**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form 10-Q**


(Mark
      One)


x
            
            **QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





For
                the quarterly period ended June 30,
                2007




OR




o
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**





Commission
      File Number: **1-32227**





**CABELA’S
      INCORPORATED**


(Exact
      name of registrant as specified in its charter)


**Delaware**
            
            **20-0486586**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                Number)**One
                Cabela Drive, Sidney, Nebraska**
            
            **69160**(Address
                of principal executive offices)
            
            (Zip
                Code)





**(308)
      254-5505**


(Registrant’s
      telephone number, including area code)





**Not
      applicable**


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      the filing requirements for at least the past 90 days. Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the
      Exchange Act.  (Check One):





Large
                accelerated filer  x
            Accelerated
                filer o
            Non-accelerated
                filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).  Yes o No x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.





Common
      stock, $0.01 par value: 65,800,769 shares as of July 27, 2007.








CABELA’S
      INCORPORATED


FORM
      10-Q


QUARTERLY
      PERIOD ENDED JUNE 30, 2007


TABLE
      OF CONTENTS








PART
                I – FINANCIAL INFORMATION
            PageItem
                1.
            Financial
                Statements
            3Condensed
                Consolidated Balance Sheets
            3Condensed
                Consolidated Statements of Income
            4Condensed
                Consolidated Statements of Cash Flows
            5Notes
                to Condensed Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            17Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            35Item
                4.
            Controls
                and Procedures
            37Item
                4T.
            Controls
                and Procedures
            37PART
                II – OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            38Item
                1A.
            Risk
                Factors
            38Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            38Item
                3.
            Defaults
                Upon Senior Securities
            38Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            38Item
                5.
            Other
                Information
            38Item
                6.
            Exhibits
            39SIGNATURES
            40INDEX
                TO EXHIBITS
            41








2
 Table
          of Contents






**PART
      I – FINANCIAL INFORMATION**





**Item
      1. Financial
      Statements**





**CABELA'S
                INCORPORATED AND SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED BALANCE SHEETS**
              **(Dollars
                in Thousands Except Par Value)**
              **(Unaudited)****ASSETS**
            
            **June
                30,**
              **2007**
            
            
            **December
                30,**
              **2006**
            
            
            **July
                1,**
              **2006**CURRENT
                ASSETS:Cash
                and cash
                equivalents
            
            $
            80,229
            
            
            $
            172,903
            
            
            $
            117,658Short-term
                investments
            
            
            --
            
            
            
            --
            
            
            
            3,000Accounts
                receivable, net of
                allowance for doubtful accounts of $1,714, $1,932 and
                $1,750
            
            
            31,154
            
            
            
            37,812
            
            
            
            26,542Credit
                card loans held for
                sale (Note 3)
            
            
            119,452
            
            
            
            136,072
            
            
            
            90,861Credit
                card loans receivable,
                net of allowances of $1,193, $699 and $512 (Note 3)
            
            
            13,598
            
            
            
            16,611
            
            
            
            13,996Inventories
            
            
            523,925
            
            
            
            484,414
            
            
            
            461,805Prepaid
                expenses and deferred
                catalog costs
            
            
            47,161
            
            
            
            42,502
            
            
            
            43,846Income
                taxes receivable
            
            
            7,063
            
            
            
            --
            
            
            
            --Other
                current
                assets
            
            
            94,612
            
            
            
            63,907
            
            
            
            51,128Total
                current
                assets
            
            
            917,194
            
            
            
            954,221
            
            
            
            808,836PROPERTY
                AND EQUIPMENT, NET
            
            
            733,594
            
            
            
            600,065
            
            
            
            544,215OTHER
                ASSETS:Land
                held for sale or
                development
            
            
            19,192
            
            
            
            20,947
            
            
            
            8,633Retained
                interests in
                securitized loans (Note 3)
            
            
            40,091
            
            
            
            39,033
            
            
            
            37,972Marketable
                securities
            
            
            81,829
            
            
            
            117,360
            
            
            
            109,515Other
                assets
            
            
            18,799
            
            
            
            19,604
            
            
            
            18,771Total
                other
                assets
            
            
            159,911
            
            
            
            196,944
            
            
            
            174,891Total
                assets
            
            $
            1,810,699
            
            
            $
            1,751,230
            
            
            $
            1,527,942**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**CURRENT
                LIABILITIES:Accounts
                payable
            
            $
            229,736
            
            
            $
            239,285
            
            
            $
            163,883Unpresented
                checks net of bank
                balance
            
            
            32,615
            
            
            
            --
            
            
            
            18,769Accrued
                expenses and other
                liabilities
            
            
            51,965
            
            
            
            72,124
            
            
            
            46,221Gift
                certificates and credit
                card reward points
            
            
            137,775
            
            
            
            144,210
            
            
            
            112,112Accrued
                employee compensation
                and benefits
            
            
            39,991
            
            
            
            61,275
            
            
            
            31,980Time
                deposits
            
            
            19,500
            
            
            
            33,401
            
            
            
            45,159Short-term
                borrowings
            
            
            27,000
            
            
            
            6,491
            
            
            
            --Current
                maturities of
                long-term debt
            
            
            26,738
            
            
            
            26,803
            
            
            
            27,704Income
                taxes
                payable
            
            
            --
            
            
            
            17,267
            
            
            
            3,466Deferred
                income
                taxes
            
            
            17,863
            
            
            
            17,978
            
            
            
            7,769Total
                current
                liabilities
            
            
            583,183
            
            
            
            618,834
            
            
            
            457,063LONG-TERM
                LIABILITIES:Long-term
                debt, less current
                maturities
            
            
            344,349
            
            
            
            284,579
            
            
            
            310,225Long-term
                time
                deposits
            
            
            65,694
            
            
            
            68,795
            
            
            
            61,895Deferred
                compensation
            
            
            5,244
            
            
            
            5,174
            
            
            
            4,992Deferred
                grant income and
                tenant allowances
            
            
            18,461
            
            
            
            9,550
            
            
            
            9,957Deferred
                income
                taxes
            
            
            29,560
            
            
            
            30,440
            
            
            
            22,971Other
                long-term
                liabilities
            
            
            9,190
            
            
            
            --
            
            
            
            --Total
                long-term
                liabilities
            
            
            472,498
            
            
            
            398,538
            
            
            
            410,040COMMITMENTS
                AND CONTINGENCIES (Note 8)STOCKHOLDERS’
                EQUITY (Note 6):Preferred
                stock, $0.01 par
                value; 10,000,000 shares authorized, no shares issued or
                outstanding
            
            
            --
            
            
            
            --
            
            
            
            --Common
                stock, $0.01 par
                value:Class
                A
                Voting, 245,000,000 shares authorized;  65,798,769, 59,556,431
                and 57,150,080 shares issued and outstanding
            
            
            658
            
            
            
            596
            
            
            
            572Class
                B
                Non-voting, 245,000,000 shares authorized:  none, 5,807,305 and
                8,073,205 shares issued and outstanding
            
            
            --
            
            
            
            58
            
            
            
            80Additional
                paid-in
                capital
            
            
            253,373
            
            
            
            247,741
            
            
            
            244,016Retained
                earnings
            
            
            501,799
            
            
            
            485,148
            
            
            
            416,802Accumulated
                other
                comprehensive income (loss), net
            
            
            (812
            )
            
            
            315
            
            
            
            (631
            )Total
                stockholders’
                equity
            
            
            755,018
            
            
            
            733,858
            
            
            
            660,839Total
                liabilities and
                stockholders’ equity
            
            $
            1,810,699
            
            
            $
            1,751,230
            
            
            $
            1,527,942See
                notes to unaudited condensed consolidated financial
                statements.





3
 Table
          of Contents





**CABELA'S
                INCORPORATED AND
                SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED STATEMENTS OF INCOME**
              **(Dollars
                in Thousands Except Earnings Per Share)**
              **(Unaudited)****Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**REVENUE:Merchandise
                sales
            
            $
            403,424
            
            
            $
            346,458
            
            
            $
            826,063
            
            
            $
            720,672Financial
                services
                revenue
            
            
            41,014
            
            
            
            33,020
            
            
            
            76,748
            
            
            
            61,554Other
                revenue
            
            
            6,761
            
            
            
            7,785
            
            
            
            10,479
            
            
            
            9,842Total
                revenue
            
            
            451,199
            
            
            
            387,263
            
            
            
            913,290
            
            
            
            792,068COST
                OF REVENUE:Cost
                of merchandise
                sales
            
            
            258,449
            
            
            
            226,449
            
            
            
            536,495
            
            
            
            468,332Cost
                of other
                revenue
            
            
            1,648
            
            
            
            3,070
            
            
            
            1,634
            
            
            
            3,476Total
                cost of revenue
                (exclusive of depreciation and amortization)
            
            
            260,097
            
            
            
            229,519
            
            
            
            538,129
            
            
            
            471,808SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            170,850
            
            
            
            143,199
            
            
            
            342,518
            
            
            
            291,512OPERATING
                INCOME
            
            
            20,252
            
            
            
            14,545
            
            
            
            32,643
            
            
            
            28,748OTHER
                INCOME (EXPENSE):Interest
                income
            
            
            427
            
            
            
            936
            
            
            
            1,663
            
            
            
            1,337Interest
                expense
            
            
            (4,836
            )
            
            
            (4,791
            )
            
            
            (9,470
            )
            
            
            (8,135
            )Other
                income,
                net
            
            
            2,153
            
            
            
            2,623
            
            
            
            4,349
            
            
            
            5,600Total
                other income
                (expense)
            
            
            (2,256
            )
            
            
            (1,232
            )
            
            
            (3,458
            )
            
            
            (1,198
            )INCOME
                BEFORE PROVISION FOR INCOME TAXES
            
            
            17,996
            
            
            
            13,313
            
            
            
            29,185
            
            
            
            27,550PROVISION
                FOR INCOME TAXES
            
            
            6,732
            
            
            
            4,957
            
            
            
            10,779
            
            
            
            10,111NET
                INCOME
            
            $
            11,264
            
            
            $
            8,356
            
            
            $
            18,406
            
            
            $
            17,439EARNINGS
                PER COMMON  SHARE (NOTE 5):Basic
            
            $
            0.17
            
            
            $
            0.13
            
            
            $
            0.28
            
            
            $
            0.27Diluted
            
            $
            0.17
            
            
            $
            0.13
            
            
            $
            0.27
            
            
            $
            0.26WEIGHTED
                AVERAGE SHARES OUTSTANDING (NOTE 5):Basic
            
            
            65,782,822
            
            
            
            65,201,266
            
            
            
            65,639,217
            
            
            
            65,135,553Diluted
            
            
            67,111,798
            
            
            
            66,401,158
            
            
            
            67,251,708
            
            
            
            66,422,914See
                notes to unaudited condensed consolidated financial
                statements.





4
 Table
          of Contents





**CABELA’S
                INCORPORATED AND SUBSIDIARIES**
              **CONDENSED
                CONSOLIDATED STATEMENTS OF CASH
                FLOWS**
              **(In
                Thousands)**
              **(Unaudited)****Six
                months ended****June
                30, 2007**
            
            
            **July
                1, 2006**CASH
                FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            18,406
            
            
            $
            17,439Adjustments
                to reconcile net
                income to net cash flows from operating activities:Depreciation
            
            
            26,625
            
            
            
            20,189Amortization
            
            
            419
            
            
            
            445Stock
                based
                compensation
            
            
            2,115
            
            
            
            1,564Deferred
                income
                taxes
            
            
            (318
            )
            
            
            6,907Other,
                net
            
            
            52
            
            
            
            1,626Change
                in operating assets and
                liabilities:Accounts
                receivable
            
            
            7,083
            
            
            
            4,085Origination
                of credit card
                loans held for sale, net of collections
            
            
            16,620
            
            
            
            (13,171
            )Retained
                interests in
                securitized loans
            
            
            (1,058
            )
            
            
            (2,257
            )Inventories
            
            
            (39,511
            )
            
            
            (65,170
            )Prepaid
                expenses and deferred
                catalog costs
            
            
            (4,946
            )
            
            
            (1,117
            )Other
                current
                assets
            
            
            (30,411
            )
            
            
            (5,672
            )Land
                held for sale or
                development
            
            
            1,755
            
            
            
            2,999Accounts
                payable
            
            
            (30,340
            )
            
            
            (30,311
            )Accrued
                expenses and other
                liabilities
            
            
            (20,191
            )
            
            
            (10,378
            )Gift
                certificates and credit
                card reward points
            
            
            (6,435
            )
            
            
            (9,008
            )Accrued
                compensation and
                benefits
            
            
            (21,556
            )
            
            
            (28,267
            )Income
                taxes
                payable/receivable
            
            
            (24,280
            )
            
            
            (28,018
            )Deferred
                compensation
            
            
            69
            
            
            
            (2,177
            )Deferred
                grant income and
                tenant allowances
            
            
            8,942
            
            
            
            (608
            )Other
                long-term liabilities
                for unrecognized tax benefits and related interest
            
            
            7,433
            
            
            
            --Net
                cash used
                in  operating activities
            
            
            (89,527
            )
            
            
            (140,900
            )CASH
                FLOWS FROM INVESTING ACTIVITIES:Capital
                expenditures
            
            
            (134,386
            )
            
            
            (67,999
            )Purchases
                of marketable
                securities
            
            
            (10,052
            )
            
            
            (16,727
            )Maturities
                of marketable
                securities
            
            
            893
            
            
            
            765Proceeds
                from retirement of
                marketable securities
            
            
            42,870
            
            
            
            53,000Purchases
                of short-term
                investments
            
            
            --
            
            
            
            (131,225
            )Proceeds
                from sales or
                maturities of short-term investments
            
            
            --
            
            
            
            128,225Change
                in credit card loans
                receivable, net
            
            
            1,960
            
            
            
            (2,221
            )Change
                in cash reserves for
                retained interests
            
            
            --
            
            
            
            (1,250
            )Proceeds
                from disposition of property and equipment
            
            
            3,855
            
            
            
            --Other,
                net
            
            
            (754
            )
            
            
            9Net
                cash used in investing
                activities
            
            
            (95,614
            )
            
            
            (37,423
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Change
                in unpresented checks
                net of bank balance
            
            
            32,615
            
            
            
            (2,883
            )Change
                in time deposits,
                net
            
            
            (17,002
            )
            
            
            (2,434
            )Borrowings
                on lines of credit,
                inventory financing and short-term borrowings
            
            
            281,617
            
            
            
            142,630Repayments
                on lines of credit,
                inventory financing and short-term borrowings
            
            
            (267,862
            )
            
            
            (142,855
            )Proceeds
                from issuance of
                long-term debt
            
            
            60,800
            
            
            
            215,000Payments
                on long-term
                debt
            
            
            (1,291
            )
            
            
            (2,546
            )Proceeds
                from exercise of
                employee stock options and stock purchase plan
            
            
            2,932
            
            
            
            2,324Excess
                tax benefits from
                exercise of stock options
            
            
            812
            
            
            
            271Payment
                of debt issuance costs
            
            
            (154
            )
            
            
            (449
            )Net
                cash flows provided by
                financing activities
            
            
            92,467
            
            
            
            209,058NET
                (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (92,674
            )
            
            
            30,735CASH
                AND CASH EQUIVALENTS, beginning of fiscal year
            
            
            172,903
            
            
            
            86,923CASH
                AND CASH EQUIVALENTS, end of period
            
            $
            80,229
            
            
            $
            117,658See
                notes to unaudited condensed consolidated financial
                statements.


5
 Table
          of Contents




**CABELA’S
      INCORPORATED AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL
      STATEMENTS**


**(Dollar
        Amounts in Thousands Except Share and Per Share Amounts)**
 **(Unaudited)**





**1.  MANAGEMENT
      REPRESENTATIONS**





The
      condensed consolidated financial statements included herein are unaudited and
      have been prepared by Cabela’s Incorporated and its wholly-owned subsidiaries
      (the “Company”) pursuant to the rules and regulations of the United States
      Securities and Exchange Commission (“SEC”).  Certain information and
      footnote disclosures normally included in financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been condensed or omitted pursuant to such rules and
      regulations.  The condensed consolidated balance sheet of the Company
      as of December 30, 2006, was derived from the Company’s audited consolidated
      balance sheet as of that date.  All other consolidated financial
      statements contained herein are unaudited and reflect all adjustments which
      are,
      in the opinion of management, necessary to summarize fairly the financial
      position of the Company and the results of the Company’s operations and cash
      flows for the periods presented.  All of these adjustments are of a
      normal recurring nature.  All material intercompany balances and
      transactions have been eliminated in consolidation.  Because of the
      seasonal nature of the Company’s operations, results of operations of any single
      reporting period should not be considered as indicative of results for a full
      year.  These condensed consolidated financial statements should be
      read in conjunction with the Company’s audited consolidated financial statements
      for the fiscal year ended December 30, 2006.





***Reclassifications:***





Effective
      June 30, 2007, the Company classified the accrued interest receivable associated
      with its economic development bonds from accounts receivable to other current
      assets in the condensed consolidated balance sheets.  Balances
      totaling $5,864 and $3,495 at December 30, 2006, and July 1, 2006, respectively,
      have been reclassified to conform to the current presentation.  The
      corresponding line items in the condensed consolidated statements of cash flows
      were also reclassified and there was no change in the total of net cash used
      in
      operating activities for the six months ended July 1, 2006.  Total
      current assets of the Company were not affected by this reclassification and
      there was no impact on cash flows or covenant provisions from this
      reclassification.







