On Second Thought, Annie, Don't Get Your GunHunting shops are having a bum year. Uh-oh.
Posted Thursday, Dec. 20, 2007, at 5:45 PM ET
This fall should have been an excellent time for companies that cater to well-heeled hunters and fishers. The farm-based economies of the Great Plains and Midwest are roaring. And the onset of the presidential campaign season, during which you often find city slickers posing as big-game hunters, usually provides a boost—for retailers and comedians alike. President Bush, in what now looks like foreshadowing, went out to shoot for doves during his 1994 gubernatorial campaign, and instead brought down a killdeer, which was protected by state law. John Kerry's duck hunting in the fall of 2004 failed to sway rural voters. More recently, tough guy Vice President Dick Cheney bagged a septuagenarian, and ex-Massachusetts Gov. Mitt Romney bragged about his long history of hunting varmints.
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StumbleUponBut this fall has been a terrible one for those in the business of making and selling rifles and shotguns. And for the dwindling core of optimists who believe the American consumer is doing just fine, the stock charts of companies like Cabela's, Gander Mountain, and Smith & Wesson should cause them to check their scopes.
Cabela's, which started as a catalog retailer in Nebraska in the 1960s, has enjoyed explosive growth: It now boasts 26 stores, with seven more to open soon. (As Cabela's grew into a huge phenomenon—Cabela's is to the rural well-off what REI is to blue-staters, or L.L. Bean to preppies—clueless New York-based editors occasionally dispatched writers like Manny Howard to decode the alien, rural culture of the company for their urban audiences.) But Cabela's has done poorly in recent months. Its third-quarter earnings, reported on Nov. 1, were decent, although the company reported disappointing margins. But as the geese began to migrate south, investors soured on the company's prospects. As this three-month chart shows, Cabela's has lost 40 percent of its value since September.
Like Cabela's, Gander Mountain is a Midwest-based (St. Paul, Minn.) purveyor of hunting and fishing gear that evolved from a catalog retailer into a large (115-store) chain. After a solid first half of the year, Gander Mountain has tumbled. In its third quarter, which ended Nov. 3, same-store sales plummeted 8.4 percent from 2006, and the company reported a loss. The culprits, according to CEO Mark Baker: "warm weather across northern states, which affects our critical fall hunting seasons, and soft consumer demand across our store base." Baker also said the fourth quarter wasn't looking much better "in light of continued softness in consumer discretionary purchases." But what's good for geese has been bad for Gander Mountain. As this three-month chart shows, the company's stock has lost about 60 percent of its value this fall.
Smith & Wesson, the iconic gun manufacturer, is doing even worse. Its shares are down more than 70 percent in the past three months. Earlier this month, Smith & Wesson reported disappointing second-quarter results. While sales to law enforcement are doing well—after all, violent crime has been up for two straight years—the consumer channel is dead. CEO Michael Golden blamed "softness in the market for hunting rifles and shotguns driven by lower-than-expected consumer demand, an industrywide buildup of preseason retail inventories, and unseasonably warm autumn weather, which compressed the fall hunting season." Golden also noted that consumers are buying fewer handguns. As a result, retailers stuck with too much inventory are slashing prices and reducing orders.
What gives? The unexpectedly warm weather may be playing a role, although the weather tends to play out in unexpected ways every year. And it's probably too soon to conclude that America's long romance with guns is waning.
Rather, the poor results for the legal gun runners provide yet another piece of evidence that the discretionary aspirational consumer is pooped. Despite what you might hear during Republican primary debates, very few people actually need a shotgun or a hunting weapon to get through the winter. Nowadays, most Americans buy fresh meat at stores like Kroger and rely on services like ADT to ward off hostile intruders. And well-made guns, which aren't cheap, last for several years. They don't need to be replaced every fall.
Cabela's and Gander Mountain stores are found in parts of the country where housing and job markets haven't been ravaged by subprime mortgages gone bad. And they're not in places where spending on discretionary goods is dependent on Wall Street bonuses. We've said it before, and we'll say it again: The subprime debacle is a symptom of the nation's economic challenges rather than a cause of them. Slowing growth, stagnant incomes, and rising inflation are taking a toll on the ability and desire of American consumers—at all income levels below plutocrat—to spend. That's why these companies' gruesome stock charts look like ski slopes. And that's why the stock of Vail Resorts, the leading player in another expensive, purely discretionary leisure pursuit, is off 30 percent since October.
