We generally don't cover firearms and ammunition because we don't consider them to be part of the outdoor market as we see it, and we support the growing public outcry in the U.S. in favor of enforcing stricter gun control laws, after more than 150 mass shooting episodes in country over the past eight years. In the last one of them, 17 teenagers and teachers were killed and 14 were wounded on Feb. 14 in Parkland, Florida.
The country's largest sporting goods retailer, Dick's Sporting Goods, reacted by stopping the sale of assault-style rifles at its stores, a move that led to a surge in traffic. For their part, REI, which doesn't sell guns or ammunition in its stores, suspended orders of any products from Vista Outdoor's brands, including Camelbak or Camp Chef, because it had failed to make a public statement outlining a clear action plan on the issue. In Canada, Mountain Equipment Co-op took a similar stance.
The attitudes being taken by these big retailers are expected to further encourage a diversification away from this sector into more real outdoor products that has been conducted in the last years by big American companies like Vista Outdoor or American Outdoor Brands (AOBC), which is now apparently playing financially in their favor.
In contrast with their mixed performance, a fully dedicated American gun maker, Remington, just filed for Chapter 11 bankruptcy protection from its creditors after its sales fell last year to just $603.4 million from $865.1 million the year before, and its Ebitda plunged down to $33.6 million from $119.8 million. A bankruptcy court approved the proceedings, allowing the company to operate normally, after obtaining debtor-in-possession financing from its lenders, converting $775 million worth of debt into equity.
Meanwhile, AOBC, whose holdings include Smith & Wesson, reported a 65 percent decline in net income to $11.6 million for its third financial quarter, ended on Jan 11, on a 32.6 percent decline in total sales to $157.4 million. While its sales of firearms fell by $40.6 million to $117.6 million, its sales of outdoor products and accessories rose by 10.9 percent to $44.7 million, including organic growth of 7.5 percent. Many of these products are gun-related, however.
AOBC's adjusted quarterly Ebitda was more than halved to 12.7 percent of sales from 28.9 percent as the gross margin was cut down to 29.8 percent from 42.5 percent. A gross margin of 23.4 percent on firearms compared with a margin of 48.2 percent on outdoor products.
The group is forecasting flat sales of firearms and doesn't see any return to growth in the segment over the long term. It plans to continue to grow organically in its outdoor business, investing in a new distribution center that will allow the group to enjoy more synergies from its recent acquisitions and any future ones. However, AOBC's management indicated that it is not looking for any new purchases in the outdoor sector for the moment because of high prices for these properties and the need to focus on paying down debt.