**2.  CHANGE
        IN ACCOUNTING
        PRINCIPLES**
  ***Inventories:***





Prior
      to
      fiscal 2007, cost was determined using the last-in, first-out (“LIFO”) method
      for all inventories except for a limited amount of inventory totaling $18,200
      owned by Van Dyke Supply Company, Inc. and Wild Wings, LLC, wholly-owned
      subsidiaries of the Company, which used the first-in, first-out (“FIFO”)
      method.  Effective December 31, 2006, the beginning of the Company’s
      2007 fiscal year, management elected to change the Company’s method of valuing
      inventories from the LIFO method to the FIFO method.  Due to
      merchandise unit cost increases for new and higher-priced product lines offered
      by the Company, and because of  the market volatility for certain
      materials in the manufacture of other product lines (primarily firearms and
      ammunition), management believes that this change is preferable as the FIFO
      method better represents our inventory balances at current
      cost.  Further, the adoption of the FIFO method enhances the
      comparability of the Company’s consolidated financial statements by changing to
      the predominant method utilized in the Company’s industry and conforms all of
      its inventories to the same accounting method.  The effect of the
      change did not have a material impact to the Company’s condensed consolidated
      financial statements for the three and six months ended June 30, 2007, and
      July
      1, 2006, and for fiscal years 2006, 2005 and 2004 was not material to the
      Company’s consolidated financial statements.  Because the effect of
      the change on all periods is not material, no adjustments have been made to
      the
      Company’s consolidated financial statements to reflect a retrospective
      application.





At
      December 30, 2006, $18,697 was included in the current portion of deferred
      income taxes payable in the Company’s condensed consolidated balance sheet
      related to the book-tax difference resulting from the LIFO method used for
      income tax purposes.  Although the use of the LIFO method under income
      tax regulations requires conformity of methods for financial reporting purposes,
      it does allow selection of alternative methods of calculation.  The
      Company’s LIFO calculation for income tax purposes utilizes a simplified LIFO
      approach and therefore results in a book-tax difference. The change to the
      FIFO
      method in the first quarter of fiscal 2007 increased the
      current


6
 Table
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portion
      of income taxes payable by $4,674 and reduced the current deferred income tax
      liability by $4,674.  The Company will incur a cash outlay of $18,697
      over the next four years based on the Company’s election in its 2007 federal
      income tax return to change its method of accounting for inventory from LIFO
      to
      FIFO for income tax purposes.





***Uncertainty
      in Income Taxes:***





The
      Company adopted the provisions of Financial Interpretation No. 48 (“FIN 48”),
*Accounting for Uncertainty in Income Taxes—an Interpretation of FASB
      Statement No. 109*, on December 31, 2006.  FIN 48 prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return.  The recognition threshold requires that the Company
      determine whether it is more likely than not that a tax position will be
      sustained upon examination, and then the position is measured at the largest
      amount of the benefit that is greater than 50 percent likely of being realized
      upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed
      on
      the Company’s tax returns that do not meet these recognition and measurement
      standards.





As
      a
      result of the adoption of FIN 48, the Company recorded total liabilities for
      unrecognized tax benefits of $8,569.  Of this amount, $966 after-tax
      was recorded as a one-time decrease to the Company’s beginning retained earnings
      for the cumulative effect of adopting FIN 48.  The remaining amount
      had been previously accrued under Financial Accounting Standards No. 5,
*Accounting for Contingencies* or Financial Accounting Standards No. 109,
*Accounting for**Income Taxes*.  In addition, the
      Company recorded $1,196 before-tax, or $789 after-tax, in accrued interest
      on
      its estimated unrecognized tax benefits as a one-time decrease to the Company’s
      beginning retained earnings for the cumulative effect of adopting FIN
      48.





The
      Company’s policy is to accrue interest expense, and penalties as appropriate, on
      its estimated unrecognized tax benefits as a charge to interest expense in
      the
      condensed consolidated statements of income.  The Company recognized
      $221 and $415 in interest expense during the three and six months ended June
      30,
      2007, respectively. No penalties were accrued.





The
      liability for unrecognized tax benefits totaling $7,579 at June 30, 2007, is
      classified as other long-term liabilities in the condensed consolidated balance
      sheet.  In addition, a liability for estimated interest on
      unrecognized tax benefits totaling $1,611 at June 30, 2007, is also included
      in
      other long-term liabilities in the Company’s condensed consolidated balance
      sheet.





The
      total
      amount of unrecognized tax benefits that, if recognized, would affect the
      effective tax rate is $1,326.  As of June 30, 2007, there were no
      material uncertain tax positions for which reversal is reasonably possible
      during the next 12 months.  The Company files income tax returns in
      the United States and various states.  The tax years 2003 through 2006
      remain open to examination by major taxing jurisdictions to which the Company
      is
      subject.








**3.  SALE
      OF CREDIT CARD
      LOANS**





The
      Company’s wholly-owned bank subsidiary, World’s Foremost Bank (“WFB”), sells a
      substantial portion of its credit card loans.  WFB has established a
      trust for the purpose of routinely securitizing and selling credit card loans.
      WFB retains certain interests in the loans, including a transferor’s interest,
      interest-only strips, servicing rights, and in some cases cash reserve accounts
      and Class B securities.





7
 Table
          of Contents







Credit
      card loans held for sale and credit card loans receivable consisted of the
      following at the periods ended:





**June
                30,**
              **2007**
            
            
            **December
                30,**
              **2006**
            
            
            **July
                1,**
              **2006**Composition
                of credit card loans held for sale and credit card loans
                receivable:Loans
                serviced
            
            $
            1,659,926
            
            
            $
            1,674,064
            
            
            $
            1,342,182Loans
                securitized and sold to
                outside investors
            
            
            (1,519,000
            )
            
            
            (1,514,000
            )
            
            
            (1,233,000
            )Securitized
                loans with
                securities owned by WFB which are classified as retained
                interests
            
            
            (5,037
            )
            
            
            (4,922
            )
            
            
            (2,233
            )135,889
            
            
            
            155,142
            
            
            
            106,949Less
                adjustments to market
                value and allowance for loan losses
            
            
            (2,839
            )
            
            
            (2,459
            )
            
            
            (2,092
            )Total
                (including transferor’s interest of $116,483, $122,824 and
                $87,240)
            
            $
            133,050
            
            
            $
            152,683
            
            
            $
            104,857Transferor’s
                interest restricted for repayment of secured borrowing
            
            $
            43,667
            
            
            $
            --
            
            
            $
            --Delinquent
                loans in the managed credit card loan portfolio at the respective
                periods
                ended:30-89
                days
            
            $
            9,983
            
            
            $
            9,589
            
            
            $
            7,40590
                days or more and still
                accruing
            
            $
            4,442
            
            
            $
            3,095
            
            
            $
            2,282








**Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Total
                net charge-offs on the managed credit card loans portfolio
            
            $
            6,645
            
            
            $
            5,920
            
            
            $
            13,978
            
            
            $
            11,544Annual
                average credit card loans:Managed
                credit card
                loans
            
            $
            1,606,616
            
            
            $
            1,295,131
            
            
            $
            1,583,918
            
            
            $
            1,274,653Securitized
                credit card loans
                including seller's interest
            
            $
            1,577,681
            
            
            $
            1,266,384
            
            
            $
            1,549,957
            
            
            $
            1,244,237Total
                net charge-offs as a percentage of annual average managed credit
                card
                loans
            
            
            1.65
            %
            
            
            1.83
            %
            
            
            1.76
            %
            
            
            1.81
            %








***Retained
      Interests:***





Retained
      interests in securitized loans consisted of the following at the periods
      ended:





**June
                30,**
              **2007**
            
            
            **December
                30,**
              **2006**
            
            
            **July
                1,**
              **2006**Cash
                reserve account
            
            $
            10,076
            
            
            $
            9,638
            
            
            $
            18,379Interest-only
                strips
            
            
            24,978
            
            
            
            24,473
            
            
            
            17,360Class
                B securities
            
            
            5,037
            
            
            
            4,922
            
            
            
            2,233$
            40,091
            
            
            $
            39,033
            
            
            $
            37,972





8
 Table
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**4.  DEBT**





On
      June
      15, 2007, the Company issued and sold $60,000 aggregate principal amount of
      6.08% senior unsecured notes pursuant to a supplement to the Company’s February
      2006 debt issuance of $215,000. The notes mature on June 15, 2017, and interest
      on the notes is payable semi-annually.  These notes contain the same
      default provisions and covenants as those pertaining to the February 2006 debt
      issuance, including limitations on indebtedness and financial covenants relating
      to net worth and fixed charges.





The
      Company has a credit agreement that provides for a $325,000 unsecured revolving
      credit facility that expires on June 30, 2010.  The credit facility
      may be increased to $450,000 upon request of the Company and the consent of
      the
      banks party to the credit agreement. The credit agreement permits the issuance
      of up to $150,000 in letters of credit and standby letters of credit, the
      nominal amount of which are applied against the overall credit limit available
      under the credit facility. There was no principal amount outstanding as of
      June
      30, 2007, under this credit agreement.  The weighted average interest
      rate for borrowings on the line of credit was 6.14% during the six months ended
      June 30, 2007.  Letters of credit and standby letters of credit
      totaling $105,363 were outstanding at June 30, 2007.  In addition, at
      June 30, 2007, the Company had an obligation under its open account document
      instructions program to pay $3,592 to participating vendors.





The
      Company had $215,000 in unsecured notes outstanding at June 30, 2007, with
      principal payable in full February 2016 and interest payable semiannually at
      a
      rate of 5.99%.  At June 30, 2007, the Company had $75,000 in senior
      unsecured notes outstanding with a fixed interest rate of 4.95% payable
      semi-annually.  These senior notes have principal payable in annual
      installments of $25,000 and are due September 2009.





At
      June
      30, 2007, the Company was in compliance with all financial covenants under
      its
      credit agreement and unsecured notes.





The
      Company is party to inventory financing agreements that allow certain vendors
      providing boat and all terrain vehicle merchandise to give the Company extended
      payment terms.  The vendors are responsible for all interest payments
      for the financing period and the financing company holds a security interest
      in
      the specific inventory held by the Company.  The Company’s revolving
      credit facility limits this security interest to $20,000.  The Company
      records this merchandise in inventory with an offsetting liability in accounts
      payable in the consolidated balance sheets.  The loans and payments
      are reflected in the financing lines of credit in the Company’s consolidated
      cash flow statements.  The extended payment terms to the vendor do not
      exceed one year.  The outstanding liability was $3,074 at June 30,
      2007.





WFB
      has
      an unsecured federal funds purchase agreement with a financial
      institution.  The maximum amount that can be borrowed is
      $25,000.  WFB also has an unsecured federal funds purchase agreement
      with another financial institution.  The maximum amount that can be
      borrowed is $60,000.  There were no amounts outstanding as of June 30,
      2007, under these agreements.





WFB
      entered into a credit agreement on June 21, 2007, for a $50,000 variable funding
      facility.  This facility is secured by a participation interest in the
      transferor’s interest of the Cabela’s Master Credit Card Trust.  The
      facility limit may be increased to $75,000 with 30 days prior written
      notice.  As of June 30, 2007, $27,000 was outstanding under the
      facility. The facility carries a liquidity fee of 0.15% on the outstanding
      commitment and a program fee of 0.10% on the principal amount outstanding.
      The
      interest rate on the facility is based upon the interest rate for commercial
      paper issued by the lender and was 5.36% at June 30, 2007. The weighted average
      interest rate was 5.35% during the nine days ended June 30, 2007. The credit
      agreement expires on June 20, 2008.








**5.  EARNINGS
      PER
      SHARE**





Basic
      earnings per share (“EPS”) is computed by dividing net income by the weighted
      average number of shares of common stock outstanding during the
      period.  Diluted EPS is computed by dividing net income by the sum of
      the weighted average number of shares outstanding plus all additional common
      shares that would have been outstanding if potentially dilutive common share
      equivalents had been issued.  For the fiscal 2006 periods, options
      exercised prior to vesting have not been considered in the basic EPS
      calculation, but are considered in the computation of diluted
      EPS.


9
 Table
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The
      following table reconciles the number of shares utilized in the EPS calculations
      for the periods presented.





**Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Weighted
                average number of shares:Common
                shares -
                basic
            
            
            65,782,822
            
            
            
            65,201,266
            
            
            
            65,639,217
            
            
            
            65,135,553Effect
                of incremental dilutive securities:Stock
                options and employee stock purchase plan shares
            
            
            1,328,976
            
            
            
            1,199,892
            
            
            
            1,612,491
            
            
            
            1,287,361Common
                shares -
                diluted
            
            
            67,111,798
            
            
            
            66,401,158
            
            
            
            67,251,708
            
            
            
            66,422,914Options
                outstand considered anti-dilutive
            
            
            4,000
            
            
            
            2,169,236
            
            
            
            4,000
            
            
            
            2,169,236





**6.  STOCKHOLDERS’
EQUITY
      AND DIVIDEND RESTRICTIONS**





The
      most
      significant restrictions on the payment of dividends to stockholders are the
      covenants in the Company’s credit agreement and unsecured senior notes purchase
      agreements.  As of June 30, 2007, the Company had unrestricted
      retained earnings totaling $99,471 available for dividends to stockholders.
      However, the Company has never declared or paid any cash dividends on its common
      stock and does not anticipate paying any cash dividends in the foreseeable
      future.  Nebraska banking laws also govern the amount of dividends
      that WFB can pay to the Company.







7.  COMPREHENSIVE
      INCOME




The
      components of comprehensive income and related tax effects were as follows
      for
      the periods presented.





**Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Net
                income
            
            $
            11,264
            
            
            $
            8,356
            
            
            $
            18,406
            
            
            $
            17,439Changes
                in net unrealized holding losses on marketable securities, net of
                tax
                benefits of $(534), $(91), $(683) and $(361)
            
            
            (890
            )
            
            
            (157
            )
            
            
            (1,138
            )
            
            
            (633
            )Less
                adjustment for net losses on marketable securities included in net
                income,
                net of tax benefits of $--, $5, $-- and $9
            
            
            --
            
            
            
            9
            
            
            
            --
            
            
            
            15(890
            )
            
            
            (148
            )
            
            
            (1,138
            )
            
            
            (618
            )Changes
                in net unrealized holding gains on derivatives designated as cash
                flow
                hedges, net of tax of $11, $5, $25 and $12
            
            
            18
            
            
            
            8
            
            
            
            42
            
            
            
            20Less
                adjustment for reclassification of derivatives included in net income,
                net
                of tax of $(15), $(2), $(19) and $(4)
            
            
            (25
            )
            
            
            (4
            )
            
            
            (31
            )
            
            
            (7
            )(7
            )
            
            
            4
            
            
            
            11
            
            
            
            13Comprehensive
                income
            
            $
            10,367
            
            
            $
            8,212
            
            
            $
            17,279
            
            
            $
            16,834





10
 Table
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**8.  COMMITMENTS
      AND
      CONTINGENCIES**





The
      Company leases various buildings, computer equipment, signs and storage space
      under operating leases, which expire on various dates through 2026. Rent expense
      on these leases as well as other month to month rentals was $2,741 and $5,495
      for the three and six months ended June 30, 2007, respectively, and $1,139
      and
      $2,414 for the three and six months ended July 1, 2006,
      respectively.





The
      following is a schedule of future minimum rental payments under operating leases
      as of June 30, 2007:





For
                the six months ended December 29, 2007
            
            $
            3,475For
                fiscal year:2008
            
            
            3,2192009
            
            
            2,1752010
            
            
            1,9762011
            
            
            1,9972012
            
            
            2,017Thereafter
            
            
            27,486$
            42,345





Certain
      leases include tenant allowances that will be amortized over the life of the
      lease. During the six months ended June 30, 2007, the Company received $11,000
      in tenant allowances.  The Company expects to receive an additional
      $6,000 in tenant allowances during the last half of 2007 and approximately
      $25,700 in 2008.





The
      Company has entered into real estate purchase, construction and/or economic
      development agreements for various future destination retail store site
      locations. At June 30, 2007, the Company had cash commitments totaling $195,000
      for the remainder of fiscal 2007 and $115,000 for fiscal 2008 for estimated
      capital expenditures and the purchase of future economic development bonds
      in
      connection with the construction and development of new destination retail
      stores.





Under
      various grant programs, state or local governments provide funding for certain
      costs associated with developing and opening a new destination retail store.
      The
      Company generally receives grant funding in exchange for commitments, such
      as
      assurance of agreed employment and wage levels at the destination retail store
      or that the destination retail store will remain open, made by the Company
      to
      the state or local government providing the funding. As of June 30, 2007, the
      total amount of grant funding subject to a specific contractual remedy was
      $13,303.





