WASHINGTON, DC – The gun business is booming. The question is, why?
Smith & Wesson stock Friday was zooming, thanks to a stellar earnings report. The firearms maker also boosted its outlook for the rest of the year. Because of the strong business, its backlog of orders more than doubled from the same quarter last year, the company is concentrating on boosting production and building inventory.
“We are underserving the market at this moment, we all know that, and that’s a great opportunity going forward for us,” CEO James Debney said in a conference call with analysts.
And another gun maker, Sturm, Ruger & Co., also hit a milestone of sorts in terms of meeting consumer demand. It produced its one-millionth gun of the year…well ahead of last year’s pace.
“It took us nearly all of 2011 to build one million firearms, but in 2012 we accomplished it on August 15th,” said Ruger President and CEO Mike Fifer in a statement.
What’s driving the demand that has gun makers cranking up production?
Speculation has focused on fears of a coming regulatory crackdown on gun ownership. Liberal administrations tend to be anti-gun and so, the thinking goes, an Obama re-election would set the stage for stricter gun purchasing requirements. Hence, people are buying now in anticipation of difficulty later.
Indeed, looking at background checks for gun sales (a metric commonly used to gauge general industry performance) 2009 showed a measureable increase that many attributed to Obama’s election.
Is it the same this year? Some anecdotal evidence tends to bear that out.
“I should put Obama’s picture on the wall up there,” said one New Jersey gun salesman, asking not to be identified. “I’d name him salesman of the month!”
But it’s not universal. Some suggest it may be less about regulatory worries and more about the immediate economy. (Related: Are You Better Off?)
“Sure, about a third of it is politics,” said a Maryland salesman, who also didn’t want to be named. “But the majority are people concerned about safety. They are worried about crime and looking at the economy and no one having jobs. They want to be protected now. So they’re buying.”
“The biggest new group of buyers now are senior citizens,” Larry Hyatt, owner of a North Carolina gun shop, said on CNBC’s “Closing Bell.” “Ten thousand Baby Boomers a day are turning 65; they can’t run, they can’t fight, they got to shoot.”
The motivation behind the rush could be key to how long the gun makers enjoy the surge in business. Fears of overregulation could dissipate rapidly after the current election season is over, since there was no major change to gun regulations after Obama was elected the first time. Indeed, one analyst downgraded Smith & Wesson [SWHC 10.07 1.07 (+11.89%) ] and Ruger [RGR 46.84 0.12 (+0.26%) ] stock last month, citing fears that their torrid sales pace this year is unsustainable.
Not all analysts agree, however.
“We think there is broader drivers, broader acceptance of the use of guns and more target shooting,” said Cai Von Rumohr, an analyst with Cowen & Co., also appearing on CNBC. “So we think it’s more than just safety and more than just fear of not being able to buy guns.”