High-caliber growth: Keeping guns and ammo profits in sight

February 15, 2016 11:00 AM

Thirty million guns. 

That’s the number of weapons that BearingArms.com, a Second Amendment rights blog owned by media group Salem Communications, projects Americans could purchase in 2016 should the Democratic presidential push increased gun control efforts as part of the party’s platform. 

The figure is staggering – certainly record-shattering – and a potential boon to the stocks of gun and ammunition manufacturers and the stores in which these products are sold. The election year and subsequent policy proposals offer the sentiment on why such a massive figure would even be projected – let alone remotely possible.

Author Bob Owens essentially taunts the President, posting a picture of Obama raising a glass beneath a headline calling him the “World’s Greatest Gun Salesman,” who shattered his own record. Based on NICS data for 2015, Owens estimates that Americans may have purchased in excess of 25 million firearms over the calendar year.

The possibility of an additional five million guns in 2016 – pushing that figure to 30 million units – is aided by what Owens calls “the anti-gun dream team” of Democrat Presidential candidates Hillary Clinton, Bernie Sanders, and Martin O’Malley.

According to IBISWorld, three major demand determinants push gun sales: 1) rising discretionary income and lower unemployment benefit consumer goods; 2) regulatory fiat and licensing can reduce consumption, and 3) fear of regulatory efforts by states and Federal officials can drive up demand, creating significant short-term buying cycles. 

But wide scale macroeconomics and Washington policy debate are not the only reasons why industry forecasts project long-term growth. According to BB&T analyst Brian Ruttenbur, who upgraded Smith and Wesson stock in early January, a shift in industry demand has been driven by growth in special segments of the retail industry. BB&T initiated coverage of SWHC, RGR and VSTO in July 2015.
But nothing compares to the impact of the political climate.

“The number one factor [driving industry growth] is fear,” says Ruttenbur. “Over the next year, the real risk to the sector is President Obama stops discussing gun control and politicians start being quiet about this issue.”

But that isn’t likely going to happen with the Presidential election on the horizon and as advocates continue to battle over a series of executive orders issued by Obama’s administration.

There are additional growth factors that offer traction for the industry outside of politics. The following explores the other primary growth factors for the sector and insight from Ruttenbur cited in his recent SWHC upgrade (see “Women and Guns,” next page). 

Concealed carry growth accelerates

With personal safety the top priority for gun owners, women and men across the nation have taken advantage of changing state policies that enable Americans to carry weapons on them in all 50 states and the District of Columbia.

Americans – concerned about a rise in crime – have increased the number of carry permits over the last seven years and are expected to continue this trend over the next 12 months. 

Since the 2008 election, the number of concealed handgun permits has surged to record levels. In 2007, 4.6 million Americans had concealed carry licenses. By mid-2015, that figure surged to more than 12.8 million, according to research from industry groups. In the 12 months leading to a report prepared by The Crime Prevention Research Center (CPRC), whose research tends to be published by conservative-leaning outlets and gun rights advocates when reporting on gun violence, more than 1.7 million new concealed carry permits were issued.

The CPRC – whose founder Dr. John R. Lott Jr. wrote the book “More Guns, Less Crime” – draws a direct correlation between the increase of carry laws and the decline in U.S. murder rates. Between the years 2007 and 2014, the U.S. murder rate fell from 5.6    to 4.2 per 100,000 citizens, according to preliminary estimates.

Hobby shooting grows in popularity

According to IBISWorld, sales of ammunition account for 25% of all revenue at gun shops around the country. Surprisingly, just 30% of all ammunition, according to the National Shooting Sports Foundation, is used for hunting purposes. Ruttenbur writes in a recent report that “more people are going to the shooting range for fun.” Given that a typical target-shooter could fire off hundreds – if not thousands of rounds in a week or month – the costs quickly add up. 

The trends listed above offer a support level for the industry’s long-term growth figure, a level that IBIS projects in the five years to 2020. The research firm says that industry revenue will grow by 1.2% each year to $14.3 billion.

IBIS had projected negative revenue growth for the manufacturing portion of the sector (a 4.1% decline from 2015 figures). It also suggested that sales in gun stores would slow from 4.8% growth in 2015 to 3.5% this year.

However, the research firm’s report was prepared before the Paris and San Bernardino attacks, news of the President’s executive orders, and the ensuing support for gun control by Democratic presidential candidates. Hillary Clinton, who is the Democratic frontrunner, publicly disagreed with the Supreme Court on the landmark gun rights case District of Columbia v. Heller.

Clinton – like President Obama – has vocally supported gun control efforts in nations like Australia where wide-scale confiscation was conducted in the wake of a mass shooting.

SWHC: The one-year outlook

The political outlook remains the strongest case for optimism over the next year. 

“We have a 12-month horizon for gun sales to increase,” says Ruttenbur. “Democratic candidates will use the gun issue as a political platform, and will be anti-gun sales. The President has executive powers until 2017, and it’s unclear what else he may do regarding his policy stance. This seems to be an extremely personal issue for President Obama. Overall, the fear factor will remain the driving factor for the next 12 months.”

However, Ruttenbur factored in other considerations into his upgrade for Smith & Wesson.
After the company hiked its SWHC guidance for FY Q3 2016 and 2016 and strong NICS data, Ruttenbur sees additional upside due to the election, sales trends and new product introductions.

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About the Author

Garrett Baldwin is the Managing Editor of the Alpha Pages and the Features Editor of Modern Trader. An author and Baltimore native, he earned a BS in journalism from the Medill School at Northwestern University, an MA in Economic Policy (Security Studies) from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University.