WFB
      enters into financial instruments with off-balance sheet risk in the normal
      course of business through the origination of unsecured credit card loans.
      These
      financial instruments consisted of commitments to extend credit totaling
      $10,471,228 and $9,528,456 at June 30, 2007, and December 30, 2006,
      respectively, and are in addition to existing balances a cardholder would have
      had with WFB at such dates.  These instruments involve, to varying
      degrees, elements of credit risk in excess of the amount recognized in the
      consolidated balance sheets.  The principal amounts of these
      instruments reflect the maximum exposure WFB has in the instruments. WFB has
      not
      experienced, and does not anticipate, all of its cardholders exercising their
      entire available line of credit at any given point in time. WFB has the right
      to
      reduce or cancel these available lines of credit at any time.





***Litigation***– The Company is engaged in various legal actions arising in the
      ordinary course of business. The subject matter of these proceedings primarily
      includes commercial disputes, employment issues and product liability
      lawsuits.  After taking into consideration legal counsels’ evaluation
      of such actions, management is of the opinion that the ultimate outcome will
      not
      have a material adverse effect on the Company’s financial position, results of
      operations or liquidity.





***Self-Insurance***– The Company is self-insured for health claims up to $300 per
      individual. The Company’s liability for health claims submitted and for claims
      incurred but not yet reported totaled $3,370, $3,934 and $3,931 at June 30,
      2007, December 30, 2006, and July 1, 2006, respectively.


11
 Table
          of Contents







The
      Company is also self-insured for workers’ compensation claims up to $500 per
      individual. The Company’s liability for workers’ compensation claims submitted
      and for claims incurred but not yet reported totaled $3,623, $3,843 and $2,877
      at June 30, 2007, December 30, 2006, and July 1, 2006,
      respectively.








**9.  SEGMENT
      REPORTING**





The
      Company has four reportable segments: Direct, Retail, Financial Services and
      Corporate Overhead and Other.  The Direct segment sells products
      through direct-mail catalogs and its e-commerce websites (Cabelas.com and
      complementary websites); the Retail segment sells products through destination
      retail stores of various sizes and formats; and the Financial Services segment
      issues co-branded credit cards.  Corporate Overhead and Other is the
      Company’s fourth segment primarily made up of land sales, employee discounts,
      corporate overhead and shared services.  The Company’s executive
      management, being its chief operating decision makers, assesses the performance
      of each operating segment based on an operating income measure.  This
      operating income measure is defined as net revenue less costs of merchandise
      and
      related acquisition expenses as well as certain directly identifiable and
      allocable operating costs as described below.  For the Direct segment,
      operating costs primarily consist of catalog development, production and
      circulation costs; e-commerce advertising costs and order processing
      costs.  Operating costs for the Retail segment primarily consist of
      labor and related benefits, advertising, depreciation and occupancy costs of
      destination retail stores.  For the Financial Services segment, these
      costs primarily consist of advertising and promotion, marketing fees,
      third-party services for processing credit card transactions, salaries and
      other
      general and administrative costs.  Expenses for the Corporate Overhead
      and Other segment include unallocated shared-service costs, general and
      administrative expenses, operations of various ancillary subsidiaries such
      as
      real estate development, travel and lodging (which are not aggregated with
      the
      other segments) and eliminations.  Unallocated shared-service costs
      include costs for services shared by two or more business segments (principally
      our Direct and Retail segments) and include receiving, distribution and storage
      costs of inventory, merchandising and quality assurance costs, as well as
      bonuses and corporate headquarters occupancy costs.  General and
      administrative expenses include costs associated with general corporate
      management and shared departmental services such as management information
      systems, finance, human resources and legal.





Segment
      assets are those directly used in or clearly allocable to an operating segment’s
      operations.  For the Direct segment, these assets primarily include
      prepaid catalog costs, fixed assets and goodwill.  For the Retail
      segment, assets primarily include inventory in the retail stores, land,
      buildings, fixtures and leasehold improvements.  For the Financial
      Services segment, assets primarily include cash, credit card loans, buildings
      and fixtures.  Assets for the Corporate Overhead and Other segment
      include corporate headquarters, merchandise distribution inventory, shared
      technology infrastructure as well as corporate cash and cash equivalents,
      economic development bonds, prepaid expenses and other
      assets.  Depreciation, amortization and capital expenditures of each
      segment are allocated to each respective segment.  Unallocated assets
      include corporate cash and cash equivalents, merchandise distribution inventory
      for the Retail or Direct segments, the net book value of corporate facilities
      and related information systems, deferred income taxes and other corporate
      long-lived assets. Intercompany revenue between segments has been eliminated
      in
      consolidation.





Results
      by business segment are presented in the following table for the three and
      six
      months ended June 30, 2007, and July 1, 2006, respectively:








**Three
                months ended June 30, 2007**
            
            **Direct**
            
            
            **Retail**
            
            
            **Financial**
              **Services**
            
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            
            **Total**Revenue
                from external
            
            $
            203,487
            
            
            $
            199,029
            
            
            $
            41,166
            
            
            $
            7,517
            
            
            $
            451,199Revenue
                (loss) from internal
            
            
            374
            
            
            
            534
            
            
            
            (152
            )
            
            
            (756
            )
            
            
            -Total
                revenue
            
            
            203,861
            
            
            
            199,563
            
            
            
            41,014
            
            
            
            6,761
            
            
            
            451,199Operating
                income (loss)
            
            
            33,966
            
            
            
            22,108
            
            
            
            8,833
            
            
            
            (44,655
            )
            
            
            20,252As
                a % of
                revenue
            
            
            16.7
            %
            
            
            11.1
            %
            
            
            21.5
            %
            
            N/A
            
            
            
            4.5
            %Depreciation
                and amortization
            
            
            1,119
            
            
            
            6,645
            
            
            
            268
            
            
            
            5,759
            
            
            
            13,791Assets
            
            
            422,959
            
            
            
            758,521
            
            
            
            338,437
            
            
            
            290,782
            
            
            
            1,810,699





12
 Table
          of Contents








**Three
                months ended July 1, 2006**
            
            **Direct**
            
            
            **Retail**
            
            
            **Financial**
              **Services**
            
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            
            **Total**Revenue
                from external
            
            $
            194,658
            
            
            $
            150,969
            
            
            $
            33,172
            
            
            $
            8,464
            
            
            $
            387,263Revenue
                (loss) from internal
            
            
            351
            
            
            
            480
            
            
            
            (152
            )
            
            
            (679
            )
            
            
            -Total
                revenue
            
            
            195,009
            
            
            
            151,449
            
            
            
            33,020
            
            
            
            7,785
            
            
            
            387,263Operating
                income (loss)
            
            
            28,689
            
            
            
            16,504
            
            
            
            7,091
            
            
            
            (37,739
            )
            
            
            14,545As
                a % of
                revenue
            
            
            14.7
            %
            
            
            10.9
            %
            
            
            21.5
            %
            
            N/A
            
            
            
            3.8
            %Depreciation
                and amortization
            
            
            1,103
            
            
            
            4,205
            
            
            
            221
            
            
            
            4,986
            
            
            
            10,515Assets
            
            
            390,752
            
            
            
            528,310
            
            
            
            248,910
            
            
            
            359,970
            
            
            
            1,527,942







**Six
                months ended June 30, 2007**
            
            **Direct**
            
            
            **Retail**
            
            
            **Financial**
              **Services**
            
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            
            **Total**Revenue
                from external
            
            $
            441,029
            
            
            $
            383,276
            
            
            $
            77,050
            
            
            $
            11,935
            
            
            $
            913,290Revenue
                (loss) from internal
            
            
            717
            
            
            
            1,041
            
            
            
            (302
            )
            
            
            (1,456
            )
            
            
            -Total
                revenue
            
            
            441,746
            
            
            
            384,317
            
            
            
            76,748
            
            
            
            10,479
            
            
            
            913,290Operating
                income (loss)
            
            
            66,459
            
            
            
            39,463
            
            
            
            17,392
            
            
            
            (90,671
            )
            
            
            32,643As
                a % of
                revenue
            
            
            15.0
            %
            
            
            10.3
            %
            
            
            22.7
            %
            
            N/A
            
            
            
            3.6
            %Depreciation
                and amortization
            
            
            2,127
            
            
            
            12,778
            
            
            
            532
            
            
            
            11,607
            
            
            
            27,044Assets
            
            
            422,959
            
            
            
            758,521
            
            
            
            338,437
            
            
            
            290,782
            
            
            
            1,810,699






**Six
                months ended July 1, 2006**
            
            **Direct**
            
            
            **Retail**
            
            
            **Financial**
              **Services**
            
            
            **Corporate**
              **Overhead**
              **and
                Other**
            
            
            **Total**Revenue
                from external
            
            $
            423,103
            
            
            $
            295,894
            
            
            $
            61,856
            
            
            $
            11,215
            
            
            $
            792,068Revenue
                (loss) from internal
            
            
            777
            
            
            
            898
            
            
            
            (302
            )
            
            
            (1,373
            )
            
            
            -Total
                revenue
            
            
            423,880
            
            
            
            296,792
            
            
            
            61,554
            
            
            
            9,842
            
            
            
            792,068Operating
                income (loss)
            
            
            61,693
            
            
            
            29,240
            
            
            
            14,126
            
            
            
            (76,311
            )
            
            
            28,748As
                a % of
                revenue
            
            
            14.6
            %
            
            
            9.9
            %
            
            
            22.9
            %
            
            N/A
            
            
            
            3.6
            %Depreciation
                and amortization
            
            
            2,234
            
            
            
            8,417
            
            
            
            441
            
            
            
            9,542
            
            
            
            20,634Assets
            
            
            390,752
            
            
            
            528,310
            
            
            
            248,910
            
            
            
            359,970
            
            
            
            1,527,942





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The
      components and amounts of net revenue for the Financial Services segment
      were as follows for the periods presented:





**Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Interest
                and fee income, net of provision for loan losses
            
            $
            6,334
            
            
            $
            4,503
            
            
            $
            11,094
            
            
            $
            10,988Interest
                expense
            
            
            (1,205
            )
            
            
            (1,174
            )
            
            
            (2,445
            )
            
            
            (2,301
            )Net
                interest income, net of provision for loan losses
            
            
            5,129
            
            
            
            3,329
            
            
            
            8,649
            
            
            
            8,687Non-interest
                income:Securitization
                income
            
            
            50,026
            
            
            
            42,061
            
            
            
            93,636
            
            
            
            75,780Other
                non-interest
                income
            
            
            11,308
            
            
            
            9,370
            
            
            
            22,480
            
            
            
            18,081Total
                non-interest
                income
            
            
            61,334
            
            
            
            51,431
            
            
            
            116,116
            
            
            
            93,861Less:
                Customer rewards costs
            
            
            (25,449
            )
            
            
            (21,740
            )
            
            
            (48,017
            )
            
            
            (40,994
            )Financial
                Services revenue
            
            $
            41,014
            
            
            $
            33,020
            
            
            $
            76,748
            
            
            $
            61,554





The
      Company’s products are principally marketed to individuals within the United
      States.  Net sales realized from other geographic markets, primarily
      Canada, have collectively been less than 2.0% of consolidated net merchandise
      sales in each reported period.  No single customer accounts for ten
      percent or more of consolidated net sales.  No single product or
      service accounts for a significant percentage of the Company’s consolidated
      revenue.








**10.  SUPPLEMENTAL
      CASH
      FLOW INFORMATION AND OTHER INFORMATION**





The
      following table sets forth non-cash financing and investing activities and
      other
      cash flow information for the periods presented.





**June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Non-cash
                financing and investing activities:Unpaid
                purchases of property
                and equipment included in accounts payable(1)
            
            $
            47,398
            
            
            $
            40,612Capital
                lease
                obligations
            
            
            202
            
            
            
            5,649Recording
                liabilities for
                unrecognized tax benefits and related interest expense  as a
                reduction of beginningretained
                earnings on initial
              adoption
                of FIN
                48
            
            
            1,755
            
            
            
            --**Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Other
                cash flow information:Interest
                paid, net of
                capitalized interest of $383 and $149
            
            $
            11,513
            
            
            $
            5,929Income
                taxes,
                net
            
            
            31,030
            
            
            
            30,846





(1)
            Amounts
                reported as unpaid purchases are recorded as cash outflows from investing
                activities for purchases of property and equipment in the consolidated
                statements of cash flows in the period they are
                paid.





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During
      the three months ended June 30, 2007, the assets of the Company’s hotel
      operation in Sidney, Nebraska, were sold resulting in a pre-tax gain of $1,236
      (or approximately $772 after-tax, or $0.01 per diluted share).  The
      gain on sale is classified in the Other Income section of the Company’s
      condensed consolidated statements of income.








**11.  STOCK
      OPTION
      PLANS**





In
      March
      2004, the Company adopted the Cabela’s Incorporated 2004 Stock Plan (the “2004
      Plan”). The 2004 Plan provides for the grant of non-qualified stock options,
      incentive stock options, stock appreciation rights, restricted stock, restricted
      stock units and other stock-based awards to employees, directors and
      consultants. On May 15, 2007, the Company’s shareholders approved certain
      amendments to the 2004 Plan, including an amendment to increase the number
      of
      shares authorized for issuance by 3,500,000 shares.  As of June 30,
      2007, a maximum of 6,252,500 shares of the Company’s common stock, subject to
      adjustment in the event of a stock split, consolidation or stock dividend,
      may
      be subject to awards under the 2004 Plan. On May 15, 2007, the Company granted
      1,035,500 options to employees at an exercise price of $22.37 per
      share.  These options vest over three years and have an eight-year
      term.  On May 16, 2007, the Company granted 10,000 options to its
      non-employee directors at an exercise price of $22.32 per
      share.  These options vest on the first anniversary of the grant date
      and have a ten-year term.  As of June 30, 2007, there were 3,633,639
      shares subject to options and 2,493,934 shares authorized and available for
      grant under the 2004 Plan.





The
      Company has an Employee Stock Purchase Plan (the “ESPP”) under which shares of
      common stock are available to be purchased by the Company’s
      employees.  The maximum number of shares of common stock available for
      issuance under the ESPP is 1,835,000, subject to adjustment in the event of
      a
      stock split, consolidation or stock dividend.  During the three and
      six months ended June 30, 2007, 44,972 shares and 66,800 shares, respectively,
      were issued under the ESPP.  As of June 30, 2007, 1,512,082 shares
      were authorized and available for issuance.  Since inception of the
      ESPP, there have been 91,861 shares issued under market purchases rather than
      as
      new issuances.  The Company intends to utilize market purchases
      whenever possible.





The
      Company’s 1997 Stock Option Plan (the “1997 Plan”) provided for the granting of
      incentive stock options and nonqualified stock options to purchase shares of
      the
      Company’s common stock to officers, directors and key employees.  As
      of June 30, 2007, there were 1,800,262 shares subject to options under the
      1997
      Plan and no shares available for grant.





As
      of
      June 30, 2007, the Company’s total unrecognized deferred share-based
      compensation balance for unvested shares, net of expected forfeitures, was
      approximately $9,037 net of tax, which is expected to be amortized over a
      weighted average period of 4.0 years.





The
      Company’s consolidated net income for the three and six months ended June 30,
      2007, includes share-based compensation expense of $1,259 ($787 after-tax,
      or
      $0.01 per diluted share) and $2,115 ($1,322 after-tax, or $0.02 per diluted
      share), respectively, compared to $831 ($526 after-tax, or $0.01 per diluted
      share) and $1,634 ($1,034 after-tax, or $0.02 per diluted share) for the
      comparable fiscal 2006 periods.  This share-based compensation expense
      is recorded as a component of selling, general and administrative expenses
      in
      the condensed consolidated statements of income.





There
      were 416,683 options exercised during the six months ended June 30, 2007. The
      aggregate intrinsic value of awards exercised was $7,252 during the six months
      ended June 30, 2007, compared to $2,799 during the six months ended July 1,
      2006.  At June 30, 2007, based on the Company’s closing stock price of
      $22.13 per share, a total of 2,504,054 awards were in-the-money and
      exercisable.







**12.  RECENTLY
      ISSUED
      ACCOUNTING PRONOUNCEMENTS**


Financial
      Accounting Statement (“FAS”) No. 155, *Accounting for Certain Hybrid
      Financial Instruments – an**amendment to FASB Statements No. 133 and
      140* (“FAS 155”) is effective the beginning of fiscal 2007 for the
      Company.  FAS 155 addresses issues which had arisen related to FAS
      No.133, *Accounting for Derivative Instruments and Hedging
      Activities*.  FAS 155 allows, among other provisions, a company to
      elect fair value measurement of instruments in cases in which a derivative
      would
      otherwise have to be bifurcated.  The provisions of this statement had
      no effect on the Company’s financial position or results of
      operations.


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FAS
      No.
      156, *Accounting for Servicing of Financial Assets – an amendment of FASB**Statement No. 140* (“FAS 156”) is effective the beginning of fiscal
      2007 for the Company.  FAS 156 requires that an entity separately
      recognize a servicing asset or servicing liability when it undertakes an
      obligation to service a financial asset under a servicing contract in certain
      situations.  Such servicing assets or servicing liabilities are
      required to be initially measured at fair value, if practicable.  FAS
      156 also allows an entity to choose one of two methods when subsequently
      measuring its servicing assets and servicing liabilities: (i) the amortization
      method or (ii) the fair value measurement method.  The provisions of
      this statement had no effect on the Company’s financial position or results of
      operations.





