American Outdoor Brands' Shareholders Get Report Defending Smith & Wesson

The gunmaker says the resolution from its parent company requiring the report was based on false assumptions.

Rich Duprey
Rich Duprey
(TMFCop)
Feb 21, 2019 at 9:30AM
Consumer Goods

Over the objections of the board of directors, shareholders of Smith & Wesson parent American Outdoor Brands (NASDAQ:AOBC) adopted a resolution to force the gunmaker to report on gun violence in the country and the impact on and risk to the company's financial and operational health. 

Similar to the one the same shareholders had Sturm, Ruger produce, the resolution demanded American Outdoor examine three things and issue a report on its findings by Feb. 8. The company was to:

  • Monitor violent events in which Smith & Wesson products are used.
  • Prove the gunmaker is working to produce safer firearms and related products.
  • Assess the risks to the gunmaker's reputation and financial well-being from gun violence in the U.S.

The report met all three requirements, but it also came out with guns drawn in defense of its business and industry, as well as the gun buyers who support it. Here's what it had to say.

Check out the latest American Outdoor earnings call transcript.

Pistol on the Constitution

Defending gun buyers and the Second Amendment is an important component of American Outdoor Brands' reputation. Image source: Getty Images.

Gun violence is not brand-specific

To monitor gun violence involving Smith & Wesson firearms, American Outdoor Brands hired an independent media monitoring firm to go back over news reports for a 12-month period and determine if the company's brand or reputation was negatively impacted.

It found that that less than 10% of all mentions of Smith & Wesson in the media included a reference to criminal activity, and regardless of whether it was online, on social media, or in traditional print publications, "the conversation around firearm-related violence in the United States is largely an unbranded conversation."

Smart guns leave a lot to be desired

It then turned its attention to the requested development of "safer firearms" through the use of "smart gun" technology, devices that are supposed to render a firearm inoperable except by its owner. The report found that firearms themselves are safe without the technological additions and American Outdoors manufacturers its guns to high quality standards. When it comes to smart guns, the report determined the technology is not reliable or commercially viable and there is virtually no demand for it by gun buyers.

The report highlights a number of shortcomings it found with the technology, including the failure of biometrics to activate the firearm when needed, particularly in less-than-ideal conditions; the tendency of technology to experience "glitches" that would potentially render a gun inoperable regardless of who is holding it; and the high cost of such weaponry. It points out the Armatix iP1 9mm "smart gun" sells for $1,800 while a traditional Smith & Wesson 9mm handgun has an MSRP under $400.


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Its reputation is golden

It is in the area of American Outdoor's reputational risk where the gunmaker was really stirred to defend the company.

The gunmaker points out investors are well aware it is subject to the "ultimate risk" from advocates who would impose restrictions or ban private gun ownership. It details that hazard each year in its annual 10-K filing. The real risk to its reputation, the report says, would come if it failed to act in defense of gun buyers' rights. It recounts the attempt by prior management to work with President Clinton on smart gun technology that caused its sales to collapse and "the Smith & Wesson brand almost ceased to exist."

Other companies that have not supported the Second Amendment or gun buyers' rights have similarly seen their business and reputation harmed, the report explained. It didn't mention Dick's Sporting Goods, but the retailer's business tumbled after it stopped selling firearms at all its stores and began lobbying for stricter gun control.

Supporting its customers is mission-critical

It's no secret the gun industry is still in the grips of a downturn, one that Vista Outdoor called "unprecedented." Vista is trying to exit the firearms market by selling its Savage Arms division, and noted downturns typically last between 12 months and 18 months, but the current one is entering its third year with no sign of easing up.

American Outdoor Brands saw firearm revenue rise 10.6% in its fiscal second quarter that ended last October, but that was mostly due to an accounting change regarding revenue recognition policies. Less than 3 percentage points of increase was due to higher demand because it was less promotional during the quarter, so that raised its average selling prices.

Smith & Wesson will not be changing its practices as a result of the shareholder resolution, and is more committed to maintaining its current path. American Outdoor Brands says pandering to its detractors would not enhance the company's reputation. Instead, maintaining its image with gun buyers and those who support the Second Amendment "is more critical to the success of the Company and the enhancement of shareholder value."