By Nivedita Bhattacharjee

BANGALORE, Feb 18 (Reuters) - Outdoor retailer Cabela's posted better-than-expected quarterly revenue, but concern over faster-growing expenses and lower margins sent the company's shares tumbling 12 percent.

Photo: www.cabelas.com

On a conference call with analysts, Chief Executive Tommy Millner said the company, which sells equipment and apparel for outdoor activities such as hunting and fishing, saw merchandise gross margins decline 120 basis points this quarter.

"I think that people feel that the management is being too optimistic with regard to the guidance -- since there was no upside in the fourth quarter, people are looking more skeptically at 2010," analyst David Magee of Suntrust Robinson Humphrey said.

Millner had said the company was "cautiously optimistic for 2010" and was comfortable with current external estimates for both profits and revenue.

Analysts were looking at full-year earnings of $1.25 a share on revenue of $2.59 billion.

Margins in the fourth quarter were affected by reduced inventory levels, the CEO said.

"One of their goals is to improve their inventory productivity and to do that they have to liquidate the old legacy stuff … that's some of the pressure you saw on gross margins," analyst Magee said.

During the fourth quarter, selling, general and administrative expenses rose 7 percent and cost of revenue rose 6 percent, while adjusted total revenue was up only 4.8 percent to $921 million.

Net profit, adjusted for impairment and other charges, was $52.4 million or 77 cents per share. Analysts were expecting 77 cents per share on revenue of $910.9 million, according to Thomson Reuters I/B/E/S.

Same store sales in the quarter fell marginally 0.5 percent.

The company which also operates a catalog, an online business and a credit card unit, also said it plans to open 2 stores each in the United States and Canada next year.

Analyst Magee said the store growth plan is a surprise coming from Cabela's -- not an otherwise growing company.

"There's still a lot of skepticism about how well the stores will operate," he said, adding that company needs to convince investors that it can grow faster in 2011.

Shares of Sidney, Nebraska-based Cabela's were down 12 percent at $15.56 in afternoon trade on the New York Stock Exchange. (Reporting by Nivedita Bhattacharjee in Bangalore; Editing by Anthony Kurian)