Emerging
      Issues Task Force (“EITF”) Issue No. 06-3, *How Taxes Collected From**Customers and Remitted to Governmental Authorities Should Be
      Presented
      in the Income Statement (That Is, Gross versus Net Presentation)* is
      effective for financial statement presentations beginning in fiscal 2007 for
      the
      Company.  EITF 06-3 specifies that entities should present taxes
      imposed concurrently on a specific revenue-producing transaction between a
      seller and a customer in the income statement on either a gross or a net basis
      based on their accounting policy. Disclosure is required if such taxes are
      significant and presented on a gross basis. The Company presents such taxes
      on a
      net basis.  The adoption of this statement did not have a material
      effect on the Company’s financial position or results of
      operations.





In
      September 2006, the Financial Accounting Standards Board (“FASB”) issued FAS No.
      157, *Fair Value Measurements* (“FAS 157”).  This statement
      enhances existing guidance for measuring and disclosing the fair value of assets
      and liabilities for more consistency and comparability.  FAS 157
      provides a single definition of fair value, together with a framework for
      measuring it, and requires expanded disclosures to provide information about
      the
      extent to which fair value is used to measure assets and liabilities, the
      methods and assumptions used to measure fair value, and the effect of fair
      value
      measures on earnings.  FAS 157 is effective for financial statements
      issued in fiscal years beginning after November 15, 2007, or beginning in fiscal
      2008 for the Company.  Management does not believe that the adoption
      of the provisions of this statement will have a material effect on the Company’s
      financial position or results of operations.





In
      February 2007, the FASB issued FAS No. 159, *The Fair Value Option for
      Financial Assets and Financial Liabilities – Including an Amendment of FASB
      Statement No.*115 (“FAS 159”).  This statement permits entities
      to choose to measure many financial instruments and certain other items at
      fair
      value. The objective of FAS 159 is to improve financial reporting by providing
      entities with the opportunity to mitigate volatility in reported earnings caused
      by measuring related assets and liabilities differently without having to apply
      complex hedge accounting provisions. Most of the provisions of this statement
      apply only to entities that elect the fair value option. However, the amendment
      to FASB Statement No. 115, *Accounting for Certain Investments in Debt and
      Equity Securities,* applies to all entities with available-for-sale and
      trading securities.  FAS 159 permits entities to make an irrevocable
      election to carry almost any financial instrument at fair value.  Upon
      adoption of FAS 159, when an entity elects to apply the fair value option to
      specific items, the entity reports the difference between the carrying value
      and
      the fair value of the items as a cumulative-effect adjustment to the opening
      balance of retained earnings.  A business entity will report
      unrealized gains and losses on items for which the fair value option has been
      elected in earnings at each subsequent reporting date. FAS 159 is effective
      as
      of the beginning of an entity’s first fiscal year that begins after November 15,
      2007, or beginning in fiscal 2008 for the Company.  Management is
      evaluating the impact of this statement to the Company but does not believe
      that
      the adoption of the provisions of this statement will have a material effect
      on
      the Company’s financial position, liquidity or results of
      operations.


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 Table
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**Item
      2. Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations**





This
      report contains “forward-looking statements” that are based on our beliefs,
      assumptions and expectations of future events, taking into account the
      information currently available to us.  All statements other than
      statements of current or historical fact contained in this report are
      forward-looking statements within the meaning of the Private Securities
      Litigation Reform Act.  The words “believe,” “may,” “should,”
“anticipate,” “estimate,” “expect,” “intend,” “objective,” “seek,” “plan,” and
      similar statements are intended to identify forward-looking
      statements.  Forward-looking statements involve risks and
      uncertainties that may cause our actual results, performance or financial
      condition to differ materially from the expectations of future results,
      performance or financial condition we express or imply in any forward-looking
      statements.  These risks and uncertainties include, but are not
      limited to:  the ability to negotiate favorable purchase, lease and/or
      economic development arrangements for new destination retail store locations;
      expansion into new markets; market saturation due to new destination retail
      store openings; the acceleration of new destination retail store openings;
      the
      rate of growth of general and administrative expenses associated with building
      a
      strengthened corporate infrastructure to support our growth initiatives;
      increasing competition in the outdoor segment of the sporting goods industry;
      the cost of our products; supply and delivery shortages or interruptions caused
      by system changes or other factors; adverse weather conditions, unseasonal
      weather conditions which impact the demand for our products; fluctuations in
      operating results; adverse economic conditions causing a decline in
      discretionary consumer spending; the cost of fuel increasing; delays in road
      construction and/or traffic planning around our new destination retail stores;
      road construction around our existing destination retail stores; labor shortages
      or increased labor costs; changes in consumer preferences and demographic
      trends; increased government regulation; inadequate protection of our
      intellectual property; decreased interchange fees received by our financial
      services business as a result of credit card industry litigation; other factors
      that we may not have currently identified or quantified; and other risks,
      relevant factors and uncertainties identified in our filings with the SEC
      (including the information set forth in the “Risk Factors” section of our Annual
      Report on Form 10-K for the fiscal year ended December 30, 2006 (our “2006 Form
      10-K”), and in Part II, Item 1A of our Quarterly Report on Form 10-Q for the
      fiscal quarter ended March 31, 2007), which filings are available at the SEC’s
      website at www.sec.gov.  Given the risks and uncertainties
      surrounding forward-looking statements, you should not place undue reliance
      on
      these statements.  Our forward-looking statements speak only as of the
      date of this report.  Other than as required by law, we undertake no
      obligation to update or revise forward-looking statements, whether as a result
      of new information, future events or otherwise.





The
      following discussion and analysis of financial condition, results of operations,
      liquidity and capital resources should be read in conjunction with our audited
      consolidated financial statements and notes thereto included in our 2006 Form
      10-K, as filed with the SEC, and our unaudited interim condensed consolidated
      financial statements and the notes thereto appearing elsewhere in this
      report.








**Critical
      Accounting Policies and Use of Estimates**





Our
      condensed consolidated financial statements have been prepared in accordance
      with accounting principles generally accepted in the United States of America.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of assets, liabilities, revenue
      and
      expenses and related disclosures of contingent assets and liabilities. The
      estimates and assumptions are evaluated on a periodic basis and are based on
      historical experience and various other factors that are believed to be
      reasonable under the circumstances. Actual results may differ significantly
      from
      these estimates.





Except
      for our accounting policy on inventories, our critical accounting policies
      and
      use of estimates utilized in the preparation of the condensed consolidated
      financial statements as of June 30, 2007, remain unchanged from December 30,
      2006.  Effective December 31, 2006, we elected to change our method of
      valuing inventories from the last-in, first-out (“LIFO”) method to the first-in,
      first-out (“FIFO”) method.  See Note 2 “Change in Accounting
      Principles” for additional information on this change in
      methodology.  The effect of this change in accounting principle for
      the three and six months ended June 30, 2007, and July 1, 2006, was not
      material.  Our accounting policy on inventories effective the
      beginning of fiscal 2007 is described in the following paragraph.  Our
      remaining critical accounting policies are discussed in our 2006 Form 10-K,
      as
      filed with the SEC, and should be read in conjunction with the annual
      consolidated financial statements and notes thereto.





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 Table
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**Inventories:**





Merchandise
      inventories, net of
      allowances for shrink, returned or damaged goods and obsolescence are stated
      at
      the lower of cost or market. Cost is determined using the first-in first-out
      method, or FIFO, for all inventories. Prior to fiscal 2007, cost was determined
      using the last-in, first-out method (dollar value, link-chain) for all
      inventories except those inventories owned by two of our wholly-owned
      subsidiaries, Van Dyke Supply Company, Inc. and Wild Wings, LLC, which used
      the
      FIFO method. If all inventories for fiscal 2006 and 2005 had been valued using
      the FIFO method, which approximates replacement cost, the stated inventory
      value
      would have been equivalent to the values at the fiscal years ended 2006 and
      2005, using the LIFO method. All inventories are in one inventory class and
      are
      classified as finished goods.





We
      estimate a provision for shrink
      based on historical cycle count adjustments and periodic physical inventories.
      These estimates may vary significantly due to a variety of internal and external
      factors. The allowance for damaged goods from returns is estimated based on
      historical experience. Most items that are returned and slightly damaged are
      sent to our Retail segment, marked down and sold. We also reserve our inventory
      for obsolete or slow moving inventory based on inventory performance reports
      and, in certain cases, by specific identification of slow moving or obsolete
      inventory. The inventory is grouped and analyzed in various
      categories.  All categories that are subject to obsolescence are
      reserved for based upon management’s estimates, which estimates reflect past
      experience and management’s assessment of future merchandising trends. Our most fashion-sensitive
      categories of merchandise are apparel and footwear. However, a significant
      percentage of our inventory has a low fashion component, such as hunting,
      camping, and fishing gear. Slow moving inventory is marked down and sold
      primarily in the ‘Bargain Cave’ section of our merchandising
      business.








**Overview**





We
      are
      the world’s largest direct marketer, and a leading specialty retailer, of
      hunting, fishing, camping and related outdoor merchandise.  We serve
      people who enjoy the outdoor lifestyle through our well-established direct
      business and our growing number of destination retail
      stores.  Additionally, we benefit from our credit card operation that
      strategically supports our merchandising business by reinforcing our brand
      and
      increasing customer loyalty.  We report our business operations in the
      following segments:




●
              Direct
                  - consisting of our catalogs and websites;●
              Retail
                  - consisting of our destination retail stores;●
              Financial
                  Services - consisting of our credit card business managed and administered
                  by our wholly-owned bank subsidiary, World’s Foremost Bank;
                  and●
              Corporate
                  Overhead and Other - consisting of corporate and other expenses,
                  aggregated non-merchandising outfitter services and our real estate
                  sales.




In
      the
      following discussion, where we refer to our “merchandising business” we mean our
      Direct and Retail segment operations, collectively.  Where we make
      reference to our “bank,” we are referring to the operations of our Financial
      Services segment; and where we refer to “corporate overhead” or our “other”
segment we mean corporate and other expenses and operations pertaining to our
      Other segment (non-merchandising outfitter services and real estate sales),
      respectively.





Net
      income for the three months ended June 30, 2007, was $11.3 million, or $0.17
      per
      diluted share, compared to net income of $8.4 million, or $0.13 per diluted
      share, for the three months ended July 1, 2006.  For the six months
      ended June 30, 2007, net income was $18.4 million, or $0.27 per diluted share,
      compared to net income of $17.4 million, or $0.26 per diluted share, for the
      six
      months ended July 1, 2006.  In the second quarter of fiscal 2007, we
      sold the assets of our hotel operation in Sidney, Nebraska, resulting in a
      pre-tax gain of $1.2 million ($0.8 million after-tax, or $0.01 per diluted
      share).  The gain on sale is classified in the Other Income section of
      our condensed consolidated statements of income.





We
      continue to focus our efforts on expanding our merchandising business,
      increasing exposure to our loyalty programs, increasing comparable store sales,
      improving our operating margin and enhancing our systems.  Total
      revenue increased $63.9 million, or 16.5%, to $451.2 million for the three
      months ended June 30, 2007,


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 Table
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compared
      to $387.3 million for the three months ended July 1, 2006.  For the
      six months ended June 30, 2007, total revenue increased $121.2 million, or
      15.3%, to $913.3 million, compared to $792.1 million for the six months ended
      July 1, 2006.





Our
      three
      main business segments – Retail, Direct and Financial Services – continued to
      show significant revenue increases for the three and six months ended June
      30,
      2007, compared to the respective periods of fiscal 2006.  Retail
      revenue increased primarily due to our four new destination retail stores that
      opened in the last half of fiscal 2006 and our Hazelwood, Missouri, store that
      opened in April 2007.  Retail revenue growth was slightly impacted by
      decreases in comparable store sales of 0.8% for both the three and six months
      ended June 30, 2007, compared to the fiscal 2006 periods.  Initiatives
      to expand our Direct business also resulted in increased revenue for the fiscal
      2007 periods compared to the respective periods of fiscal 2006. Increases in
      Financial Services revenue primarily resulted from growth in active credit
      card
      accounts.





Our
      operating margin increased to 4.5% for the three months ended June 30, 2007,
      compared to 3.8% for the three months ended July 1, 2006.  Our
      operating margin was 3.6% for both the six months ended June 30, 2007, and
      July
      1, 2006.  Our operating margins for our Direct and Retail segments
      increased for the three and six months ended June 30, 2007, compared to the
      respective fiscal 2006 periods reflecting our emphasis on controlling costs
      and
      improving efficiencies while continuing our merchandise business
      expansion.





Corporate
      overhead operating expenses increased during the three- and six-month fiscal
      2007 periods compared to the fiscal 2006 periods.  This increase in
      corporate overhead was primarily due to (i) increased salaries and benefits
      due
      to more employees in our distribution centers compared to 2006, (ii) a higher
      bonus accrual comparing the respective periods and (iii) increased depreciation
      expense associated with system upgrades that were not in service in the fiscal
      2006 periods.





Beginning
      in fiscal 2007, we changed the targets and criteria used to measure performance
      under our short-term cash incentive plan.  For most participants in
      fiscal 2007, each target cash bonus opportunity will be based upon the
      achievement of corporate financial objectives as well as upon the achievement
      of
      pre-established individual performance goals.  Estimating the overall
      achievement of these goals for all participants results in a higher accrual
      and
      expense totaling approximately $1.9 million and $4.6 million, respectively,
      for
      the three and six months ended June 30, 2007, compared to the fiscal 2006
      periods.  The expense related to this bonus plan is reflected in the
      Corporate Overhead and Other operating segment.  Expressed as a
      percentage of revenue, we expect the bonus expense for the third and fourth
      quarters of fiscal 2007 to be lower compared to the respective fiscal 2006
      quarters.








**Retail
      Store Expansion**





At
      the
      end of fiscal 2006, we operated 18 destination retail stores.  In
      April 2007, we opened a destination retail store in Hazelwood,
      Missouri.  For fiscal 2007, we plan to open a total of eight
      destination retail stores, which will increase our total retail square footage
      by approximately 1.3 million square feet, or 48.3%, bringing our total retail
      store square footage to approximately 4.0 million square feet at the end of
      2007.  The remaining seven destination retail stores announced for
      openings in 2007 are Hoffman Estates, Illinois; East Hartford, Connecticut;
      Gonzales, Louisiana; Hammond, Indiana; Reno, Nevada; Post Falls, Idaho; and
      Lacey, Washington.





We
      have
      also announced plans for retail stores to be opened in Rapid City, South Dakota;
      Wheat Ridge, Colorado; East Rutherford, New Jersey; Adairsville, Georgia;
      Greenwood, Indiana; Scarborough, Maine and Montreal, Canada. We have identified
      many locations that may be suitable for new destination retail stores as part
      of
      our retail expansion strategy. We are beginning to locate our stores closer
      to more densely populated areas, and we believe that smaller-format destination
      retail stores provide more opportunities to facilitate faster retail expansion.
      Our new store development model will be more adaptable to different regional
      markets, provide a more cost-effective layout of product merchandise and also
      make each store a unique destination tailored to its region in terms of both
      product offerings and store features that our customers have come to
      expect.  Through our extensive customer database generated by our
      Direct business and additional demographic and competitive research, we can
      identify geographic areas with a high concentration of customers that represent
      potential new markets for our destination retail stores. We believe there are
      many additional markets throughout North America that could potentially support
      one of our destination retail stores. We also believe that our customer database
      gives us a competitive advantage in tailoring product offerings in each of
      our
      destination retail stores to reflect our customers' regional
      preferences.


19
 Table
          of Contents





We
      had
      previously announced that beginning in January 2008 we would incorporate certain
      customer service enhancements in our destination retail stores.  We
      have moved up our execution date for these changes and, beginning in the fourth
      quarter of fiscal 2007, we will begin incorporating customer service
      enhancements into certain of our existing destination retail stores that are
      designed to increase customer convenience, purchasing and delivery
      options.  We expect that these enhancements will be available in most
      existing destination retail stores in early 2008 and in all future destination
      retail stores.  These enhancements are expected to include Internet
      kiosks, catalog order desks and in-store pick-up areas for catalog and Internet
      purchases.  Because these enhancements will cause our Direct business
      to establish nexus in the states where retail stores incorporating the
      enhancements are located, we will begin collecting and remitting sales taxes
      on
      Direct business sales to customers located in these states when the enhancements
      are implemented.





Significant
      amounts of cash will be needed in order to open new destination retail stores.
      Depending upon the location and a variety of other factors, including store
      size
      and the amount of infrastructure improvements necessary, and based upon our
      prior experience, opening a single destination retail store generally requires
      expenditures in the range of $25.0 million to $60.0 million.  This
      amount includes the cost of real estate, site work, infrastructure improvements
      such as utilities and roads, buildings, equipment, fixtures (including
      taxidermy) and inventory.








**Results
      of Operations**





Our
      second fiscal quarter ended on the Saturday closest to June 30.  The
      three months ended June 30, 2007, and July 1, 2006, each consisted of 13 weeks,
      and the six months ended June 30, 2007, and July 1, 2006, each consisted of
      26
      weeks.  Our operating results expressed as a percentage of revenue
      were as follows for the periods presented.





**Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Revenue
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %
            
            
            100.00
            %Cost
                of revenue
            
            
            57.65
            %
            
            
            59.27
            %
            
            
            58.92
            %
            
            
            59.57
            %Gross
                profit ( exclusive of
                depreciation and amortization)
            
            
            42.35
            %
            
            
            40.73
            %
            
            
            41.08
            %
            
            
            40.43
            %Selling,
                general and administrative expenses
            
            
            37.86
            %
            
            
            36.97
            %
            
            
            37.50
            %
            
            
            36.80
            %Operating
                income
            
            
            4.49
            %
            
            
            3.76
            %
            
            
            3.58
            %
            
            
            3.63
            %Other
                income (expense):Interest
                income
            
            
            0.09
            %
            
            
            0.24
            %
            
            
            0.18
            %
            
            
            0.17
            %Interest
                expense
            
            
            (1.07
            )%
            
            
            (1.24
            )%
            
            
            (1.04
            )%
            
            
            (1.03
            )%Other
                income
                (net)
            
            
            0.48
            %
            
            
            0.68
            %
            
            
            0.48
            %
            
            
            0.71
            %Total
                other income (expense)
            
            
            (0.50
            )%
            
            
            (0.32
            )%
            
            
            (0.38
            )%
            
            
            (0.15
            )%Income
                before provision for income taxes
            
            
            3.99
            %
            
            
            3.44
            %
            
            
            3.20
            %
            
            
            3.48
            %Provision
                for income taxes
            
            
            1.49
            %
            
            
            1.28
            %
            
            
            1.18
            %
            
            
            1.28
            %Net
                income
            
            
            2.50
            %
            
            
            2.16
            %
            
            
            2.02
            %
            
            
            2.20
            %








20
 Table
          of Contents





**Segment
      Information**





The
      following table sets forth the revenue and operating income of each of our
      segments for the periods presented.





**Three
                months ended**
            
            
            **Six
                months ended****(Dollars
                in Thousands)**
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Direct
                revenue
            
            $
            203,861
            
            
            $
            195,009
            
            
            $
            441,746
            
            
            $
            423,880Retail
                revenue
            
            
            199,563
            
            
            
            151,449
            
            
            
            384,317
            
            
            
            296,792Financial
                Services revenue
            
            
            41,014
            
            
            
            33,020
            
            
            
            76,748
            
            
            
            61,554Other
                revenue
            
            
            6,761
            
            
            
            7,785
            
            
            
            10,479
            
            
            
            9,842Total
                revenue
            
            $
            451,199
            
            
            $
            387,263
            
            
            $
            913,290
            
            
            $
            792,068Direct
                operating income
            
            $
            33,966
            
            
            $
            28,689
            
            
            $
            66,459
            
            
            $
            61,693Retail
                operating income
            
            
            22,108
            
            
            
            16,504
            
            
            
            39,463
            
            
            
            29,240Financial
                Services operating income
            
            
            8,833
            
            
            
            7,091
            
            
            
            17,392
            
            
            
            14,126Other
                operating income (loss)
            
            
            (44,655
            )
            
            
            (37,739
            )
            
            
            (90,671
            )
            
            
            (76,311
            )Total
                operating
                income
            
            $
            20,252
            
            
            $
            14,545
            
            
            $
            32,643
            
            
            $
            28,748*As
                a Percentage of Total Revenue:*Direct
                revenue
            
            
            45.2
            %
            
            
            50.4
            %
            
            
            48.4
            %
            
            
            53.5
            %Retail
                revenue
            
            
            44.2
            %
            
            
            39.1
            %
            
            
            42.1
            %
            
            
            37.5
            %Financial
                Services revenue
            
            
            9.1
            %
            
            
            8.5
            %
            
            
            8.4
            %
            
            
            7.8
            %Other
                revenue
            
            
            1.5
            %
            
            
            2.0
            %
            
            
            1.1
            %
            
            
            1.2
            %Total
                revenue
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %*As
                a Percentage of Segment Revenue:*Direct
                operating income
            
            
            16.7
            %
            
            
            14.7
            %
            
            
            15.0
            %
            
            
            14.6
            %Retail
                operating income
            
            
            11.1
            %
            
            
            10.9
            %
            
            
            10.3
            %
            
            
            9.9
            %Financial
                Services operating income
            
            
            21.5
            %
            
            
            21.5
            %
            
            
            22.7
            %
            
            
            22.9
            %Total
                operating income (1)
            
            
            4.5
            %
            
            
            3.8
            %
            
            
            3.6
            %
            
            
            3.6
            %





(1)
            The
                percentage of total operating income is a percentage of total consolidated
                revenue.








**Three
      Months Ended June 30, 2007, Compared to Three Months Ended July 1,
      2006**





**Revenue**





Total
      revenue increased $63.9 million, or 16.5%, to $451.2 million for the three
      months ended June 30, 2007, compared to $387.3 million for the three months
      ended July 1, 2006, due to revenue growth in our Direct, Retail and Financial
      Services segments.





*Direct
      Revenue*.  Direct revenue includes sales from orders placed over
      the phone, by mail and through our website and includes customer shipping
      charges.  Direct revenue increased $8.9 million, or 4.5%, to $203.9
      million for the three months ended June 30, 2007, from $195.0 million for the
      2006 second quarter. Internet visits increased 28.3% in the three months ended
      June 30, 2007, compared to the three months ended July 1, 2006, as we
      continue to focus our efforts on utilizing marketing programs and search
      optimization programs to increase traffic to our website. The general product
      category that contributed the largest dollar volume increase to our Direct
      revenue for the three months ended June 30, 2007, compared to the fiscal 2006
      second quarter was camping.





*Retail
      Revenue*.  Retail revenue includes all sales at our destination
      retail stores.  Retail revenue increased $48.1 million, or 31.8%, to
      $199.6 million for the three months ended June 30, 2007, compared to $151.5
      million for the three months ended July 1, 2006, due to new store sales of
      $49.3
      million.  In April 2007, we opened a destination


21
 Table
          of Contents







retail
      store in Hazelwood, Missouri, and we opened four new stores in the last half
      of
      fiscal 2006.  These new store sales were partially offset by a slight
      decrease in comparable store sales of $1.1 million, or 0.8%, compared to the
      fiscal 2006 second quarter.  A store is included in our comparable
      store sales base on the first day of the month following the fifteen month
      anniversary of its opening or expansion by greater than 25% of total square
      footage.  The general product category that contributed the largest
      dollar volume increase to our Retail revenue growth for the three months ended
      June 30, 2007, compared to the three months ended July 1, 2006, was hunting
      equipment.





*Financial
      Services Revenue*.  Financial Services revenue includes
      securitization income, interest income and interchange and other fees net of
      reward program costs, interest expense, and credit losses from our credit card
      operations.  On a generally accepted accounting principles (“GAAP”)
      basis, Financial Services revenue increased $8.0 million, or 24.2%, to $41.0
      million for the three months ended June 30, 2007, from $33.0 million for the
      three months ended July 1, 2006.





For
      credit card loans securitized and sold, the loans are removed from our
      consolidated balance sheet and the net earnings on these securitized assets
      after paying outside investors are reflected as a component of our
      securitization income on a GAAP basis. The following table summarizes the
      results of our Financial Services segment for the three and six months ended
      June 30, 2007, and July 1, 2006, on a GAAP basis with interest and fee income,
      interest expense and provision for loan losses for the credit card loans
      receivable we own reported in net interest income. Non-interest income on a
      GAAP
      basis includes servicing income, gains on sales of loans and income recognized
      on our retained interests, as well as interchange income on the entire managed
      portfolio.





**Financial
                Services Revenue as Reported on a GAAP Basis:**
            
            **Three
                months ended**
            
            
            **Six
                months ended****June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Interest
                and fee income, net of provision for loan losses
            
            $
            6,334
            
            
            $
            4,503
            
            
            $
            11,094
            
            
            $
            10,988Interest
                expense
            
            
            (1,205
            )
            
            
            (1,174
            )
            
            
            (2,445
            )
            
            
            (2,301
            )Net
                interest income, net of provision for loan losses
            
            
            5,129
            
            
            
            3,329
            
            
            
            8,649
            
            
            
            8,687Non-interest
                income:Securitization
                income
                (1)
            
            
            50,026
            
            
            
            42,061
            
            
            
            93,636
            
            
            
            75,780Other
                non-interest
                income
            
            
            11,308
            
            
            
            9,370
            
            
            
            22,480
            
            
            
            18,081Total
                non-interest
                income
            
            
            61,334
            
            
            
            51,431
            
            
            
            116,116
            
            
            
            93,861Less:
                Customer rewards costs
            
            
            (25,449
            )
            
            
            (21,740
            )
            
            
            (48,017
            )
            
            
            (40,994
            )Financial
                Services revenue
            
            $
            41,014
            
            
            $
            33,020
            
            
            $
            76,748
            
            
            $
            61,554





(1)
            Includes
                pre-tax gains on sale of credit card loans of $4.3 million and $4.6
                million for the three months ended June 30, 2007, and July 1, 2006,
                respectively, and $11.8 million and $8.7 million for the six months
                ended
                June 30, 2007, and July 1, 2006,
                respectively.








In
      addition, we measure the results of our Financial Services business on a
      non-GAAP managed basis as presented in the following table labeled *Managed
      Financial Services Revenue on a non-GAAP Basis*. Interest income measured on
      a non-GAAP managed basis increased $10.2 million for the three months ended
      June
      30, 2007, compared to the fiscal 2006 second quarter. The increase in interest
      income was due to the increase in managed accounts and an increase in interest
      rates. Interchange income, net of rewards costs, increased $3.4 million.
      Interchange income was driven by net purchases, which increased 20.3%, but
      was
      partially offset by an increase in customer rewards costs of 17.1%. The net
      increases in interest income and interchange income were partially offset by
      an
      increase in interest expense of $4.3 million due to increases in securitized
      credit card loans, borrowings and interest rates. Compared to the three months
      ended July 1, 2006, the number of average active accounts increased by 15.8%
      to
      953,150 and the average balance per active account grew by 7.2% to approximately
      $1,686.


22
 Table
          of Contents







Our
      managed credit card loans represent credit card loans receivable we own plus
      securitized credit card loans. Since the financial performance of the managed
      portfolio has a significant impact on the earnings we will receive from
      servicing the portfolio, we believe the following table on a managed basis
      is
      important information to analyze our revenue in the Financial Services segment.
      This non-GAAP presentation reflects the financial performance of the credit
      card
      loans receivable we own plus those that have been sold for the three and six
      months ended June 30, 2007, and July 1, 2006, and includes the effect of
      recording the retained interest at fair value. Interest income, interchange
      income (net of customer rewards) and fee income on both the owned and
      securitized portfolio are recorded in their respective line items. Interest
      paid
      to outside investors on the securitized credit card loans is included with
      other
      interest costs and included in interest expense. Credit losses on the entire
      managed portfolio are included in provision for loan losses. Although our
      consolidated financial statements are not presented in this manner, management
      reviews the performance of its managed portfolio in order to evaluate the
      effectiveness of its origination and collection activities, which ultimately
      affects the income we will receive for servicing the portfolio. The
      securitization of credit card loans primarily converts interest income,
      interchange income, credit card fees, credit losses and other income and expense
      related to the securitized loans into securitization income.








**Managed
                Financial Services Revenue on a non-GAAP Basis:**
            
            **Three
                months ended**
            
            
            **Six
                months ended****(Dollars
                in Thousands)**
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Interest
                income
            
            $
            43,738
            
            
            $
            33,549
            
            
            $
            87,545
            
            
            $
            66,463Interchange
                income, net of customer rewards costs
            
            
            16,285
            
            
            
            12,889
            
            
            
            29,750
            
            
            
            23,993Other
                fee income
            
            
            6,039
            
            
            
            5,310
            
            
            
            12,077
            
            
            
            10,473Interest
                expense
            
            
            (19,551
            )
            
            
            (15,300
            )
            
            
            (38,411
            )
            
            
            (29,327
            )Provision
                for loan losses
            
            
            (7,110
            )
            
            
            (6,050
            )
            
            
            (14,443
            )
            
            
            (11,912
            )Other
            
            
            1,613
            
            
            
            2,622
            
            
            
            230
            
            
            
            1,864Managed
                Financial Services revenue
            
            $
            41,014
            
            
            $
            33,020
            
            
            $
            76,748
            
            
            $
            61,554***As
                a Percentage of Average Managed Credit Card
                Loans*****Managed
                Financial Services Revenue:**Interest
                income
            
            
            10.9
            %
            
            
            10.4
            %
            
            
            11.1
            %
            
            
            10.4
            %Interchange
                income, net of customer rewards costs
            
            
            4.1
            %
            
            
            4.0
            %
            
            
            3.8
            %
            
            
            3.8
            %Other
                fee income
            
            
            1.5
            %
            
            
            1.6
            %
            
            
            1.5
            %
            
            
            1.6
            %Interest
                expense
            
            
            (4.9
            )%
            
            
            (4.7
            )%
            
            
            (4.9
            )%
            
            
            (4.6
            )%Provision
                for loan losses
            
            
            (1.8
            )%
            
            
            (1.9
            )%
            
            
            (1.8
            )%
            
            
            (1.9
            )%Other
            
            
            0.4
            %
            
            
            0.8
            %
            
            
            0.0
            %
            
            
            0.4
            %Managed
                Financial Services revenue
            
            
            10.2
            %
            
            
            10.2
            %
            
            
            9.7
            %
            
            
            9.7
            %Average
                reported credit card loans
            
            $
            140,609
            
            
            $
            127,638
            
            
            $
            141,021
            
            
            $
            125,262Average
                managed credit card loans
            
            $
            1,606,616
            
            
            $
            1,295,131
            
            
            $
            1,583,918
            
            
            $
            1,274,653








**Gross
      Profit**





We
      define
      gross profit as revenue minus cost of revenue.  Cost of revenue for
      our merchandising business includes cost of merchandise, shipping costs,
      inventory shrink and other miscellaneous costs.  However, it does not
      include occupancy costs, depreciation and amortization, direct labor or
      warehousing costs, which are included in selling, general and administrative
      expenses.  Our Financial Services segment does not have costs
      classified as cost of revenue.  Other cost of revenue includes the
      basis in land that we have sold.





Gross
      profit increased $33.4 million, or 21.1%, to $191.1 million for the three months
      ended June 30, 2007, from $157.7 million for the three months ended July 1,
      2006.  Gross profit as a percentage of revenue increased 170 basis
      points to 42.4% for the three months ended June 30, 2007, from 40.7% for the
      three months ended July 1,


23
 Table
          of Contents







2006.  The
      170 basis points increase in gross profit as a percentage of revenue was due
      to
      a 130 basis point increase in the gross profit of our merchandising business
      as
      a percentage of merchandising revenue as well as an increase in our Financial
      Services revenue, which does not have any corresponding increase in cost of
      revenue.





*Merchandising
      Business.* The gross profit of our merchandising business increased $25.0
      million, or 20.8%, to $145.0 million for the three months ended June 30, 2007,
      from $120.0 million for the three months ended July 1, 2006. The gross profit
      of
      our merchandising business increased 130 basis points as a percentage of
      merchandise revenue to 35.9% for the three months ended June 30, 2007, compared
      to 34.6% for the three months ended July 1, 2006. This increase in our
      merchandising gross profit over the fiscal 2006 quarter was primarily
      attributable to improvements in merchandising practices and to improved
      operations which have helped reduce our inventory shrink as well as our obsolete
      and slow moving inventory levels.  In addition, our shipping margin -
      the shipping income we collect less the cost we pay to ship merchandise to
      our
      customers - increased by $1.5 million, or 0.4% of merchandise
      revenue.








**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative (“SG&A”) expenses include directly identifiable
      operating costs and other expenses, as well as depreciation and
      amortization.  SG&A expenses on a consolidated basis increased
      $27.7 million, or 19.3%*,* to $170.9 million for the three months ended
      June 30, 2007, from $143.2 million for the three months ended July 1, 2006.
      SG&A expenses were 37.9% of revenue for the three months ended June 30,
      2007, compared to 37.0% for the three months ended July 1,
      2006.  SG&A was higher for the three months ended June 30, 2007,
      compared to the fiscal 2006 second quarter primarily due to (i) increased
      salaries and benefits primarily because of more employees in our distribution
      centers compared to 2006, (ii) a higher bonus accrual comparing the respective
      periods due to timing differences, (iii) increased Internet marketing costs
      and
      (iv) increased depreciation expense associated with new stores and system
      upgrades that were not in service in the fiscal 2006 quarter.




The most significant factors contributing to the increase in SG&A expenses
          by segment for the three months ended June 30, 2007, compared to the fiscal
          2006
          second quarter included:


●
            *Other*
                SG&A expenses increasing approximately $7.3 million.
              
              This
                net increase was primarily a result of increases in wages and related
                benefits of $3.2 million mostly due to increases in personnel in
                our
                distribution centers as our merchandise revenue growth
                continues.  In addition, there was an increase in bonus expense
                of $1.9 million compared to the fiscal 2006 second quarter primarily
                related to a change in the performance measurement under our short-term
                cash incentive plan. Depreciation expense increased $0.8 million
                due to
                system upgrades that were not in service in the fiscal 2006
                quarter.  Equipment and software costs decreased $0.7 million
                compared to the fiscal 2006 second quarter due to additional project
                costs
                in 2006 related to system upgrades.  Total Other SG&A costs
                as a percentage of consolidated revenue remained flat at 11.0% for
                the
                three months ended June 30, 2007, compared to the three months ended
                July
                1, 2006.●
            *Direct*SG&A expenses increasing approximately $2.3 million.
              
