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High inventory and low sales cut gun makers’ profits

Kate Davidson Aug 27, 2014
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High inventory and low sales cut gun makers’ profits

Kate Davidson Aug 27, 2014
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Gun maker Smith & Wesson Holding Corp. cut its revenue and profit outlook for the fiscal year. The company now expects per-share earnings to be about a third lower than previously projected. The downward revision was driven by high inventories and a slowdown in long gun sales following a previous surge in demand.

Here’s what happened. After the Newtown school shooting in December 2012, gun enthusiasts worried the government would ban or severely restrict certain types of weapons.

“A lot of consumers rushed to stores and bought every assault rifle off the shelf that they possibly could,” says Wedbush Securities equity analyst Rommel Dionisio. “That caused a near-term demand surge, but it also pulled forward a lot of future sales.”

The surge in demand lasted months. Retailers faced shortfalls, and then stocked up on inventory in response. 

But Dionisio says now, that person who’d normally be in the market for a modern sporting rifle probably already bought several of them.

“The demand for firearms returned to more normalized levels this year in 2014, and so it kind of just is catching up with manufacturers right about now,” says Andrea James, a vice president and senior research analyst with Dougherty & Company.

She says demand for long guns has plummeted, while demand for handguns is following a ten year upward trajectory. In a research note, James says she still likes Smith & Wesson long-term, but is downgrading its stock rating to neutral.

Smith & Wesson isn’t the only company weathering this return to what James calls ‘historical norms.’ She says one gun maker compared the gun-buying binge to eating a huge Thanksgiving meal: Just because you’re not hungry the next day, doesn’t mean you’ll never eat again. 

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