There are some tough times ahead for gunmakers…
Thrust into a politically charged atmosphere where leftist advocates are demanding stricter gun control reform and a retired U.S. Supreme Court justice is calling for the complete repeal of the Second Amendment, firearm companies and enthusiasts alike have been forced into an extremely rough spot.
It’s basically sink or swim at this point. And it seems like one company, in particular, is especially close to sinking…
Founded back in 1816, Remington is one of America’s oldest, largest, and most iconic gun and ammunition manufacturers with roots stretching back well over 200 years. And only last month, I spoke to you about how the gunmaker was preparing to file for bankruptcy.
Buy that move was delayed after the massacre at Marjory Stoneman Douglas High School in Parkland, Florida, occurred a few days after the company’s initial announcement…
What’s Going On?
After the Parkland shooting, the national debate surrounding gun control regulations and Second Amendment rights reignited with full force. And this prompted a delay in Remington’s bankruptcy-filing process.
But on Sunday, March 25th, Remington Outdoor Company filed for Chapter 11 protection in the U.S. Bankruptcy Court in Wilmington, Delaware, with plans to hand over control of the company to its creditors.
The filing came the day after the massive gun control march, March for our Lives, was held in cities across the country, notably in Washington, D.C. The company cited a heavy debt load, falling sales, and lawsuits as being the reasons behind filing for bankruptcy protection.
According to the New York Times, the company told the court that it has between $100 million and $500 million in debt, with the company’s assets being in a similar range.
Also, overall firearm sales have been down significantly since President Donald Trump took office in January 2017. The general speculation about this has been that fewer Americans fear restricted gun rights under a Republican president who supports the NRA.
But that might change while the atmosphere about gun control is becoming especially heated. Although, Trump has made no remarks insinuating any possible reform.
The lawsuits that Remington faced were the result of the Sandy Hook Elementary School shooting back in 2012. The killer used a Bushmaster AR-15 rifle, which was a model that Remington made at the time.
Soon after, the gun control debate fired up — like to how it is now — and the public placed the some of the blame on Remington for the massacre. And so did the families who’d lost loved ones.
Families of nine victims sued Remington in 2014, alleging that the gun manufacturer was partially responsible for the mass murder because it made and marketed the AR-15.
The bankruptcy filing brings an end to private-equity backer Cerberus Capital Management’s investment in the gun business.
Control over the company will be handed over to its creditors, which include Franklin Resources and JPMorgan Chase & Co.’s asset-management division, in exchange for wiping much of Remington’s debt from its balance sheet.
When Remington emerges from the bankruptcy protection, Cerberus’ ownership will be wiped out. But the new owners plan to unload the assets to another buyer as soon as they can do so profitably, The Wall Street Journal reported.
The court papers show that Remington’s term loan lenders will receive an 82.5% stake in the reorganized company under the Chapter 11 plan. Meanwhile, its third-lien noteholders are slated to receive a 17.5% stake and a $39.3 million cash distribution.
The bankruptcy filing gives the iconic gunmaker the breathing room necessary to continue operations with the help of its bankruptcy loans. Remington will use the debt to keep production going and business operating as usual for both customers and employees while under protection…
What Led to the Downfall?
Remington isn’t the only gun manufacturer facing recent troubles. Currently, the entire sector is facing an uphill battle that’s wrought with political pressures and ever-changing sentiments about gun ownership.
There are many reasons why gun companies are struggling to find profits…
In the decade before the 2016 election, the entire firearms industry saw a nationwide boom in gun sales. This boom was stoked by political fears of new gun control legislation under a Democratic regime.
Gun companies saw an increase in sales, with intermittent spikes in the aftermaths of mass shootings. And they anticipated continued growth under yet another Democratic president. So they ramped up production.
But all this momentum came to a grinding halt when Trump, a friend of the gun industry, took office. Speculation over future gun control subsided, buying habits slowed, and gun companies found themselves sitting on stockpiles of weapons that they were unable to move like they had before.
Also, Pew Research Center’s latest study on U.S. gun trends shows that 66% of gun owners own more than one firearm.
Some analysts conclude that dips in sales are not only tied to political fears. The dips are also because the traditional gun-purchasing demographic has exhausted itself and because gun companies are only now feeling the pressure.
This has caused many gun companies to expand outside of their traditional markets to look for new potential buyers.
“Everybody is fighting each other to sell firearms to the same group of people,” says Robert Farago, author of the blog The Truth About Guns. “There’s a huge market untapped that the firearms manufacturers have to go after because they’ve saturated the market of the enthusiast.”
Farago adds that such a challenge would be difficult.
Most major media publications won’t allow gun manufacturers to advertise on their platforms. And recently, traditionally gun-friendly online communities like YouTube and Reddit have closed ranks on content meant to actuate gun sales.
During better times, many gun companies launched a series of products that did less-than-stellar on the market, in their eagerness to meet consumer demands.
Remington faced allegations that its M700 series rifles fired without anyone pulling the trigger. A class action lawsuit would see the company paying $2.5 million and making an agreement to fix the faulty firearms.
Ruger, another company that has seen declining sales over the last two years, took a $2.5 million hit when it issued a recall for its Mark IV line of handguns, citing safety concerns. And Ruger issued a recall around the same time for its Precision Rifle series for safety reasons, as well.
All of the reasons above hurt customer confidence in all gun companies, not just Remington, which have historically relied on word-of-mouth recommendations and strong quality control…
The Bottom Line
Although Remington is a privately held company, shares of publicly traded gun companies fell last Monday after Remington’s announcement and the recent gun control march.
If this trend of promoting gun control legislation continues consuming the public eye, it could seriously depress the sales and earnings of the entire firearm sector.
Sturm Ruger & Company (NYSE: RGR) fell 1.6% last Monday. And American Outdoor Brands Corporation (NASDAQ: AOBC), the parent of Smith & Wesson, fell 3.1%. Year to date, Sturm is down 13% and American Outdoor has shed 26%.
Both are on track for more declines if this trend continues.
Unfortunately, it doesn’t look like it will be letting up anytime soon…
That’s all for now.
Until next time,
John Peterson
Pro Trader Today