              The
                  net increase in Direct SG&A was primarily due to an increase in Direct
                  marketing costs of $1.3 million mainly associated with costs promoting
                  our
                  website.  Direct marketing costs increased to $28.6 million, or
                  4.8%, for the three months ended June 30, 2007, from $27.3 million
                  for the
                  three months ended July 1, 2006.  As a percentage of Direct
                  revenue, Direct marketing costs were 14.0% for both the three month
                  periods ended June 30, 2007 and July 1, 2006. Despite postage increases,
                  we managed our print, paper and internal production costs to reduce
                  overall catalog costs comparing the respective
                  quarters.  However, costs related to our website have increased
                  comparing the second quarter of fiscal 2007 to the second quarter
                  of
                  fiscal 2006.  Historically,
                  we have
                  disclosed catalog costs only as a percentage of Direct revenue
                  as an
                  indicator for catalog productivity.As our Direct
                  business has grown, certain marketing costs have become a more
                  meaningful
                  number.  Accordingly, we believe
                  Direct
                  marketing costs, which includes catalog costs,provides
                  a more
                  meaningful representation of the performance of our Direct
                  business.Incidental equipment and software expenses
                  increased by $1.0 million, specifically related to our
                  website.  Increases in Direct SG&A were partially offset by
                  the marketing fee paid to the Direct segment from the Financial
                  Services
                  segment which increased $1.2 million over the 2006 quarter, or
                  0.6% of
                  Direct revenue.





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●
            *Retail*SG&A expenses increasing approximately $11.8
                million.
              
              New
                store operating costs increased $11.0 million related to our new
                destination retail stores that were not open in the comparable
                quarter of fiscal 2006. Total SG&A expenses in our comparable
                store base decreased $0.8 million, or 0.7% as a percentage of
                comparable store sales, primarily due to decreases in salary and
                benefits and property taxes.  Pre-opening costs were up $0.2
                million compared to the fiscal 2006 second quarter.  Retail
                overhead costs decreased $0.3 million, or 0.2% of Retail
                revenue, compared to the second quarter of fiscal 2006.  This
                net decrease in retail overhead costs was primarily due to the marketing
                fee paid to the Retail segment from the Financial Services segment
                which
                increased $1.7 million over the 2006 quarter, or 0.8% of Retail revenue,
                partially offset by an increase of $1.0 million in salary and
                benefits.●
            *Financial
                Services*SG&A expenses increasing approximately $6.3
                million.
              
              This
                increase in SG&A expenses compared to the second quarter of fiscal
                2006 was primarily due to an increase in the marketing fee of $2.9
                million
                paid to our other segments. Advertising and promotional costs increased
                by
                $2.7 million due to increases in Visa assessments, new account acquisition
                costs and account retention tools. Third-party data processing services
                related to our credit card processing increased $0.2 million as the
                number
                of credit card accounts and credit card transactions
                increased.








**Operating
      Income**





We
      define
      operating income as revenue less cost of revenue and selling, general and
      administrative expenses.  Given the mixture of segments we report and
      the different cost classifications inherent in each of their respective
      businesses, it is difficult to compare our consolidated results on the basis
      of
      gross profit, or the difference between revenue and cost of
      revenue.  We believe that operating income presents a more meaningful
      measure of our consolidated operating performance than gross profit because
      of
      the following factors:





●
            our
                Financial Services segment does not have costs classified as cost
                of
                revenue which results in a disproportionate gross profit contribution
                for
                this segment;●
            we
                do not include occupancy costs, depreciation, direct labor or warehousing
                costs in cost of revenue, which affects comparability to other retailers
                who may account differently for some or all of these costs;
                and●
            we
                have historically attempted to price our customer shipping charges
                to
                generally match our shipping expenses, which reduces gross profit
                as a
                percentage of Direct revenue.




Consequently,
      we believe that operating income is the best metric to compare the performance
      and profitability of our segments to each other and to judge our consolidated
      performance because it includes all applicable revenue and cost
      items.





Operating
      income increased $5.7 million, or 39.2%, to $20.3 million for the three months
      ended June 30, 2007, compared to $14.5 million for the three months ended July
      1, 2006. Operating income as a percentage of revenue increased to 4.5% for
      the
      three months ended June 30, 2007, from 3.8% for the fiscal 2006 second quarter.
      The operating margin increase of 70 basis points was primarily due to increases
      in the operating margins of our Direct and Retail segments as well as increased
      revenue from our Financial Services segment compared to the fiscal 2006 second
      quarter.  Partially offsetting these increases were additional
      expenses incurred in corporate overhead compared to the fiscal 2006 second
      quarter.








**Interest
      Expense**





Interest
      expense approximated $4.8 million for both the three months ended June 30,
      2007,
      and July 1, 2006.  During the three months ended June 30, 2007, we
      accrued approximately $0.2 million in interest expense relating to estimated
      tax
      benefits associated with uncertainties applicable to certain income tax
      positions.


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**Provision
      for Income Taxes**





Our
      effective tax rate was 37.4% for the three months ended June 30, 2007, compared
      to 37.2% for the three months ended July 1, 2006. We expect our effective tax
      rate to increase incrementally as we enter more states with our destination
      retail stores.








**Six
      Months Ended June 30, 2007, Compared to Six Months Ended July 1,
      2006**





**Revenue**





Total
      revenue increased $121.2 million, or 15.3%, to $913.3 million for the six months
      ended June 30, 2007, compared to $792.1 million for the six months ended July
      1,
      2006, due to revenue growth in all segments.





*Direct
      Revenue*.  Direct revenue increased $17.9 million, or 4.2%, to
      $441.7 million for the six months ended June 30, 2007, from $423.9 million
      for
      the six months ended July 1, 2006. Internet visits increased 27.1% in the six
      months ended June 30, 2007, compared to the six months ended July 1,
      2006.  Continuing to focus our efforts on utilizing marketing programs
      and search optimization programs to increase traffic to our website helped
      increase Direct revenue. The general product categories that contributed the
      largest dollar volume increase to our Direct revenue for the six months ended
      June 30, 2007, compared to the first six months of fiscal 2006 were clothing
      and
      footwear and camping.





*Retail
      Revenue*.  Retail revenue increased by $87.5 million, or 29.5%, to
      $384.3 million for the six months ended June 30, 2007, compared to $296.8
      million for the six months ended July 1, 2006, due to new store sales of $90.0
      million.  In April 2007, we opened a destination retail store in
      Hazelwood, Missouri, and we opened four new stores in the last half of fiscal
      2006.  These new store sales were partially offset by a decrease in
      comparable store sales of $2.5 million, or 0.8%, compared to the six months
      ended July 1, 2006.  The general product category that contributed the
      largest dollar volume increase to our Retail revenue growth for the six months
      ended June 30, 2007, compared to the first six months of fiscal 2006 was hunting
      equipment.





*Financial
      Services Revenue*.  On a GAAP basis, Financial Services revenue
      increased $15.2 million, or 24.7%, to $76.7 million for the six months ended
      June 30, 2007, compared to the six months ended July 1, 2006. Interest income
      measured on a non-GAAP managed basis increased $21.1 million for the first
      six
      months of fiscal 2007 compared to the six months ended July 1,
      2006.  The increase in interest income was due to the increase in
      managed accounts and an increase in interest rates. Interchange income, net
      of
      rewards costs, increased $5.8 million. Interchange income was driven by net
      purchases, which increased 19.8%, but was partially offset by an increase in
      customer rewards costs of 17.1%. The net increases in interest income and
      interchange income were partially offset by an increase in interest expense
      of
      $9.1 million due to increases in securitized credit card loans, borrowings
      and
      interest rates. Compared to the six months ended July 1, 2006, the number of
      average active accounts increased by 15.6% to 944,418 and the average balance
      per active account grew by 7.4% to approximately $1,677.








**Gross
      Profit**





Gross
      profit increased $54.9 million, or 17.1%, to $375.2 million for the six months
      ended June 30, 2007, from $320.3 million for the six months ended July 1,
      2006.  Gross profit as a percentage of revenue increased 70 basis
      points to 41.1% for the six months ended June 30, 2007, from 40.4% for the
      six
      months ended July 1, 2006. This increase in our gross profit as a percentage
      of
      revenue was primarily due to an increase in our Financial Services revenue,
      which does not have any corresponding increase in cost of revenue, and to a
      10
      basis point increase in the gross profit of our merchandising business as a
      percentage of merchandising revenue.





*Merchandising
      Business.* The gross profit of our merchandising business increased $37.3
      million, or 14.8%, to $289.6 million for the six months ended June 30, 2007,
      from $252.3 million for the six months ended July 1, 2006. The gross profit
      of
      our merchandising business increased 10 basis points as a percentage of
      merchandise revenue to 35.1% for the six months ended June 30, 2007, compared
      to
      35.0% for the six months ended July 1, 2006. This increase in our merchandising
      gross profit over the first six months of fiscal 2006 was primarily attributable
      to improvements in merchandising practices and to improved operations which
      have
      helped reduce our


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inventory
      shrink as well as our obsolete and slow moving inventory levels.  In
      addition, our shipping margin increased $1.5 million, or 0.2% of merchandise
      revenue.  These increases were partially offset by a refinement in the
      estimate of our drop ship costs in the fiscal 2007 first quarter.








**Selling,
      General and Administrative Expenses**





SG&A
      expenses on a consolidated basis increased $51.0 million, or 17.5%*,* to
      $342.5 million for the six months ended June 30, 2007, from $291.5 million
      for
      the six months ended July 1, 2006.  SG&A expenses were 37.5% of
      revenue for the six months ended June 30, 2007, compared to 36.8% for the first
      six months of fiscal 2006.  SG&A was higher for the six months
      ended June 30, 2007, compared to the six months ended July 1, 2006, primarily
      due to (i) increased salaries and benefits primarily because of more employees
      in our distribution centers compared to 2006, (ii) a higher bonus accrual
      comparing the respective periods due to timing differences, (iii) increased
      Internet marketing costs and (iv) increased depreciation expense associated
      with new stores and system upgrades that were not in service in the first six
      months of fiscal 2006.




The most significant factors contributing to the increase in SG&A expenses
          by segment for the six months ended June 30, 2007, compared to the six
          months
          ended July 1, 2006 included:


●
            *Other*
                SG&A expenses increasing approximately $16.8 million.
              
              This
                increase was primarily a result of increases in wages and related
                benefits
                of $7.1 million due to increases in personnel in our distribution
                centers
                as our merchandise revenue growth continues.  In addition, there
                was an increase in bonus expense of $4.6 million compared to the
                first six
                months of fiscal 2006 primarily related to the change in the performance
                measurement under our short-term cash incentive plan. Also, depreciation
                increased by $2.1 million and contract labor increased by $1.1
                million.  Depreciation increased due to system upgrades that
                were not in service during the first six months of fiscal 2006. Total
                Other SG&A costs as a percentage of consolidated revenue increased
                from 10.4% to 10.9%.●
            *Direct*SG&A expenses increasing approximately $4.2 million.
              
              This
                  increase in Direct SG&A was primarily due to an increase in Direct
                  marketing costs of $3.4 million related to costs promoting our
                  website.  Direct marketing costs increased to $63.9 million, or
                  approximately 5.7%, for the six months ended June 30, 2007, from
                  $60.5
                  million for the six months ended July 1, 2006. As a percentage
                  of Direct
                  revenue, Direct marketing costs increased to 14.5% for the six
                  months
                  ended June 30, 2007, from 14.3% for the six months ended July 1,
                  2006.
                  This increase in Direct marketing costs as a percentage of our
                  Direct
                  revenue was primarily due to increased costs related to our website,
                  partially offset by the effective management of our print, paper
                  and
                  internal catalog production costs, despite postage increases comparing
                  the
                  six months ended June 30, 2007, to the six months ended July 1,
                  2006.  We continue to refine catalog content and distribution to
                  increase catalog efficiency. Incidental equipment and software
                  expenses
                  increased by $2.7 million, specifically related to our
                  website.  Increases to Direct SG&A were partially offset by
                  the marketing fee paid to the Direct segment from the Financial
                  Services
                  segment which increased $3.5 million over the respective 2006 period,
                  or
                  0.8% of Direct revenue.





●
            *Retail*SG&A expenses increasing approximately $18.1
                million.
              
              New
                store operating costs increased $19.4 million related to our new
                destination retail stores that were not open in the comparable six
                months of fiscal 2006. Total SG&A expenses in our comparable
                store base decreased by $1.8 million, or 0.5% as a percentage of
                comparable store sales, primarily due to a decrease in
                advertising. Pre-opening costs were up $1.8 million compared to the
                first six months of fiscal 2006. Retail overhead costs decreased
                by $1.3
                million, or 0.3% of Retail revenue, compared to the six months
                ended July 1, 2006.  This net decrease in retail overhead was
                primarily due to the marketing fee paid to the Retail segment from
                the
                Financial Services segment which increased $3.7 million over the
                respective 2006 period, or 1.2% of Retail revenue, partially offset
                by an
                increase of $1.7 million in salary and
                benefits.


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●
            *Financial
                Services*SG&A expenses increasing approximately $11.9
                million.
              
              This
                increase in SG&A expenses compared to the six months ended July 1,
                2006, was primarily due to an increase in the marketing fee of $7.2
                million paid to our other segments. Advertising and promotional costs
                increased by $2.8 million due to increases in Visa assessments, new
                account acquisition costs and account retention tools. Bad debt expense
                increased $0.7 million primarily due to an increase in counterfeit
                fraud.  Third-party data processing services related to our
                credit card processing increased $0.7 million as the number of credit
                card
                accounts and credit card transactions
                increased.








**Operating
      Income**





Operating
      income increased $3.9 million, or 13.5%, to $32.6 million for the six months
      ended June 30, 2007, compared to $28.7 million for the six months ended July
      1,
      2006. Operating income as a percentage of revenue on a consolidated basis was
      3.6% for both the six months ended June 30, 2007, and July 1, 2006. The
      operating margins of our Direct and Retail segments increased, as did revenue
      from our Financial Services segment, for the six months ended June 30, 2007,
      compared to the first six months of fiscal 2006. These increases in operating
      income were reduced by additional expenses incurred in corporate overhead during
      the six months ended June 30, 2007, compared to the first six months of fiscal
      2006 and pre-opening costs increasing by $1.8 million in the Retail segment
      associated with new store openings.








**Interest
      Expense**





Interest
      expense increased $1.4 million to $9.5 million for the six months ended June
      30,
      2007, from $8.1 million for the six months ended July 1, 2006.  The
      increase in interest expense was primarily due to the $215.0 million private
      placement of notes completed in February 2006.  In addition, during
      the six months ended June 30, 2007, we accrued approximately $0.4 million in
      interest expense relating to estimated tax benefits associated with
      uncertainties applicable to certain income tax positions.








**Provision
      for Income Taxes**





Our
      effective tax rate was 36.9% for the six months ended June 30, 2007, compared
      to
      36.7% for the six months ended July 1, 2006. The decrease in the effective
      tax
      rate compared to the 37.5% effective tax rate for fiscal 2006 was due to a
      reduction in our income tax provision relating to a tax settlement from a state
      partially offset by an increase due to additional state income taxes where
      we
      have opened stores. We expect our effective tax rate to increase incrementally
      as we enter more states with our destination retail stores.






**Bank
      Asset Quality**





We
      securitize a majority of our credit card loans. On a quarterly basis, we
      transfer eligible credit card loans into a securitization trust. We are required
      to own at least a minimum twenty day average of 5.0% of the interests in the
      securitization trust. Therefore, these retained loans have the same
      characteristics as those loans sold to outside investors. Certain accounts
      are
      ineligible for securitization because they are delinquent at the time of sale
      to
      the trust, originated from sources other than Cabela's CLUB Visa credit cards
      and various other requirements. The total amount of ineligible loans and
      receivables were $14.6 million and $19.1 million at June 30, 2007, and December
      30, 2006, respectively.





The
      quality of our managed credit card loan portfolio at any time reflects, among
      other factors, the creditworthiness of the individual cardholders, general
      economic conditions, the success of our account management and collection
      activities, and the life cycle stage of the portfolio.  Our financial
      results are sensitive to changes in delinquencies and net charge-offs of this
      portfolio.  During periods of economic weakness, delinquencies and net
      charge-offs are more likely to increase.  We have sought to manage
      this sensitivity by selecting a customer base that has historically shown it
      to
      be very creditworthy based on charge-off levels, credit bureau scores, such
      as
      Fair Isaac & Company (FICO) scores, and behavior scores.


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Our
      average managed credit card loans outstanding increased by $226.2 million,
      or
      16.7%, to $1.6 billion as of June 30, 2007, from $1.4 billion in fiscal 2006
      and
      by $309.3 million, or 24.3%, from $1.3 billion as of July 1, 2006. We believe
      that as our credit card accounts mature they are less likely to charge-off
      and
      less likely to be closed.





**Delinquencies**





We
      consider the entire balance of an account, including any accrued interest and
      fees, delinquent if the minimum payment is not received by the payment due
      date.
      Our aging methodology is based on the number of completed billing cycles during
      which a customer has failed to make a required payment. Delinquencies not only
      have the potential to reduce earnings by increasing the unrealized loss
      recognized to reduce the loans to market value and reducing securitization
      income, but they also result in additional operating costs dedicated to
      resolving the delinquencies.