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Remarks from the Fray:
Stated simply, everyone who wants a gun has already bought one, thanks to the prohibitionists.
As a practical matter, if taken care of, firearms never wear out. Similarly, the guns typically used for hunting and civilian self-defense haven't changed much in a century or so. So, few firearms get taken out of service for wear or obsolescence.
That is, most guns made in the last 100 years or so are still around. Compare this to (say) the auto industry, where a 20-year-old car is unusual and many mid-60's autos are now expensive "antiques".
Until recently, one big driver for firearms sales has been the threat of prohibition. True, all you really need is one or two. But-- "I better buy this gun now, since I might not be able to later".
Since the Democrats got their butts handed to them repeatedly on this issue, their crazy gun prohibition wing has become completely ineffectual, for the moment, anyway. Among the Republicans, even Rudy Giuliani has felt the necessity to court the NRA. This alone has put a damper on firearms sales.
Combine this with the disposal onto the used market of all those extra guns bought during the temporary ascendancy of the antigun true believers and it is not too surprising that new gun sales are down.
--sesquiculus
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Currently, there are only two publicly traded firearms manufacturers - Smith and Wesson (SWHC) and Sturm, Ruger & Co. (RGR). You could add Alliant (ATK) if you wanted to include powder and ammo manufacturers. Alliant, by the way, is doing just fine thanks to ammunition consumption in Iraq and Afghanistan.
This brings up another point that is related - the cost of ammunition is going through the roof due to increased demand by the military and the cost of commodities like copper and lead.
Finally, this article ignores the sales of weapons like the AR-15 aka The Evil Black Rifle. One need only go to sites like www.ar15.com and see the traffic to know this is where the action in the gun industry is right now. Sales of the AR in all its combinations and permutations make it the best selling firearm in America. Evidence of the importance of this part of the market can be seen in the fact that Remington just brought out their first AR. The same Remington that has been outfitting hunters with bolt-action rifles for many a year. I should also note that the mega private capital firm Cerebrus Capital Management who is buying Chrysler is the new owner of Remington. They also just bought Bushmaster, DPMS Panther Arms, and Cobb Manufacturing - all AR makers.
--JPR9954
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Cabela's, Gander Mountain, Bass Pro Shops, etc. have approached hunting/fishing equipment supply in a capitalist mindset similar to many other businesses. The business has to constantly grow to make money and investors happy. The problem is, the dependent resource, the areas to hunt and fish and the species populations, are not expanding with the economy. In fact, as development eats up more rural areas within reasonable driving distance from a city, there are less areas available to the general public each year.
I am fortunate enough to live in New Mexico which has a wealth of public lands, but here we have lottery draws for all big game species as the populations couldn't sustain the hunting pressure from even the tiny New Mexico population. Across the US, the only hope for expanding areas available to sportsmen is ecological restoration and preservation of key wildlife corridors, both of which are expensive, time consuming, and fly in the face of our development sprawl ethic.
Other than those people who live in rural areas, hunting and fishing have already become a favorite sport for middle and upper class men, often those that actually need the meat the least. "Catch and Release" was a program started to slow the depredation of large fish populations, but there just isn't enough woods and lakes in the US to support the exponential growth needed by a company as large as Cabela's.
--robotkin
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While discretionary spending is down in the arena of hunting, 2007 saw the launch of the iPhone, and red-hot sales of the Wii since it's launch late 2006. Could it be that Iphones and Wiis are eating the lunch of gun sellers?
And another stock that is soaring, and recently split: John Deere. The most avid hunters I've known are farmers. Could it be they've been too busy busting ass to harvest corn at the best price in 100 years and buy tractors, rather than improving their gun collections?
2007 has been a volatile year, but the major indexes are still higher then they were at start of year. For every stock that's going down, there's a stock going up. So, while you write a bearish story, you're missing out on a bullish story.
--Madai
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(12/25)