In 2015, outdoor products firm Vista Outdoor Inc. (NASDAQ: VSTO) made 381,695 rifles at its Savage Arms subsidiary. That number dropped to 311,878 in 2016, the latest year for which federal data is available. Given the poor fiscal year 2018 report the company released Tuesday morning, one might expect the total for 2017 to be even lower.
Whatever the total, it is low enough to encourage Vista to put Savage Arms up for sale, along with other product divisions that a strategic review has determined fall outside its core brands in ammunition, hunting and shooting accessories, hydration bottles and packs, and outdoor cooking products. Products like bicycle safety helmets, paddle boards and firearms don’t fit in.
Like other firearms companies, including American Outdoor Brands Corp. (NASDAQ: AOBC), makers of Smith & Wesson products, and Sturm, Ruger & Co. Inc. (NYSE: RGR), the drop in gun sales since Donald Trump was elected in 2016 has hit hard. With Trump promising no changes in U.S. gun laws, gun sales have declined from the days when a Democrat in the White House and one more seemingly on the way made it look like gun makers were on a roll.
The shooting that killed 17 students and faculty at Marjory Stoneman Douglas High School in Parkland, Florida, made matters worse for gunmakers. Large retailers like Walmart, Dick’s Sporting Goods and others either stopped selling semi-automatic rifles or began requiring gun buyers to be at least 21 years old or both. Large institutional investors began to demand that investment funds shed assets related to firearms, and some banks have even begun moving gunmakers out of their customer lists.
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The bankruptcy filing by Remington Arms Company in March dims prospects for a sale of Savage Arms. In 2015, Remington made a total of 1.14 million pistols, revolvers, rifles and shotguns and was the third largest U.S. firearms maker behind Ruger (1.67 million guns) and Smith & Wesson (1.47 million). In terms of rifles alone, Remington ranked first (774,180), Ruger ranked second (662,444) and Savage Arms ranked third. Savage does not make handguns, but it manufactures around 16,000 shotguns a year.
The most difficult problem Vista faces in its effort to sell Savage may be a demographic one. The market is shrinking, not growing, and has been for several years. Americans who own guys are buying more and those who don’t own guns are not buying.
Just 3% of the U.S. adult population owns about half the guns in the country. That’s an average of 17 guns per owner. While we don’t know what the limit might be, we know that there is one (cf., Stein’s Law: if something can’t go on forever, it won’t).
Vista stock traded down about 13.5% in the noon hour Tuesday, at $14.49 in a 52-week range of $12.35 to $25.07, and the consensus price target on the shares is $15.88.
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