The
      following chart shows the percentage of our managed loans that have been
      delinquent at the periods ended:





**Number
                of days delinquent**
            
            **June
                30, 2007**
            
            
            **December
                30, 2006**
            
            
            **July
                1, 2006**Greater
                than 30
                days
            
            
            0.86
            %
            
            
            0.75
            %
            
            
            0.72
            %Greater
                than 60
                days
            
            
            0.53
            %
            
            
            0.44
            %
            
            
            0.40
            %Greater
                than 90
                days
            
            
            0.27
            %
            
            
            0.18
            %
            
            
            0.17
            %





**Charge-offs**





Gross
      charge-offs reflect the uncollectible principal, interest and fees on a
      customer's account. Recoveries reflect the amounts collected on previously
      charged-off accounts.  Beginning in June 2007, we began charging off
      credit card loans on a daily basis after an account becomes 130 days
      contractually delinquent, except for cardholder bankruptcies, cardholder deaths
      and fraudulent transactions, which are charged off sooner.  Prior to June
      2007, we charged off credit card loans on the 24th day of
      the month
      after an account became 115 days contractually delinquent resulting in a 129-day
      average to charge-off an account.  Charging accounts off evenly throughout
      the month will allow us to manage the collection process more
      efficiently.  As a result, the charge-offs for the second quarter of
      fiscal 2007 were reduced by 0.2% and the provision for loan losses was increased
      by a similar amount.  The net effect results in no impact to the
      condensed consolidated statements of income in the current periods of fiscal
      2007.





Our
      charge-off activity for the managed portfolio for the following periods is
      summarized below:





**Three
                months ended**
            
            
            **Six
                months ended****(Dollars
                in Thousands)**
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**
            
            
            **June
                30,**
              **2007**
            
            
            **July
                1,**
              **2006**Gross
                charge-offs
            
            $
            8,951
            
            
            $
            7,424
            
            
            $
            18,432
            
            
            $
            14,156Recoveries
            
            
            (2,306
            )
            
            
            (1,504
            )
            
            
            (4,454
            )
            
            
            (2,612
            )Net
                charge-offs
            
            $
            6,645
            
            
            $
            5,920
            
            
            $
            13,978
            
            
            $
            11,544Net
                charge-offs as a percentage of average managed loans
            
            
            1.65
            %
            
            
            1.83
            %
            
            
            1.76
            %
            
            
            1.81
            %





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**Liquidity
      and Capital Resources**





**Overview**





Our
      merchandising business and our Financial Services segment have significantly
      different liquidity and capital needs. The primary cash requirements of our
      merchandising business relate to capital for new destination retail stores,
      purchases of inventory, investments in our management information systems and
      other infrastructure, purchases of economic development bonds related to the
      construction of new destination retail stores and other general working capital
      needs.  We historically have met these requirements by generating cash
      from our merchandising business operations, borrowing under revolving credit
      facilities, issuing debt and equity securities, obtaining economic development
      grants from state and local governments in connection with developing our
      destination retail stores, collecting principal and interest payments on our
      economic development bonds and from the retirement of economic development
      bonds.  The cash flow we generate from our merchandising business is
      seasonal, with our peak cash requirements for inventory occurring between May
      and November.  While we have consistently generated overall positive
      annual cash flow from our operating activities, other sources of liquidity
      are
      generally required by our merchandising business during these peak cash use
      periods.  These sources historically have included short-term
      borrowings under our revolving credit facility and access to debt
      markets.  While we generally have been able to manage our cash needs
      during peak periods, if any disruption occurred to our funding sources, or
      if we
      underestimated our cash needs, we would be unable to purchase inventory and
      otherwise conduct our merchandising business to its maximum effectiveness,
      which
      would result in reduced revenue and profits.





The
      primary cash requirements of our Financial Services segment relate to the
      generation of credit card loans and the purchase of points used in the Cabela’s
      CLUB Visa customer loyalty rewards program from our merchandising
      business.  The bank obtains funds for these cash requirements through
      various financing activities, which include funding from securitization
      transactions, borrowing under its credit agreement or federal funds purchase
      agreements, accepting certificates of deposit and generating cash from
      operations.  Our bank’s charter is limited to issuing credit cards and
      accepting brokered certificates of deposit of one-hundred thousand dollars
      or
      more, and it does not accept demand deposits or make non-credit card
      loans.  Consequently, our bank cannot lend money to Cabela’s
      Incorporated or our other affiliates. The bank is subject to capital
      requirements imposed by Nebraska banking law and the Visa membership rules,
      and
      its ability to pay dividends is limited by Nebraska and federal banking
      law.





We
      believe that we will have sufficient capital available from current cash on
      hand, our revolving credit facility and other borrowing sources, expected future
      operations, and possibly additional monetization of our economic development
      bonds to fund our cash requirements and growth plans for the next 12 to 18
      months.





**Operating,
      Investing and Financing Activities**





The
      following table presents changes in our cash and cash equivalents for the
      periods presented.





**Six
                Months Ended****(In
                Thousands)**
            
            **June
                30, 2007**
            
            
            **July
                1, 2006**Net
                cash used in operating activities
            
            $
            (89,527
            )
            
            $
            (140,900
            )Net
                cash used in investing activities
            
            $
            (95,614
            )
            
            $
            (37,423
            )Net
                cash provided by financing activities
            
            $
            92,467
            
            
            $
            209,058





Cash
      used
      in operating activities improved $51.4 million for the six months ended June
      30,
      2007, compared to the six months ended July 1, 2006. This net improvement in
      cash was primarily due to a $29.8 million net increase relating to the bank’s
      credit card securitization transactions and principal collections of credit
      card
      loan receivables, net of originations.  This volume is attributable to
      the growth in the bank’s credit card loan operations.  In addition, cash
      was provided as inventory balances decreased $25.7 million from inventories
      being built up as of July 1, 2006, for the new store openings in the fall of
      2006.  There was no material change in accounts payable comparing the
      six months ended June 30, 2007, to the six months of fiscal
      2006.  However, the changes within accounts payable comparing periods
      was a net increase in the bank’s accounts payable totaling $31.2 million
      primarily related to the payable to the bank’s third-party processor for its
      credit card transactions offset by net decreases in inventory payables and
      other
      accruals of $28.3 million and in payables for catalog costs of $2.9
      million.


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The
      improvements in cash from operating activities were partially offset by a $24.7
      million net change in other current assets.  The account in this
      category making up most of the change was the bank’s Visa interchange funding
      account.  Timing issues for both this account and the third-party
      processing account are the primary reasons for the net changes between the
      six
      months ended June 30, 2007, and July 1, 2006.  We received $11.0
      million in tenant allowances during the six months ended June 30, 2007, which
      accounts for the net increase of $9.6 million in deferred grant income and
      tenant allowances.





Our LIFO calculation for income tax purposes utilizes a simplified LIFO approach
      and therefore results in a book-tax difference. The aforementioned accounting
      change to the FIFO method will increase the current portion of income taxes
      payable by approximately $4.7 million.  At June 30, 2007, we had $18.7
      million included in the current portion of deferred income taxes payable in
      our
      condensed consolidated balance sheet related to the LIFO method used for income
      tax purposes.  We will incur this cash outlay of $18.7 million over
      the next four years based on our election in our 2007 federal income tax return
      to change our method of accounting for inventory from LIFO to FIFO for income
      tax purposes.





Cash
      used
      in investing activities increased $58.2 million for the six months ended June
      30, 2007, compared to the six months ended July 1, 2006. This net increase
      was
      primarily due to capital expenditures relating to the construction of our new
      destination retail stores.  For the six months ended June 30, 2007,
      capital expenditures totaled $134.4 million, an increase of $66.4 million over
      the first six months of fiscal 2006.  We opened one retail store in
      April 2007 and plan to open another seven stores in 2007, with one scheduled
      to
      open the latter part of the third quarter and the remaining six stores opening
      during the fourth quarter.  For fiscal 2006, four retail stores were
      opened in the second half of 2006.  Significant amounts of cash will
      be needed in order to open new destination retail stores and implement our
      retail growth strategy.  Depending upon the location and a variety of
      other factors, including store size and the amount of infrastructure
      improvements necessary, and based upon our prior experience, opening a single
      destination retail store generally requires expenditures in the range of $25.0
      million to $60.0 million.  This amount includes the cost of real
      estate, site work, infrastructure improvements such as utilities and roads,
      buildings, equipment, fixtures (including taxidermy) and inventory. At June
      30,
      2007, we had cash commitments totaling $195.0 million for the remainder of
      fiscal 2007 and $115.0 million for fiscal 2008 for estimated capital
      expenditures and the purchase of future economic development bonds in connection
      with the construction and development of new destination retail stores. These
      amounts do not include any contractual obligations associated with retail stores
      scheduled to open in Rapid City, South Dakota; Adairsville, Georgia;
      Scarborough, Maine; Greenwood, Indiana; and Montreal, Canada.  Certain
      contractual aspects of these locations are in various stages of negotiations
      and
      will be subject to customary conditions to closing.  We expect to
      incur the majority of the costs for these locations in the last half of 2007
      and
      in 2008.  Purchases of marketable securities decreased $6.7 million
      comparing the respective six-month periods.  Economic development
      bonds totaling $42.9 million and $53.0 million relating to our Wheeling, West
      Virginia, retail store and distribution center were retired during the six
      months ended June 30, 2007, and July 1, 2006, respectively, resulting in a
      decrease of $10.1 million in proceeds from the retirement of marketable
      securities.





Cash
      provided by financing activities totaled $92.5 million for the six months ended
      June 30, 2007, compared to $209.1 million for the six months ended July 1,
      2006.
      This net decrease in cash was primarily due to a net difference of $154.2
      million in long-term debt issuances to support our destination retail store
      expansion and the net decrease in cash of $14.6 million for time deposits.
      Partially offsetting these decreases were net increases in short-term borrowings
      and inventory financing of $14.0 million and in unpresented checks net of bank
      balance of $35.5 million due to timing of when checks cleared our
      bank.





On
      June
      15, 2007, we issued $60.0 million aggregate principal amount of 6.08% senior
      unsecured notes. The notes mature on June 15, 2017, and interest on the notes
      is
      payable semi-annually.  We intend to use the proceeds from the
      offering for new retail store expansion, including capital expenditures and
      purchase of economic development bonds, and general corporate
      purposes.





WFB
      entered into a credit agreement on June 21, 2007, for a $50.0 million variable
      funding facility.  This facility is secured by a participation
      interest in the transferor’s interest of the Cabela’s Master Credit Card
      Trust.  As of June 30, 2007, $27.0 million was outstanding under the
      facility. The credit agreement expires on June 20, 2008.





In
      addition to the cash commitments for capital expenditures and economic
      development bonds, we have entered into certain lease agreements for retail
      locations. These long-term leases include options to renew with total terms,
      including extensions, varying from 10 to 70 years. See Note 8 “Commitments and
      Contingencies” for our commitments for future minimum rental payments under
      operating leases as of June 30, 2007.  Some of these leases for
      constructed assets contain customary conditions of performance by other
      parties.  Certain of these leases include


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tenant
      allowances that will be amortized over the life of the lease. During the six
      months ended June 30, 2007, we received $11.0 million in tenant
      allowances.  We expect to receive additional tenant allowances of $6.0
      million during the last six months of 2007 and $25.7 million in
      2008.





**Grants
      and Economic Development Bonds**





*Grants.*Under various grant programs, state or local governments provide funding
      for certain costs associated with developing and opening a new destination
      retail store. We generally have received grant funding in exchange for
      commitments made by us to the state or local government providing the
      funding.  The commitments, such as assurance of agreed employment and
      wage levels at our destination retail stores or that the destination retail
      store will remain open, typically phase out over approximately five to 10 years.
      If we fail to maintain the commitments during the applicable period, the funds
      we received may have to be repaid or other adverse consequences may arise,
      which
      could affect our cash flows and profitability. As of June 30, 2007, and December
      30, 2006, the total amount of grant funding subject to a specific contractual
      remedy was $13.3 million and $14.4 million, respectively.





*Economic
      Development Bonds.*Through economic development bonds, the state or local
      government sells bonds to provide funding for land acquisition, readying the
      site, building infrastructure and related eligible expenses associated with
      the
      construction and equipping of our destination retail stores. Generally, we
      have
      been the sole purchaser of these bonds. The bond proceeds that are received
      by
      the governmental entity are then used to fund the construction and equipping
      of
      new destination retail stores and related infrastructure development. While
      purchasing these bonds involves an initial cash outlay by us in connection
      with
      a new store, some or all of these costs can be recaptured through the repayments
      of the bonds. The payments of principal and interest on the bonds are typically
      tied to sales, property or lodging taxes generated from the store and, in some
      cases, from businesses in the surrounding area, over periods which range between
      20 and 30 years. In addition, some of the bonds that we have purchased may
      be
      repurchased for par value by the governmental entity prior to the maturity
      date
      of the bonds. However, the governmental entity from which we purchase the bonds
      is not otherwise liable for repayment of principal and interest on the bonds
      to
      the extent that the associated taxes are insufficient to pay the
      bonds.  After purchasing the bonds, we typically carry them on our
      consolidated balance sheet as “available for sale” marketable securities and
      value them based upon management’s projections of the amount of tax revenue
      expected to be generated to support principal and interest payments on the
      bonds.  We have limited experience in valuing these bonds and, because
      of the unique features of each project, there is no independent market data
      for
      valuation of these types of bonds.  If sufficient tax revenue is not
      generated by the subject properties, we will not receive scheduled payments
      and
      will be unable to realize the full value of the bonds carried on our
      consolidated balance sheet.  As of June 30, 2007, and December 30,
      2006, we carried $81.6 million and $116.2 million, respectively, of economic
      development bonds on our consolidated balance sheet.





**Securitization
      of Credit Card Loans**





Our
      Financial Services segment historically has funded most of its growth in credit
      card loans through an asset securitization program.  We sell our
      credit card loans in the ordinary course of business through a commercial paper
      conduit program and longer term fixed and floating rate securitization
      transactions. In a conduit securitization, our credit card loans are converted
      into securities and sold to commercial paper issuers, which pool the securities
      with those of other issuers. The amount securitized in a conduit structure
      is
      allowed to fluctuate within the terms of the facility, which may provide greater
      flexibility for liquidity needs.


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The
      total
      amounts and maturities for our credit card securitizations as of June 30, 2007,
      were as follows:





**Series**
            **Type**
            
            **Initial**
              **Amount**
            
            **Interest
                Rate**
            **Expected
                Final**
              **Maturity****(Dollars
                in Thousands)**Series
                2003-I
            Term
            
            $
            300,000
            
            Floating
                (1)
            January
                2008Series
                2004-I
            Term
            
            $
            75,000
            
            Fixed
            March
                2009Series
                2004-II
            Term
            
            $
            175,000
            
            Floating
            March
                2009Series
                2005-I
            Term
            
            $
            140,000
            
            Fixed
            October
                2010Series
                2005-I
            Term
            
            $
            110,000
            
            Floating
            October
                2010Series
                2006-III
            Term
            
            $
            250,000
            
            Fixed
            October
                2011Series
                2006-III
            Term
            
            $
            250,000
            
            Floating
            October
                2011Series
                2006-I
            Variable
                Funding
            
            $
            300,000
            
            Floating
            November
                2007





(1)
            The
                trust has entered into an agreement to convert the floating rate
                certificate into a fixed rate
                obligation.








We
      have
      been, and will continue to be, particularly reliant on funding from
      securitization transactions for our Financial Services segment. A failure to
      renew existing facilities or to add additional capacity on favorable terms
      as it
      becomes necessary could increase our financing costs and potentially limit
      our
      ability to grow our Financial Services business. Unfavorable conditions in
      the
      asset-backed securities markets generally, including the unavailability of
      commercial bank liquidity support or credit enhancements, such as financial
      guaranty insurance, could have a similar effect.





Furthermore,
      poor performance of our securitized credit card loans, including increased
      delinquencies and credit losses, lower payment rates or a decrease in excess
      spreads below certain thresholds, could result in a downgrade or withdrawal
      of
      the ratings on the outstanding securities issued in our securitization
      transactions, cause early amortization of these securities or result in higher
      required credit enhancement levels. This could jeopardize our ability to
      complete other securitization transactions on acceptable terms, decrease our
      liquidity and force us to rely on other potentially more expensive funding
      sources, to the extent available, which would decrease our
      profitability.





**Certificates
      of Deposit**





We
      utilize certificates of deposit to partially finance the operating activities
      of
      our bank. Our bank issues certificates of deposit in a minimum amount of
      one-hundred thousand dollars in various maturities.   As of June
      30, 2007, we had $85.2 million of certificates of deposit outstanding with
      maturities ranging from July 2007 to April 2016 and with a weighted average
      effective annual fixed rate of 4.99%. Certificate of deposit borrowings are
      subject to regulatory capital requirements.





