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Why American Outdoor Brands Stock Dropped 26% in March

By John Ballard – Apr 6, 2019 at 7:27PM

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Soft demand for firearms took its toll on the company's performance last quarter.

What happened

Shares of American Outdoor Brands (SWBI -1.32%) lost 25.6% in value last month, according to data from S&P Global Market Intelligence.

The company's fiscal third-quarter earnings report in early March showed continued weakness in firearm sales. Management also announced a restructuring of its Electro-Optics business based on a weak long-term outlook for sales.

Two hunting rifles with mounted scopes lying on a wooden floor.

IMAGE SOURCE: GETTY IMAGES.

So what

The past few years have been challenging for gun makers, and American Outdoor's last quarter didn't show any change in that trend. Total revenue increased 2.9% year over year, and while gross margin ticked up to 33.4%, the company reported a net loss of $5.7 million in the quarter, compared with the $11.4 million profit in the year-ago quarter. 

The loss was a result of an impairment charge of $10.4 million of the goodwill for the Electro-Optics business, which was acquired along with Crimson Trace in fiscal 2017. Excluding the impairment, American Outdoor Brands generated a profit of $8.9 million, nearly double the year-ago quarter's profit of $4.7 million. 

American Outdoor generated about three-quarters of its total sales last year from the firearms segment. Meanwhile, sales of outdoor products and accessories have performed well, growing 4.3% year over year in the last quarter. But that growth was more than offset by declines in the Electro-Optics division.

Now what

Given the weakness in Electro-Optics, management is combining that division with the outdoor products division, which will enable the company to improve operating efficiencies. 

The company is also ramping up the operations of a new logistics and customer service facility in Missouri that will serve as American Outdoor's main logistics, warehousing, and distribution center for all products. This new facility should improve efficiencies in the supply chain and keep margin firm.

Nonetheless, investors shouldn't expect revenue growth to improve much in the near term. Currently analysts expect the company to grow revenue by 3.4% in fiscal 2020. However, adjusted earnings per share are expected to reach $0.82, which would represent year-over-year growth of 12.3%. 

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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