I run an investment business – and my blog is about investing. Sometimes (quite often) investing requires that you have a dispassionate look at politics, political trends and political decisions – even if those trends and decisions are anathema to you.
This is one of those times.
In March the US economy was in dire risk. Everyone who sold discretionary consumer products – especially high value discretionary consumer products – was watching their business implode about them. Well not everyone – but almost everyone.
One sector was having a rollicking boom – an off-the-scale big boom. It was recreational handguns.
A large number of Americans allowed themselves to be convinced that Obama was going to take their guns away. Or maybe they were convinced that socialists were taking over the country and that you needed to protect yourself. They may have even been convinced that Nazis were taking over the company (evidenced by eugenics policies under the Trojan horse of nationalised health care). Whatever… they bought guns. Lots of them. Here is a presentation from the Ruger AGM…
(Some corrections – the sales are probably on first quarter 2009 running at about 1.5 billion at the moment… this boom is MUCH bigger than show in in this graph).
I do not need to tell you a billion dollars (the current projected 2009 sales) represents a lot of handguns. Its up
250 percent [see correction – but about 400 percent] since 2003. Very few consumer products (that are not made by Apple) can claim that.
The Obama-hatred inspired boom in handguns was so large that manufacturers simply could not keep up and handguns had to be obtained on order. The companies had exploding forward order books. As Smith Wesson said in a press release dated 22 June…
Our firearms backlog continued to increase dramatically during the quarter, and reached its peak at $268 million dollars by the end of April. That level is $218 million dollars higher than the same quarter one year ago.
More generally, Smith & Wesson deserves special mention. They have taken as their marketing guide the success of Harley Davidson – a company producing marginally inferior (but iconic) products and turned it into a mass-market product for wanting to rebel (and recapture youth) middle-aged baby boomers. What is more they have done so with some success – as evidenced by their shoot-the-lights-out record sales this quarter.
Dispassionately if you thought Obama hatred of the most extreme ilk was going to continue to grow like topsy you would buy Smith and Wesson and its ilk – and become a gun seller. As a committed Liberal I might not like the second amendment and I might like the second amendment supporters even less – but – we owe a duty to our clients to make money – and we might even do it owning the shares of a gun manufacturer.
Fortunately though that is not the decision we have taken. I am not sure I would be comfortable being a gun seller – and some of my clients might also have strong views. We prefer to short this…
The proof of Obama is there to see. Obama is (despite the protestations of Rush Limbaugh and his ilk) turning out to be a middle-of-the-road centrist. [Strong Liberals wanted change they could believe in… Smith & Wesson just wanted to sell guns.]
And they have. Smith and Wesson sales were good but their forward order book took a dive. To quote Wednesday’s press release
Our firearms backlog was $177.5 million at the end of the first quarter. Cancellations reduced backlog by approximately 10% during the quarter. It is important to note that our backlog always represents product that has been ordered but not yet shipped. As a result, it is possible that portions of the backlog could be cancelled if demand should suddenly drop.
The warning about the backlog not being binding is new – and it is clear from the new disclosure that they are having massive problems during this quarter with order cancellation.
The backlog dropped from $268 million to $178 million – a drop of 90 million. Ten percent of that (say $27 million) was order cancellation – but a net $63 million of sales came from the backlog. Total sales were 102 million – and less than 100 million in firearms. The rate at which Americans are placing orders for new Smith and Wesson handguns is collapsing.
The company did not tell us the current forward order book. At that rate of collapse what they are facing is a disaster.
Whether that says anything about the size and intensity of belief of the Rush Limbaugh right – well I will leave that for my readers to discern. We just want to make money for our clients – so we are short Smith & Wesson.