**Credit
      Facility and Other Indebtedness**





On
      June
      15, 2007, the Company issued and sold $60.0 million aggregate principal amount
      of 6.08% senior unsecured notes pursuant to a supplement to our February 2006
      debt issuance of $215.0 million. The notes mature on June 15, 2017, and interest
      on the notes is payable semi-annually.  These notes contain the same
      default provisions and covenants as those pertaining to the February 2006 debt
      issuance, including limitations on indebtedness and financial covenants relating
      to net worth and fixed charges.





We
      are
      party to a credit agreement that provides for a $325.0 million unsecured
      revolving credit facility that expires on June 30, 2010.  The credit
      facility may be increased to $450.0 million upon our request and the consent
      of
      the banks party to the credit agreement.  The credit agreement permits
      the issuance of up to $150.0 million in letters of credit and standby letters
      of
      credit, the nominal amount of which are applied against the overall credit
      limit
      available under the credit facility. During the term of the facility, we are
      required to pay a quarterly facility fee on the average daily unused principal
      balance on the line of credit. At June 30, 2007, there was no principal amount
      outstanding on the credit facility and the average outstanding principal balance
      during the first six months of fiscal 2007 was $5.2 million.  The
      weighted average interest rate on the line of credit was 6.14% during the six
      months ended June 30, 2007.  Letters of credit and standby letters of
      credit totaling $105.4 million were


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outstanding
      at June 30, 2007.  The average outstanding amount of letters of credit
      during the six months ended June 30, 2007, was $61.7 million.  Our
      total remaining borrowing capacity under the credit facility as of June 30,
      2007, after subtracting outstanding letters of credit of $84.2 million and
      standby letters of credit of $21.2 million, was $219.6 million.  The
      credit agreement requires that we comply with certain financial and other
      customary covenants, including requirements that we maintain the following
      financial ratios:





●
            a
                fixed charge coverage ratio, as defined, of no less than 1.50 to
                1.00 as
                of the last day of any fiscal quarter;●
            a
                cash flow leverage ratio, as defined, of no more than 3.00 to 1.00
                as of
                the last day of any fiscal quarter; and●
            a
                minimum tangible net worth, as defined, of no less than $350.0 million
                plus 50% of positive consolidated net income on a cumulative basis
                for
                each fiscal year beginning with the fiscal year ended
                2006.





The
      credit agreement includes a dividend provision limiting the amount we can pay
      to
      our stockholders, which at June 30, 2007, was not in excess of $99.5
      million.  The agreement also has a provision permitting acceleration
      by the lenders in the event there is a change in control, as
      defined.  In addition, the credit agreement contains cross default
      provisions to other outstanding debt.  In the event we fail to comply
      with these covenants, a default is triggered, and all outstanding letters of
      credit and all principal and outstanding interest would immediately become
      due
      and payable. In addition, at June 30, 2007, we have an obligation under our
      open
      account documents instructions program to pay $3.6 million to participating
      vendors.





We
      had
      $215.0 million in unsecured notes outstanding at June 30, 2007, with principal
      payable in full February 2016 and interest payable semiannually at a rate of
      5.99%.  These notes require that we comply with several financial and
      other covenants, including requirements that we maintain the following financial
      ratios as set forth in the note purchase agreements:





●
            a
                consolidated adjusted net worth, as defined, of no less than $350.0
                million plus 25% of positive consolidated net earnings on a cumulative
                basis for each fiscal year beginning with fiscal 2005;●
            a
                fixed charge coverage ratio, as defined, of no less than 2.00 to
                1.00 as
                of the last day of any fiscal quarter; and●
            a
                consolidated funded debt to total funded capitalization of no more
                than
                60%.





In
      the
      event the Company fails to comply with these covenants and the failure to comply
      goes beyond 30 days, the Company will trigger a default. In the event of
      default, all principal and outstanding interest would immediately become due
      and
      payable. In addition, the notes contain cross default provisions to other
      outstanding debt.





At
      June
      30, 2007, we also had $75.0 million in senior unsecured notes outstanding with
      a
      fixed interest rate of 4.95% payable semi-annually.  These senior
      notes have principal payable in annual installments of $25.0 million and are
      due
      September 2009.  At June 30, 2007, we were in compliance with all
      financial covenants under our credit agreements and unsecured
      notes.





We
      are
      party to inventory financing agreements that allow certain vendors providing
      boat and all terrain vehicle merchandise to give us extended payment
      terms.  The vendors are responsible for all interest payments for the
      financing period and the financing company holds a security interest in the
      specific inventory we hold.  Our revolving credit facility limits this
      security interest to $20.0 million. The extended payment terms to the vendors
      do
      not exceed one year.  The outstanding liability under the inventory
      financing agreements was $3.1 million at June 30, 2007, compared with $9.8
      million at December 30, 2006.





Our
      bank
      has unsecured federal funds purchase agreements with two financial
      institutions.  The maximum amount of funds that can be outstanding is
      $85.0 million of which no amounts were outstanding at June 30, 2007. During
      the
      six months ended June 30, 2007, the average balance outstanding was
      approximately $1.0 million with a weighted average rate of
      5.74%.


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Our
      bank
      entered into a credit agreement on June 21, 2007, for a $50.0 million variable
      funding facility.  This facility is secured by a participation
      interest in the transferor’s interest of the Cabela’s Master Credit Card
      Trust.  The facility limit may be increased to $75.0 million with 30
      days prior written notice.  As of June 30, 2007, $27.0 million was
      outstanding under the facility. The facility carries a liquidity fee of 0.15%
      on
      the outstanding commitment and a program fee of 0.10% on the principal amount
      outstanding. The interest rate on the facility is based upon the interest rate
      for commercial paper issued by the lender and was 5.36% at June 30, 2007. The
      weighted average interest rate was 5.35% during the nine days ended June 30,
      2007. The credit agreement expires on June 20, 2008.





We
      may or
      may not engage in future long-term borrowing transactions to fund our operations
      or our growth plans.  Whether or not we undertake such borrowings will
      depend on a variety of factors, including prevailing interest rates, our retail
      growth plans, our financial strength, alternative sources and costs of funding
      and our assessment of potential returns on investment that may be realized
      from
      the proceeds of such borrowings.





**Off-Balance
      Sheet Arrangements**





*Operating
      Leases*-- We lease various items of office equipment and
      buildings.  Rent expense for these operating leases is recorded in
      selling, general and administrative expenses of the condensed consolidated
      statements of income.





*Credit
      Card Limits*-- The bank bears off-balance sheet risk in the normal course
      of its business. One form of this risk is through the bank's commitment to
      extend credit to cardholders up to the maximum amount of their credit limits.
      The aggregate of such potential funding requirements totaled $10.5 billion
      as of
      June 30, 2007, and $9.5 billion as of December 30, 2006, which amounts were
      in
      addition to existing balances cardholders had at such dates. These funding
      obligations are not included on our consolidated balance sheet. While the bank
      has not experienced, and does not anticipate that it will experience, a
      significant draw down of unfunded credit lines by its cardholders, a significant
      draw down would create a cash need at the bank which likely could not be met
      by
      our available cash and funding sources. The bank has the right to reduce or
      cancel these available lines of credit at any time.





*Securitizations*-- All of the bank's securitization transactions have been accounted for
      as
      sales transactions and the credit card loans relating to those pools of assets
      are not reflected in our consolidated balance sheet.  These
      transactions are included in the discussions of the Financial Services business
      on a non-GAAP managed basis as previously discussed.





**Seasonality**





Our
      business is seasonal in nature and interim results may not be indicative of
      results for the full year. Due to buying patterns around the holidays and the
      opening of hunting seasons, our merchandise revenue is traditionally higher
      in
      the third and fourth fiscal quarters than in the first and second fiscal
      quarters, and we typically earn a disproportionate share of our operating income
      in the third and fourth fiscal quarters.  We anticipate our sales will
      continue to be seasonal in nature.








**Item
      3.     Quantitative and Qualitative
      Disclosures About Market Risk**





We
      are
      exposed to interest rate risk through our bank's operations and, to a lesser
      extent, through our merchandising operations. We also are exposed to foreign
      currency risk through our merchandising operations.





**Financial
      Services Interest Rate Risk**





Interest
      rate risk refers to changes in earnings or the net present value of assets
      and
      off-balance sheet positions less liabilities (termed "economic value of equity")
      due to interest rate changes.  To the extent that interest income
      collected on managed loans and interest expense do not respond equally to
      changes in interest rates, or that rates do not change uniformly, securitization
      earnings and economic value of equity could be affected.  Our net
      interest income on managed credit card loans is affected primarily by changes
      in
      short-term interest rate indices such as LIBOR and prime rate. The variable-rate
      credit card loans are indexed to the prime rate. Securitization certificates
      and
      notes are indexed to LIBOR-based rates of interest and are periodically
      repriced.  Interest on our variable


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funding
      facility is based on the interest rate for commercial paper issued by the lender
      and interest on federal funds reprices daily based on current federal funds
      rates.  Certificate of deposits are priced at the current prevailing
      market rate at the time of issuance.  We manage and mitigate our
      interest rate sensitivity through several techniques, but primarily by modifying
      the contract terms with our cardholders, including interest rates charged,
      in
      response to changing market conditions. Additional techniques we use include
      managing the maturity, repricing and distribution of assets and liabilities
      by
      issuing fixed-rate securitization certificates and notes and by entering into
      interest rate swap agreements to hedge our fixed-rate exposure from interest
      strips.**





The
      following table shows the mix of credit card account balances for each interest
      rate at the periods ended:





**June
                30,**
              **2007**
            
            
            **December
                30,**
              **2006**
            
            
            **July
                1,**
              **2006***As
                a percentage of total balances outstanding*Balances
                carrying interest rate based upon the nationalprime
                lending rate
            
            
            62.5
            %
            
            
            60.2
            %
            
            
            60.1
            %Balances
                carrying an interest rate of 9.99% or lower
            
            
            2.6
            %
            
            
            3.4
            %
            
            
            2.5
            %Balances
                not carrying interest because their previousmonth's
                balance was paid in full
            
            
            34.9
            %
            
            
            36.4
            %
            
            
            37.4
            %








Charges
      on the credit cards issued by our Financial Services segment are priced at
      a
      margin over the defined national prime lending rate, subject to certain interest
      rate floors, except purchases of Cabela’s merchandise, certain other charges and
      balance transfer programs, which are financed at a fixed interest rate of 9.99%.
      No interest is charged if the account is paid in full within 20 days of the
      billing cycle.





Management
      has performed an interest rate gap analysis to measure the effects of the timing
      of the repricing of our interest sensitive assets and liabilities. Based on
      this
      analysis, we believe that if there is an immediate 100 basis point, or 1.0%,
      increase in the market rates for which our assets and liabilities are indexed
      during the next twelve months, our projected operating results would not be
      materially affected. Management also has performed a projected interest rate
      gap
      analysis for the same future twelve month period to measure the effects of
      a
      change in the spread between the prime interest rate and the LIBOR interest
      rate. Based on this analysis, we believe that an immediate 50 basis point
      decrease in this spread would cause a corresponding decrease of approximately
      $5.1 million on the projected pre-tax income of our Financial Services segment
      over the next 12 months, while an immediate 50 basis point increase in this
      spread would cause an increase of approximately $5.9 million on the projected
      pre-tax income of our Financial Services segment over the next 12 months, either
      of which could have a material effect on our operating results.





**Merchandising
      Interest Rate Risk**





One
      of
      our economic development bond agreements was priced at a variable interest
      rate
      with its base rate tied to the prime rate and adjusted annually in November.
      Portions of these bonds were retired in June 2006 and the interest rates were
      renegotiated.  The remainder of these particular economic development
      bonds had a balance of $42.9 million and were redeemed in full on April 23,
      2007.





The
      interest payable on our line of credit is based on variable interest rates
      and
      therefore affected by changes in market interest rates. If interest rates on
      existing variable rate debt increased 1.0%, our interest expense and results
      from operations and cash flows could be materially affected.





**Foreign
      Currency Risk**





We
      purchase a significant amount of inventory from vendors outside of the United
      States in transactions that are primarily U.S. dollar transactions. A small
      percentage of our international purchase transactions are in currencies other
      than the U.S. dollar. Any currency risks related to these transactions are
      immaterial to us. A decline in the relative value of the U.S. dollar to other
      foreign currencies could, however, lead to increased merchandise
      costs.


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**Item
      4. Controls and
      Procedures**





We
      maintain disclosure controls and
      procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
      of
      1934, as amended (the “Exchange Act”)), designed to ensure that information
      required to be disclosed in reports filed under the Exchange Act is recorded,
      processed, summarized and reported within specified time periods. Disclosure
      controls and procedures include, without limitation, controls and procedures
      designed to ensure that information required to be disclosed by us in the
      reports that we file or submit under the Exchange Act is accumulated and
      communicated to management, including our Chief Executive Officer and Chief
      Financial Officer, or persons performing similar functions, as appropriate
      to
      allow timely decisions regarding required disclosure.





In
      connection with this quarterly
      report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer
      evaluated, with the participation of our management, the effectiveness of our
      disclosure controls and procedures as of the end of the period covered by this
      report. Based on management’s evaluation, our Chief Executive Officer and Chief
      Financial Officer each concluded that our disclosure controls and procedures
      were effective as of June 30, 2007.




Changes
      in Internal Control Over
      Financial Reporting





During
      the second quarter of fiscal 2007, the implementation of our warehouse
      management system for tracking inventory in a multi-channel environment was
      completed for the remainder of our destination retail stores.  Process
      level controls related to maintaining our inventory at the unit level were
      affected by this change.  There were no other changes in our internal
      control over financial reporting that occurred during the quarter ended June
      30,
      2007, that materially affected, or are reasonably likely to materially affect,
      our internal control over financial reporting.








**Item
      4T. Controls and
      Procedures**





Not
      applicable.


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**PART
      II – OTHER INFORMATION**





**Item
      1.  Legal Proceedings.**





We
      are party to certain lawsuits in the
      ordinary course of our business. The subject matter of these proceedings
      primarily includes commercial disputes, employment issues and product liability
      lawsuits.  We do not believe that the ultimate dispositions of these
      proceedings, individually or in the aggregate, will have a material adverse
      effect on our consolidated financial position, results of operations or
      liquidity.





**Item
      1A.   Risk
      Factors.**





There
      have been no material changes from the risk factors disclosed in the “Risk
      Factors” section of our Annual Report on Form 10-K for the fiscal year ended
      December 30, 2006, except as described in Part II, Item 1A, of our Quarterly
      Report on Form 10-Q for the fiscal quarter ended March 31, 2007.





**Item
      2. Unregistered Sales
      of
      Equity Securities and Use of Proceeds.**





Not
      applicable.





**Item
      3. Defaults Upon Senior
      Securities.**





Not
      applicable.





**Item
      4. Submission of Matters
      to Vote of Security Holders.**





The
      Annual Meeting of Shareholders of
      Cabela’s Incorporated was held on May 15, 2007.  The matters voted
      upon at the meeting and the votes cast with respect to such matters were as
      follows:





1.
            Election
                of six directors.




FOR
              WITHHELDTheodore
                  M. Armstrong
              58,028,060
              1,310,945Richard
                  N. Cabela
              58,647,717
              691,288James
                  W. Cabela
              58,256,688
              1,082,317John
                  Gottschalk
              58,632,896
              706,109Dennis
                  Highby
              58,683,613
              655,392Stephen
                  P. Murray
              58,736,581
              602,424


2.
            Approval
                of amendments to the Company’s 2004 Stock Plan to, among other things,
                increase the number of shares authorized for issuance
                thereunder.




FOR
            AGAINST
            ABSTAIN
            BROKER
              NON-VOTES46,819,248
            2,365,810
            651,839
            9,502,108





3.
            Ratification
                of the appointment of Deloitte & Touche LLP as the Company’s
                independent registered public accounting firm for fiscal
                2007.




FOR
            AGAINST
            ABSTAIN
            BROKER
              NON-VOTES58,874,591
            182,456
            281,958
            0








**Item
      5. Other
      Information.**





Not
      applicable.


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**Item
      6. Exhibits.**




(a)
            Exhibits.





Exhibit
              Number
            Description10
            Fifth
                Amendment to 1997 Stock Option Plan31.1
            Certification
                of CEO Pursuant to Rule 13a-14(a) under the Exchange
                Act31.2
            Certification
                of CFO Pursuant to Rule 13a-14(a) under the Exchange
                Act32
            Certifications
                Pursuant to 18 U.S.C. Section 1350





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**SIGNATURES**




Pursuant
      to
      the requirements of the Securities Exchange Act of 1934, the registrant has
      duly
      caused this report to be signed on its behalf by the undersigned thereunto
      duly
      authorized.








CABELA'S
                INCORPORATEDDated:  August
                3, 2007
            By:
            /s/
                Dennis HighbyDennis
                HighbyPresident
                and Chief Executive OfficerDated:  August
                3, 2007
            By:
            /s/
                Ralph W. CastnerRalph
                W. CastnerVice
                President and Chief Financial
                Officer





40
 Table
          of Contents





**EXHIBIT
      INDEX**





Exhibit
              Number
            Description10
            Fifth
                Amendment to 1997 Stock Option Plan31.1
            Certification
                of CEO Pursuant to Rule 13a-14(a) under the Exchange
                Act31.2
            Certification
                of CFO Pursuant to Rule 13a-14(a) under the Exchange
                Act32
            Certifications
                Pursuant to 18 U.S.C. Section 1350

























41