This morning, Cabela’s (NYSE: CAB) announced earnings for the fourth quarter, and the results initially scared the market, sending the shares down 10% quickly on the open. But after the market opened, the company held its conference call and shares began to rebound. Here’s why…

Revenues climbed a healthy 7.2%, yet the stock fell short on earnings per share. That’s because Cabela’s was forced to match what the company characterized as “ridiculous promotions” offered by desperate competitors who were trying to boost sales going into Black Friday and the Christmas selling season. In defending its turf, Cabela’s increased ad spending for its own promotions — a strategy that actually ended up seeing Cabela’s gaining market share.

But the spending crimped earnings in the short term.

That’s why the shares dipped in early trading, only to rebound once investors heard the full story.

The shares are still down as I write this, but ultimately I think they will drift higher over the next few days as investors who bailed for no reason mosey back into the stock. For that reason, I want to give Cabela’s at least one more week before we exit.

These options are set to expire in mid-March. And we will be getting out of them soon … but given that the company’s news was actually pretty bullish beneath the headlines, I think these shares have some lift to them still.

Until next time, good trading…

Jeff Opdyke
Editor, Precision Profits