American Outdoor Brands Corp. (NASDAQ: AOBC) has felt the slowdown of the gun business for much of 2017. Now we are seeing a continued reminder of just how much pain is being felt in the gun business. This company matters in the gun business as it is the renamed parent of the key Smith & Wesson brand.

Its results for the fiscal first quarter of 2018, which ended July 31, 2017, showed nearly a 40% drop in revenues. Also shown were lower gross margins, and the company even reported a net quarterly loss. The outlook is dismal as well.

American Outdoor Brands said that sales during the quarter were $129.0 million. That is down from $207.0 million for the first quarter in fiscal 2017, a 37.7% drop, and Thomson Reuters had its consensus estimate up at about $147.4 million. Gross margin fell to 31.5% from 42.3% a year ago.

There is often a wide discrepancy between GAAP and non-GAAP earnings in corporate earnings. The company’s GAAP net loss was $2.2 million, or −$0.04 per share, versus net income of $35.2 million, or $0.62 per diluted share, a year ago. The GAAP figure included expenses of $3.8 million and $1.7 million, respectively.

Operating earnings, non-GAAP, came to $1.2 million, or $0.02 per share. This was handily lower that the $0.11 per share consensus from Thomson Reuters. While this is at least a profit on the surface, it compared with $37.7 million ($0.66 per share) a year ago.

The company has projected fiscal second-quarter earnings from operations (non-GAAP) of $0.07 to $0.12 per share and non-GAAP earnings for the year ahead of $1.04 to $1.24 per share. Thomson Reuters had consensus earnings estimates of $0.27 per share for the second quarter and $1.53 per share in 2018. For the year, the company expects positive operating cash flow of $70 million to $90 million. Revenues were put in a range of $140 million to $150 million for the coming quarter (versus $171 million consensus) and $700 million to $740 million for the coming year (versus $777 million consensus).

M&P Shield pistol promotions were also cited for weakness in the quarter, as well as higher channel inventory from multiple manufacturers at retail locations. The company plans to further increase its internal inventory ahead of new product launches and the fall hunting and holiday seasons.

Despite the pressure in gun sales, American Outdoor Brands is still making bolt-on acquisitions. During the first quarter, the company announced the purchase of substantially all the assets of Gemini Technologies, a provider of high-quality suppressors and accessories, for $10.0 million. It had also announced a $12 million acquisition of Bubba Blade, a premium brand of knives and tools for fishing and hunting. Both deals have already closed.

James Debney, American Outdoor Brands president and chief executive officer, talked about softness in retail and wholesale markets and noted how the comparisons look much worse when considering the prior high gun demand trends of 2016 and before. His quote said:

Our financial results for the first quarter reflected lower than anticipated shipments in our Firearms business, consistent with a softening in wholesaler and retailer orders, partially offset by increased revenue from our Outdoor Products & Accessories business, which grew organically at 11.4% and which more than doubled inorganically. Total revenue for the quarter also faced a challenging comparison to last year’s heightened level of firearms demand, which we believe was driven by concerns for personal safety and the potential for increased firearm legislation.

American Outdoor Brands shares closed flat at $16.94 ahead of earnings, but the gunmaker was seen down 16% at $14.24 in the after-hours trading session after this report. Its 52-week trading range was $16.00 to $28.57 prior to this, and its market cap at the close was $914 million. Analysts had a consensus price target of $21.88 coming into earnings.

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