Trump more of a threat to gun sales than bans and increased age limits
Dallas — Age limits and bans on assault-style rifles are in vogue now, but the biggest threat to gun sales may still be US President Donald Trump.
Consumer demand is falling to "new, lower levels", according to the 166-year-old maker of Smith & Wesson firearms. The company, American Outdoor Brands, is bracing for the downturn by cutting jobs and repaying debt. Rivals, including one in bankruptcy, are contending with the same slowdown.
Call it the Trump slump. The gun industry thrived under president Barack Obama, as firearms enthusiasts foresaw potential crackdowns and rushed to stockpile weapons. Those fears have eased — and sales have fallen — since Trump won the White House in November 2016. Gun maker stocks, already on the ropes, took a further hit after the February 14 shooting of 17 people at a Florida high school.
"We will operate our business under the assumption that the next 12 to 18 months could deliver flattish revenues," American Outdoor CEO James Debney said on Thursday on a conference call to discuss earnings.
The shares tumbled 12% to $8.32 in late trading in New York. American Outdoor fell 27% this year up to the close on Thursday, following a 39% drop last year.
Sturm Ruger, a rival, also fell after the close. Remington Outdoor, the iconic gun maker controlled for years by Stephen Feinberg’s Cerberus Capital Management, plunged into bankruptcy last month.
The gun industry has come under greater scrutiny since last month’s shooting in Parkland, Florida, even if the potential for tighter restrictions on firearms seems lower than when Obama was president.
A social media movement against the National Rifle Association (NRA) led to numerous companies cutting ties with the gun-rights group, including Symantec, Hertz Global Holdings, Avis Budget Group and MetLife.
Dick’s Sporting Goods, Walmart and Kroger said this week they would no longer sell assault-style rifles such as the AR-15, the weapon used in the Florida shooting and made by American Outdoor. The retailers also said they would increase the purchasing age for firearms and ammunition in their stores to 21.
Despite Trump’s support for gun rights under the US second amendment, he tweeted this week about potential restrictions. In a meeting with lawmakers late on Wednesday, he said some politicians were "petrified" of the NRA. Senator Chuck Schumer, a New York Democrat, called on Trump to support tougher curbs on Thursday, saying the gun-rights group has had Republicans in a "headlock for decades".
"While the election seemed to eliminate gun control talk for the time being, the unfortunate reality in the modern world is that tragic events such as this are always just around the corner to reopen debate," James Hardiman, an analyst at Wedbush Securities, said in a February 27 report on American Outdoor.
Some forms of gun control, including magazine restrictions and strengthened background checks, are unlikely to have much impact on the manufacturer, Hardiman said. Still, the buying sprees seen in past years, when gun rights were perceived to be threatened under Obama, haven’t materialised under Trump.
The larger problem is flagging demand. It’s not just politics. There are also fewer hunters and a diminished sense of urgency around personal protection in an era of declining crime rates.
American Outdoor chopped its profit forecast for the third straight quarter. The company projected earnings of 31c to 33c a share for the current fiscal year, which ends April 30. This trailed the lowest of six analyst estimates compiled by Bloomberg. Wall Street had been expecting 60c a share.
The gun maker also lowered its sales target for the year to a midpoint of $599m from a December projection of $662.5m. Analysts had predicted $655.6m.
"We’ve been adjusting in this challenging market environment and obviously, working really hard internally to get aligned with this market demand," CEO Debney said, and warned about the sales slump in December, saying the fear-based buying of years past was no longer happening. Slack demand and a glut of inventory were forcing firearm manufacturers to discount heavily, he said.
Firearm background checks compiled by the FBI, a proxy for gun sales, fell 8.4% last year after increasing in 13 out of the last 14 years. The checks in January were the lowest in six years on an adjusted basis, Debney said.
American Outdoor, preparing for an extended slowdown, has repaid $75m in recent months and extended the due date on $75m of notes to August 2020.