Gun retailers a potential bull’s eye for investors
Scott is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When times are tough, where can you find a business sector that hits the financial bull’s eye? Look no further than what you usually use to hit the bull’s eye: Guns and ammunition.
According to the National Shooting Sports Foundation, the trade association for the firearms, ammunition, hunting and shooting sports industry, the gun business was excellent in 2011, with no change expected in 2012:
“The $4 billion firearms and ammunition industry stands apart from other industries that are struggling in the slow economy. Demand for guns has continued at a robust pace since late 2008. NSSF estimates the industry is responsible for approximately 180,000 jobs and has impact on the U.S. economy of $28 billion.”
The popularity of guns in America makes for good business.
It’s estimated that there are 270 million privately-owned firearms in America - nearly 89 guns for every 100 people in the country.
What prompts the hotter-than-a-three-dollar-pistol good business news is the bad news about the Colorado Dark Knight movie house shooting and the Wisconsin Sikh temple massacre. It’s not so much the incidents themselves, but what follows that has buyers scrambling to purchase.
Gun sales are robust because of gun control political rhetoric that follows incidents like the Colorado and Wisconsin shootings. When people who are concerned about self-protection hear gun-control talk, they beeline to a firearms dealer to beat regulatory restrictions.
According to Gallup, opposition to gun control is at unprecedented levels suggesting Americans are ready to buy more guns.
Since there’s a limited number of publicly-traded gun manufacturers, profiting from them could be difficult. The Motley Fool recently reported on three of them, but investing in one of these solid-performing companies means you hitch your wagon to a one-gun-brand star. If you want to take advantage of the surge in gun sales irrespective of brand and company, then look at the retail sector for a company selling firearms from several manufacturers.
Even here, however, the number of publicly traded retailers isn’t that large. Many of the big gun retailers, like Hyatt Guns and Gunrunner as well as the iconic L.L. Bean in Freeport, ME and tourist-destination Bass Pro Shops in Springfield, MO, are privately held.
Publicly-traded gun retailers include Wal-Mart (NYSE: WMT), which is the largest firearms retailer in America, Sears and its K-Mart division (NASDAQ: SHLD), Big 5, Dick’s Sporting Goods and Cabela’s (NYSE: CAB).
While Wal-Mart is the number one retailer of firearms, sales are restricted to rifles and shotguns – the company stopped carrying handguns in its stores in the early 1990s in part to gain acceptance in communities such as New York City where antipathy towards firearms, especially handguns, is high.
Sears is less a destination firearms retailer than the place you go for a mattress or power tools, and its discount-retailer K-Mart division, is closing a large number of stores after a poor 2011.
Big 5 and Dick’s are traditional sporting goods retailers that feature a broad array of merchandise from bowling balls to team uniforms in addition to firearms. Not the serious gun purchaser’s first choice.
That leaves Cabela’s, a 37-store chain with locations in the U.S. and Canada and 2011 revenue of $2.5 billion. Regarded as a destination retailer for hunters, Cabela’s is a full-range gun retailer offering handguns, rifles and shotguns as well as specialty firearms in all price ranges from domestic and international manufacturers.
Additionally, Cabela’s Gun Locker is a go-to place for high-end, antique and one-of-a-kind firearms. If you’re in the market for a Beretta 12 gauge trap gun and you are comfortable dishing out $3,200 for it, the Cabela’s in Hamburg, PA has it for you, but not over the Internet since by law gun sales must be finalized in person, which means customers have to go to the store.
In my never-ending quest to bring you boots-on-the-ground research, I was in the Lacey, WA Cabela’s three weeks ago, and the gun counter was doing a brisk business with nearly every clerk helping a customer fill out a background-check form, which they only do when a gun has been purchased. Those customers also had shopping carts filled with non-gun merchandise – lots of non-gun-related merchandise.
As reported in The Daily Olympian (Olympia WA), for the second quarter of 2012 Cabela’s earned $33.9 million, or 47 cents per share, compared with $21.7 million or 31 cents per share for the same quarter in 2011.
The company is proceeding with expansion plans, albeit cautiously and with an emphasis on smaller stores that will increase profitability. A typical Cabela’s is in the range of 200,000 sq ft, while the store in Union Gap, WA slated to open this October will be 40,000 sq ft.
Per The Olympian report, company CEO Tommy Millner acknowledged in a conference call with analysts that Cabela’s had experienced stronger gun sales as a result of the Colorado shooting tragedy.
Scott St. Clair does not own, nor has he ever owned, shares in any of the companies mention in this entry. He does own, however, a pretty nifty German-made H&K P30 hand gun, the only semi-automatic that is fully functional left-handed and right-handed. And he perfectly fits the demographic described in this entry. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.