American Outdoor Brands (NASDAQ:SWBI) stock may be down over 30% in the past six months, but not really because it did anything wrong. In fact, the firearms maker and outdoor equipment supplier was pretty much on point all year long. As Americans flocked to gun stores in 2016, logging yet another record year for FBI NICS firearm background checks, the company enjoyed strong growth with revenue up over 50% year-over-year in the first half of fiscal 2017.
Beyond its financial results, however, the success of a major rebranding effort in late 2016 -- the move away from the legendary Smith & Wesson name -- remains to be seen.
Lock, stock, and two loaded barrels
In firearms, the Smith & Wesson name continues to provide standout leadership. It remains the No. 1 firearms brand in the U.S., leading all firearms manufacturers in total aided brand awareness. In fact, one out of every two revolvers owned is from the company.
Smith & Wesson also continues to provide gun enthusiasts with the firearms they want. Last January, for example, the company updated its immensely popular M&P 15-22 rifle with a cheaper, easier to operate sport version. The company also introduced the SW Victory, a .22 LR target pistol. New products like these accounted for 30% of total revenue last quarter.
Healthy dose of rugged individualism
Not least of the company's successes in 2016 was its determined effort to enter the rugged outdoors market and the broader outdoor recreation industry. Acquisitions like knife maker Taylor Brand and survival and camping gear manufacturer Ultimate Survival Technologies provide both complementary business opportunities to service existing customers while branching out into new markets.
Sales in the firearms industry tend to come in waves in response to external events such as tragic shootings or calls for stricter gun control legislation. Going after outdoor enthusiasts should help smooth out some of that volatility in the firearms business.
A mayo-and-white bread sandwich
So if the company was so successful in 2016, what did it do wrong?
Its biggest error was in choosing a new, bland corporate identity.
The Smith & Wesson name has a history stretching all the way back to 1852. It is not only well known in the firearms industry -- in many ways synonymous with it -- but also instantly recognizable by even most non-gun owners. While it's true that American Outdoor Brands isn't abandoning the Smith & Wesson name for its firearms, burying it within a generic-sounding holding company takes away some of the cachet associated with it.
Admittedly, there are reasons why it chose to do so. Firearms are naturally a lightning rod for controversy, and in our polarized society, the Smith & Wesson name will immediately evoke images of good or evil depending upon which side of the gun control debate you're on. Also, because the company is embarking on multiple ventures into new markets, changing the holding company name to better reflect new, broader opportunities makes some sense.
Yet by choosing something as amorphous as "American Outdoor Brands", the new corporate identity has nothing to endear it to its customers, whether those who buy its firearms or those it wants to attract from the recreational outdoors market. It follows too closely rivals like Vista Outdoor, which also targets both the outdoors industry and firearms through its Savage Arms division and Federal Premium ammunition business.
So while there's nothing wrong with the new name, relegating a historic, beloved brand like Smith & Wesson to second-class status may prove to be American Outdoor's biggest mistake in 2016.