Business

Smith & Wesson’s strong quarter stuns Wall Street

Maybe there’s hope for gun companies, after all.

Smith & Wesson parent American Outdoor Brands stunned Wall Street on Friday with unexpectedly strong quarterly results and a brighter financial outlook, sending its stock soaring 44 percent.

The Springfield, Mass., company said profits surged as it cut costs and inventory, even as demand for new gun models goosed sales. The news, which likewise gave a 7.3 percent boost to shares of archrival Sturm Ruger & Co., raised investor hopes that the industry is finally digging itself out of a two-year slump — and piles of unsold guns.

“Industry inventory appears cleaned up,” said IFS Securities analyst Ron Bookbinder, who has a “strong buy” rating on American Outdoor shares, citing “an improved environment for the firearms industry and a possible inflection point for firearm manufacturers.”





Bracing for a Hillary Clinton presidency, gun makers in 2016 had aggressively ramped up production, betting that the threat of tighter gun controls would spur panicked buying from gun owners nationwide.

Instead, President Trump’s surprise victory — and his gun-friendly rhetoric — have left retailers with massive stockpiles of unsold weapons. The pain for retailers and manufacturers alike has continued since, despite mass shootings in Sutherland Springs, Texas, Parkland, Fla., and most recently at a gaming tournament in Jacksonville, Fla., earlier this week.

On late Thursday, however, American Outdoor signaled a cautious return to business as usual. In addition to cost cutting and a waning need for markdowns, Chief Executive James Debney cited “consumer preference for our new products.”

Those include Smith & Wesson’s easy-to-shoot M&P 380 Shield EZ automatic pistol, its versatile SW22 Victory semi-automatic pistol and a relaunched revolver called Model 19 that was first produced by the company in 1955. Long-range rifles are moving briskly, the company said.





The upbeat news surprised investors, who earlier this week had sent shares of Dick’s Sporting Goods tumbling 10 percent.

The big-box retailer — which made news in February when it announced it would stop selling assault weapons — partly blamed the ban for weaker-than-expected quarterly sales.

American Outdoor swung to a $7.6 million profit, versus a loss of $2.2 million, as revenue jumped 7.6 percent, to $138.8 million, beating expectations of $134.5 million. The company hiked its outlook for sales and profits for the rest of 2018.

Nationwide background checks for gun purchases, an indicator of gun sales, totaled 1.84 million in July, are up 5.3 percent from a year ago, but down 16.5 percent from July 2016, according to the FBI.

The uptick follows a tough stretch for guns on Wall Street.





Buyout king Stephen Feinberg, whose Cerberus Capital spent a decade building Remington Outdoor, saw his firearms empire crumble after the 2012 Sandy Hook school massacre in Connecticut. It was discovered that the gunman used a Remington Bushmaster assault rifle to kill 20 children and six adults.

Earlier this year, Cerberus handed Remington over to creditors Franklin Resources and JPMorgan Asset Management.





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