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Gun Sales Soared in August: Has the Recovery Finally Arrived?

By Rich Duprey – Sep 17, 2019 at 5:18PM

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Last month's criminal background check number was the biggest increase in three years.

As talk of gun control increased among presidential candidates in the wake of several shootings, the number of criminal background checks on potential gun buyers soared in August.

The month is one that typically sees gun sales rise as the industry exits the historically slow summer months and heads into the more active fall hunting season. But this year, the number spiked 15% higher, marking the largest monthly gain in three years and the highest total for August since such data was first tracked (over two decades of data).

Man looking at shotgun in gun store.

Image source: Getty Images.

The start of what's to come

Whether it's the raw numbers from the FBI's National Instant Criminal Background Check System or the adjusted figures from the National Shooting Sports Foundation (to account for gun owners who already possess a carry permit and are checked again to make sure they're still eligible -- an adjustment that gives a better indication of actual consumer demand), August was a big month for the industry, one that could finally shake it out of its doldrums.

The signs of a rebound have been slowly building. It might not be apparent from looking at the financial performance of the two biggest gun manufacturers, American Outdoor Brands (SWBI -1.40%), the owner of Smith & Wesson, and Sturm, Ruger (RGR 1.33%), which have been punished by the market for soft sales, but the background check data has been coalescing and indicating the decline has reached a bottom.

While tragedy is not what the gun makers hope for as they seek out growth, it's a somewhat predictable outcome as gun control makes headlines. Even President Trump, whose election precipitated the industry decline, has indicated a willingness to "do something" on guns.

A breakthrough moment

Although the more extreme policy positions like confiscation are unlikely to advance very far, gun owners and enthusiasts are making it clear their concern that more rather than less legislative action is possible.

Adjusted background checks jumped to more than 1.1 million in August from the 830,000 logged in July and well ahead of the almost 967,000 checks conducted in the year-ago period. The 15.2% gain was the biggest monthly increase since the 16% jump registered in November 2016, a year that broke all kinds of records for gun sales.

Chart of adjusted criminal background check data

Data source: National Shooting Sports Foundation.

Yet despite the surge, the gunmakers might not see a similar boost in results themselves. American Outdoor and Ruger do not sell directly to the public but only to federally licensed firearms dealers and law enforcement agencies, and the dealers have been cautious about taking on too much inventory.

Still a cautious outlook

Because of the run-up to the 2016 elections, many retailers had stocked up on firearms, anticipating a different outcome and a surge of buying to follow, but they were left with a substantial inventory hangover that resulted in the softness the industry has seen ever since.

And now that one of the industry's biggest dealers has recently declared bankruptcy because of it, the remaining have been reluctant to repeat the experience. Over the past three years, Ruger's stock has lost nearly 25% of its value as gun sales fell, while American Outdoor has lost three-quarters of its value.

And though there have been green shoots showing through this year, they haven't translated yet into revenue gains for the gun manufacturers. American Outdoor Brands reported a 9% decline in firearms sales in its fiscal first-quarter report at the end of last month, despite three consecutive months of rising adjusted background check numbers, and Ruger reported a 25% decline the month before, so don't dive into these potential value plays just quite yet.

Even now, dealers are still going to be leery about increasing their inventory until they see more proof this nascent recovery is sustainable. Four straight months of growth suggests it is, even if it's not at the torrid pace set in August, but it may be a while longer before it's reflected in the gunmakers' books.

Rich Duprey 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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Stocks Mentioned

Sturm, Ruger & Company, Inc. Stock Quote
Sturm, Ruger & Company, Inc.
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Smith & Wesson Brands, Inc. Stock Quote
Smith & Wesson Brands, Inc.
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