The road ahead looks bumpy for gun stocks

Walmart (NYSE: WMT) recently decided to stop the sales of handguns and certain kinds of ammunition in the wake of a number of shooting tragedies. This move will reduce the company’s market share of ammunition from around 20% to a range of approx. 6-9%. Several other retailers, including Kroger (NYSE: KR), have joined Walmart and amended their gun policies.

The rise in mass shooting incidents have brought the topic of gun control to the fore and increased calls for changes to gun policies. This has put the spotlight on gun companies and it appears that gun stock investors have reasons to be concerned.

Looking at the past five quarters, American Outdoor Brands Corporation (NASDAQ: AOBC) saw sales increases in all four quarters of 2019 but this sales growth started to decelerate from the third quarter. In the first quarter of 2020, the company reported a double-digit decline in sales, reflecting the softness in the firearms market.

For fiscal year 2020, American Outdoor’s revenue is estimated to dip to $636 million from $638 million in the previous year. The stock has dropped 51% year-to-date and 57% in the trailing 52 weeks.

Another player is Vista Outdoor (NYSE: VSTO) which used to be a leader in the firearms space. Over the past five quarters, however, the company has seen continued declines in sales, with double-digit decreases from the third quarter onwards.

As part of its transformation plan, Vista sold its Savage Arms and Stevens firearms brands for $170 million in July. The company had previously stated that the sale had no connection to the protests and the decision was taken so that Vista could focus on product categories with growth potential.

Also see: Walmart Q2 2020 Earnings Report

Vista lowered its sales guidance for fiscal 2020 to a range of $1.79 billion to $1.89 billion from the prior range of $1.94 billion to $2.03 billion, to reflect the sale of Savage Arms. Vista’s shares have plunged 53% so far this year and over 70% in the past 12 months.

According to a report by Shooting Industry, the firearms industry has been facing challenges since 2016. With the 2020 election nearing, firearms sales are likely to take further hits going forward.

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