While it says it respects the rights of gun owners to lawfully carry a firearm openly, Panera Bread (NASDAQ:PNRA) is joining a group of restaurants and retailers that asks them not to do so in their stores.
Unlike Chipotle Mexican Grill (NYSE:CMG) and others that were targeted to impose the carry ban by Moms Demand Action for Gun Sense in America, an organization funded by former New York City Mayor Michael Bloomberg, Panera is said to have actively sought out the group prior to making its announcement.
Similar to how Starbucks (NASDAQ:SBUX) approached the issue when it asked gun owners to refrain from carrying firearms in its coffeehouses, Panera doesn't plan to enforce the ban at its 1,800 bakeries across 40 states: it will continue to follow local and state laws, it will not post signs banning guns, and it won't have employees confront someone who violates the policy.
Gun owners, of course, think the policy is wrongheaded and would argue that a well-armed citizenry is a deterrent to crime, pointing to FBI statistics showing that violent crime is on a downswing even as gun ownership is on the rise.
According to the FBI's most recent Uniform Crime Reporting statistics, between 2008 and 2012 the number of murders reported fell by 10%, forcible rapes were down 7%, and robberies tumbled 20%. Over the same time frame, however, the number of firearms background checks performed by the federal law enforcement agency soared 54%, from 12.7 million to almost 19.6 million. Last year, the FBI conducted more than 21 million background checks.
As upset as gun owners become when these decisions are publicized, and despite their tough talk, boycotts of the stores likely won't change anything.
Chipotle reported that revenue rose 28% in the quarter ending June 30, despite the company having implemented a ban the month before, which was substantially higher than the 24% increase it witnessed in the prior quarter and well above the 18% growth achieved in the year-ago period. Starbucks also saw revenue jump 11%, 6%, and 11%, respectively, even though it banned open carry a year ago.
At best, what the companies accomplish by soft-pedaling a prohibition on open carry is allowing the appearance of ceding to the demands of the gun-control lobby without actually having to change anything.
Following the win with Panera, Kroger (NYSE:KR) is the next target for Moms Demand Action and Bloomberg's other group, Everytown for Gun Safety, which launched a six-figure ad campaign aimed at the supermarket chain. So far the grocery store has resisted their demands, saying the issue drew "passionate" voices on both sides but that "we trust them to be responsible in our stores."
Maybe it all comes down to profitability. Panera enjoys a bit of a buffer against angering a segment of its customers, with gross margin running at 22%, operating margin near 12%, and net margin of over 7%, and Chipotle does even better, sporting margins of 26%, 16%, and 10%, respectively. But Kroger isn't so fortunate: it might carry a hefty gross margin of 21%, but its operating and net profits are razor thin at 3% and 1.5% of revenue, respectively. It just can't afford to alienate a segment of its customer base that could mean the difference between profits and losses.
Although firearms demand remains elevated, as evinced by the number of background checks the FBI conducts, it's clear that actual sales are cooling (which is also why the FBI says not to assume a one-to-one ratio of checks to purchases). Smith & Wesson Holding reported fiscal 2015 first-quarter results two weeks ago that showed revenue plunging 23% year over year. Sturm, Ruger reported a similar 14% drop-off in its quarterly sales.
The debate over whether to allow the open carry of firearms will remain contentious, and we'll likely see more restaurants and retailers joining the list of companies asking their patrons not to do so on their premises.
Obviously, Panera, Chipotle, and Starbucks have the right to make this request on their properties, regardless of what the overarching law says, and gun owners ought to respect those decisions. But they would similarly be within their rights to not patronize those establishments, even if it didn't really affect the companies' bottom line.
Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.