Summary
- Effects of the pandemic on sales growth have helped to cement Smith & Wesson’s name for a new generation.
- The recent spinoff comes at a unique time to allow the company to focus on its core strengths.
- Solid balance sheet strength will give the company enough flexibility to continue designing winning firearm concepts.
Investment Thesis
Smith & Wesson Brands, Inc. (SWBI) has been one of the winners during the COVID-19 pandemic, and with the recent spinoff of its ancillary product brands and a solid balance sheet position, the company is set to become the premier pure-play U.S. firearms manufacturer.
Company Overview
Smith & Wesson has a long history, dating back to 1852, and began as a pure-play firearms manufacturer. The company has since been through multiple mergers and buyouts and changing of names. Smith & Wesson grew to incorporate new ancillary products in addition to its firearms, but in August 2020, the company spun off this division into its own company named American Outdoor Brands (AOUT). The spinoff was meant to allow Smith & Wesson space to focus on its core competency, firearms manufacturing.
Smith & Wesson releases new designs of firearms regularly, and its products are generally well-accepted among civilians, police, and the military. In FY 2020, for example, the company released a new firearm concept for the handgun segment, the Model 648. The firearm segment of its business in past years has seen steady, but non-explosive growth.
Model 648
(Source: HandgunsMag.com)
Industry Overview
Previously to 2020, we would have compared Smith & Wesson to the broader category of shooting and outdoor goods. However, with the recent development of the company becoming a pure-play firearms manufacturer, we can discuss the firearm industry exclusively. Like many industries, the firearm industry was heavily affected by the pandemic. Sales spiked around March, and since then have steadied a little, while still noticeably higher than the same time the year before.
(Source: Statista.com)
Looking at the numbers from 2019, we can see that sales of handguns are generally higher around March, so we can infer that a small part of the spike could potentially be seasonal. However, we see another major spike in June 2020 that does not appear to be as seasonal compared to the year before.
The firearms industry as a whole in the United States is mature and heavily regulated. Over the past five years, the company has grown at an average rate of only 2.3%. In 2019, Americans bought 13.9 million firearms, meaning Smith & Wesson controls a respectable 11% of total U.S. market share in its FY 2020.
