trends in retail customer
service and satisfaction, or the modification of the loyalty program could have a negative impact on the ability of
Cabela’s CLUB to grow its account base.
Our Financial Services segment faces the risk of a complex and changing regulatory and
legal environment.
Our Financial Services segment operates in a heavily regulated industry and is therefore subject to a wide
array of banking and consumer lending laws and regulations. Failure to comply with banking and consumer
lending laws and regulations could result in financial, structural, and operational penalties being imposed. For
example, the FDIC conducted compliance examinations in 2009, 2011, and 2013 and found that certain practices