Smith & Wesson maker’s stock drops as Trump’s surprise win saps demand
President Trump’s surprise election win has hurt demand for guns and left retail inventories bloated, analyst says
Shares of firearm and ammunition makers took a hit Friday, after Smith & Wesson parent American Outdoor Brands Corp. issued a profit and sales outlook that was well below expectations.
American Outdoor’s stock AOBC, -2.84% tumbled as much as 9.7% in intraday trade to $17.50, the lowest price seen since Nov. 19, 2015, before paring losses. It closed down 2.8% in active trade, with volume of 5.5 million shares nearly four-times the full-day average.
Shares of rival gun seller Sturm, Ruger & Co. Inc. RGR, -3.08% shed 3.1%, while ammunition seller Vista Outdoor Inc.’s stock VSTO, -1.44% slumped 1.4%.
The company, which changed its name from Smith & Wesson late last year to reflect a broader focus on the outdoor recreation market, said late Thursday in its fiscal third-quarter report that “consumer firearm purchasing began to cool” at the end of quarter, and that has “carried forward” into the current quarter.
As a result, the gun seller said it expects adjusted earnings per share for the quarter to April 30 of 32 cents to 42 cents, compared with the FactSet consensus of 57 cents as of Feb. 28. Sales were guided to a range of $200.0 million to $220.0 million, below the FactSet consensus of $244.5 million.
Chief Executive P. James Debney said on a conference call with analysts that on top of the slowing foot traffic at retailers, he said he believed “a number of retailers did make some bets on a different [election] outcome,” according to a transcript provided by FactSet, leaving them with some inventory “to bleed off” over time.
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Analyst Rommel Dionisio at Wunderlich Securities slashed his stock price target to $17, which is 9.7% below current levels, from $22, saying investors should hold off from buying the stock until there is evidence that the firearms market has started to recover.
Dionisio said the company’s downbeat outlook confirmed his concerns that consumer demand for firearms has deteriorated given the “pull forward” into 2016, with bloated inventories leading to an intensifying promotional environment.
See also: Vista Outdoor’s stock dives as environment for guns-and-ammo makers worsens.
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Harvard Business School Professor Clayton Christensen developed the famous "jobs to be done" theory to explain consumer behavior. He talked to MarketWatch about how his jobs-to-be-done theory can also explain Donald Trump's rise to power.
“Many firearms distributors and dealers had stockpiled inventory of modern sporting rifles and other firearms prior to the election, having incorrectly forecasted a Clinton win and resulting demand surge,” Dionisio wrote in a note to clients obtained by MarketWatch. Coupled with the introduction of new products, including polymer pistols and tactical rifles, “competitive promotions have begun to rise industrywide.”
American Outdoor shares have plunged 34% since the election, while Storm, Ruger’s has tumbled 24%, Vista Outdoor’s has plummeted 47% and the S&P 500 index SPX, +0.05% has climbed 11%.
Wedbush Securities analyst James Hardiman cut his American Outdoor stock price target to $21 from $25, citing uncertainty over how long the demand and inventory issues will play out, following management commentary that channel inventories are now higher than the targeted eight weeks of inventory on hand.
“This will require a better balancing of shipments and ultimately retail demand, although management gave no indication as to how long this right sizing is expected to take,” Hardiman wrote in a research note.
Separately, American Outdoor reported late Thursday earnings for the quarter to Jan. 31 that rose to $32.5 million, or 57 cents a share, from $31.4 million, or 56 cents a share, in the same period a year ago. Excluding nonrecurring items, such as one-time acquisition-related costs and a rebranding expense, the company said adjusted earnings per share came to 66 cents, beating the FactSet consensus of 55 cents.
Revenue rose to $233.5 million from $210.8 million, but missed the FactSet consensus of $235.3 million as in-line firearm sales was offset by less-than-expected accessories sales.
President Trump’s surprise election win has hurt demand for guns and left retail inventories bloated, analyst says
Shares of firearm and ammunition makers took a hit Friday, after Smith & Wesson parent American Outdoor Brands Corp. issued a profit and sales outlook that was well below expectations.
American Outdoor’s stock AOBC, -2.84% tumbled as much as 9.7% in intraday trade to $17.50, the lowest price seen since Nov. 19, 2015, before paring losses. It closed down 2.8% in active trade, with volume of 5.5 million shares nearly four-times the full-day average.
Shares of rival gun seller Sturm, Ruger & Co. Inc. RGR, -3.08% shed 3.1%, while ammunition seller Vista Outdoor Inc.’s stock VSTO, -1.44% slumped 1.4%.
The company, which changed its name from Smith & Wesson late last year to reflect a broader focus on the outdoor recreation market, said late Thursday in its fiscal third-quarter report that “consumer firearm purchasing began to cool” at the end of quarter, and that has “carried forward” into the current quarter.
As a result, the gun seller said it expects adjusted earnings per share for the quarter to April 30 of 32 cents to 42 cents, compared with the FactSet consensus of 57 cents as of Feb. 28. Sales were guided to a range of $200.0 million to $220.0 million, below the FactSet consensus of $244.5 million.
Chief Executive P. James Debney said on a conference call with analysts that on top of the slowing foot traffic at retailers, he said he believed “a number of retailers did make some bets on a different [election] outcome,” according to a transcript provided by FactSet, leaving them with some inventory “to bleed off” over time.
Don’t miss: Gun stocks fall and prison stocks jump after Trump win.
Analyst Rommel Dionisio at Wunderlich Securities slashed his stock price target to $17, which is 9.7% below current levels, from $22, saying investors should hold off from buying the stock until there is evidence that the firearms market has started to recover.
Dionisio said the company’s downbeat outlook confirmed his concerns that consumer demand for firearms has deteriorated given the “pull forward” into 2016, with bloated inventories leading to an intensifying promotional environment.
See also: Vista Outdoor’s stock dives as environment for guns-and-ammo makers worsens.
A Harvard Business professor explains Donald Trump(2:33)
Harvard Business School Professor Clayton Christensen developed the famous "jobs to be done" theory to explain consumer behavior. He talked to MarketWatch about how his jobs-to-be-done theory can also explain Donald Trump's rise to power.
“Many firearms distributors and dealers had stockpiled inventory of modern sporting rifles and other firearms prior to the election, having incorrectly forecasted a Clinton win and resulting demand surge,” Dionisio wrote in a note to clients obtained by MarketWatch. Coupled with the introduction of new products, including polymer pistols and tactical rifles, “competitive promotions have begun to rise industrywide.”
American Outdoor shares have plunged 34% since the election, while Storm, Ruger’s has tumbled 24%, Vista Outdoor’s has plummeted 47% and the S&P 500 index SPX, +0.05% has climbed 11%.
Wedbush Securities analyst James Hardiman cut his American Outdoor stock price target to $21 from $25, citing uncertainty over how long the demand and inventory issues will play out, following management commentary that channel inventories are now higher than the targeted eight weeks of inventory on hand.
“This will require a better balancing of shipments and ultimately retail demand, although management gave no indication as to how long this right sizing is expected to take,” Hardiman wrote in a research note.
Separately, American Outdoor reported late Thursday earnings for the quarter to Jan. 31 that rose to $32.5 million, or 57 cents a share, from $31.4 million, or 56 cents a share, in the same period a year ago. Excluding nonrecurring items, such as one-time acquisition-related costs and a rebranding expense, the company said adjusted earnings per share came to 66 cents, beating the FactSet consensus of 55 cents.
Revenue rose to $233.5 million from $210.8 million, but missed the FactSet consensus of $235.3 million as in-line firearm sales was offset by less-than-expected accessories sales.
