U.S. firearms industry today: facing a softened market, industry has case for optimism.

Author:Moldae, Jade
Position:2017
 
FREE EXCERPT

The U.S. firearms industry has experienced its fair share of ups and downs over the past 20 years. Following a high-octane, record-breaking 2016, sales have cooled across most of the industry during the first half of 2017.

Today's contracted market can largely be attributed to the results of the 2016 election season--which has removed the fear-induced environment as a sales driver among consumers.

Yes, sales may be down across specific segments, but some dealers and manufacturers have reported they're "up" in certain categories from where they were in 2016--such as revolvers, self-defense handguns and concealed-carry accessories. In the case of MSRs it has become a buyer's market, with a lot of inventory in the channel following President Trump's surprise victory. Suppressor sales are sluggish as well, as consumers wait to see how the Hearing Protection Act progresses through Congress. These challenges represent "growing pains" as the industry adjusts to a normalized market.

ECONOMIC IMPACT, BACKGROUND CHECKS

In April, NSSF released its 2017 Firearms and Ammunition Industry Economic Impact Report. Since 2008 the industry has posted commendable growth across several measures. Most notably, the industry's overall economic impact surged from $19.1 billion in 2008 to $51.3 billion in 2016 (169%). The number of jobs in the industry has expanded by 81 percent, (from 166,200 to 301,123), while total wages more than doubled (137%) from $6.4 billion to $15.2 billion.

In May, NICS conducted 988,473 (NSSF-adjusted) background checks, a 6.5 percent increase compared to May 2016. (This is the highest May on record.) While NICS checks are down through the first five months of 2017 compared to 2016, from 6,179,528 to 5,793,571 (-6.2%), there have been encouraging signs. For example, amidst fears of a "Trump Slump," NICS background checks in three of the first five months of 2017 have exceeded those reported in the parallel months of 2016.

Comparing the first five months of 2017 to 2015 (which was the second-largest year for U.S. firearms manufacturing), the industry is performing well. NICS background checks increased by 6.7 percent (from 5,427,494 to 5,793,571) from Jan.-May 2017 compared to the corresponding months in 2015.

FINANCIAL PERFORMANCE

The early-year performances of the industry's publicly traded firearm companies reveal some telling trends impacting the industry.

Insights from Ruger's latest earnings report (Q1 2017) exhibit improving sales, despite challenges in today's sales environment. The company reported net sales of $167.4 million for the first quarter of 2017, compared to net sales of $173.1 million in the same quarter in 2016 (-3.3%).

At the Ruger Annual Meeting of Shareholders in May, President and COO Chris Killoy succeeded Mike Fifer as Ruger's fourth CEO following his planned retirement; Fifer remains on Ruger's board. The company previously announced Killoy's promotion in August 2016.

While Ruger's Ql 2017 net sales were up 3.5 percent over Q4 2016 ($161.8 million), it had its challenges, Killoy shared during the meeting.

"It's a very promotionally charged environment. First quarter is always where we have promotions for our distributors and retailers. This year was no exception. Coming out of the election, you saw a lot of inventory. So we had to be aggressive on our promotions," Killoy said.

In December 2016, Smith & Wesson Holding Corp. shared the holding company's name had been changed to American Outdoor Brands Corp. (AOBC).

In March, AOBC announced strong financial results for the third quarter of fiscal 2017, which ended Jan. 31, 2017. AOBC reported third quarter net sales of $233.5 million, a 10.8 percent increase over the Q3 2016 ($210.8 million). Generating $197 million in sales, the Firearms Division constituted 84 percent of the company's total sales in this period--a modest 1.2 percent improvement over Q3 2016 ($194.7 million).

"Toward the end of the quarter, consumer firearm purchasing began to cool--a trend that underscores the importance of remaining focused on our strategy to continue growing and balancing our business across the shooting, hunting and rugged outdoor enthusiast markets," said James Debney, AOBC president and CEO.

Further insights can be found in Remington Outdoor Company's quarterly report, for the three-month period ending April 2, 2017. Net sales of firearms were $84 million, down from the corresponding three months in 2016 ($115.3 million) --a 27.1 percent decrease. MSR sales decreased by $29 million, while sales of handguns, rimfire and centerfire rifles dropped by $3.8 million. These decreases were partially offset by increased sales of shotguns ($0.8 million).

"We believe our customers in the market are adjusting their inventories to current market tendencies with lower purchasing volumes, and utilizing advertising and promotional activities to improve sell through rates," the company said in its report.

In May, Vista Outdoor reported overall sales of $579 million during its fourth quarter ending March 31, a 5 percent decline from the same quarter in 2016, and a drop of 21 percent organically.

"We are experiencing unprecedented decline in demand for ammunition and firearms following the presidential election and softness in the retail environment. In order to address ongoing market headwinds, we are taking actions on several fronts," said Mark DeYoung, Vista Outdoor chairman, CEO, citing expansion of e-commerce, adjusting its workforce, reducing inventory, along with other measures.

"We remain confident in our ability to compete and win with a broad portfolio of exciting brands and products, and in our ability to deliver growth and value over the long term," DeYoung said.

U.S. FIREARM PRUDUCTION IN 2015

The 2015 business year represented a "recovery" year for the industry. After a challenging 2014, the industry rebounded across several categories. NICS background checks increased from 13,090,383 (NSSF-adjusted) to 14,244,240 (NSSF-adjusted) --an 8.8 percent climb. Correlating with the rise in background checks, U.S. firearms production in 2015 posted an increase over the previous year.

Total firearms production expanded from 8,692,461 in 2014 to 8,911,530 in 2015, according to the ATF's 2015 Annual Firearms Manufacturing and Export report--the latest data available. This is...

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