Wal-Mart (NYSE:WMT) says politics has nothing to do with its decision to pull from its stores the most politicized firearm on the market today. The world's biggest retailer insists the move to stop selling AR-15 sporting rifles is simply a business decision. The industry's biggest selling, most popular rifle is only available in a third of Wal-Mart's 4,500 U.S. stores, but apparently, not as many people are buying them these days.
The discount retailer didn't divulge any numbers to back up the claim, but the firearms industry in general is in the midst of a sales slowdown as the prospects for major gun control legislation, which has largely been the impetus behind the boom times gun makers experienced, has faded. Yet because Wal-Mart recently won a U.S. Appeals Court decision of a case brought by New York's Trinity Wall Street Church that attempted to force a shareholder vote on whether it should sell such rifles, many feel the timing of the retailer's move is curious.
Modern sporting rifles represent a significant portion of sales for manufacturers. Sturm, Ruger (NYSE:RGR), for example, said new product introductions, which included the AR-556 rifle and the LC9s pistol, accounted for 17% of sales in the second quarter and 16% for all of last year. Smith & Wesson Holding Corp (NASDAQ:AOBC) is one of the world's largest manufacturers of modern sporting rifles and owns the leading share of the market. Similarly, Colt Defense, which earlier this year filed for bankruptcy protection, had warned that any drop-off in demand for such rifles would materially affect its business.
But Remington Outdoors could be the gun maker most at risk to Wal-Mart's decision, because it primarily makes sporting shotguns, rifles, and handguns and relies upon the retailer for almost 10% of its sales. It has admitted that if Wal-Mart ever reduced or terminated sales of its firearms, its financial results would be materially affected.
The AR-15 is a touchstone of controversy, as critics have condemned it as an "assault rifle," though it's mostly just the addition of shrouds, handles, and accessories that give it the appearance of being more lethal than it is. It's really not much different from any other sporting rifle sans the accoutrements, but because it has become a rallying point for gun-control activists, limits on access to the weapon such as Wal-Mart's decision to stop carrying it are something sportsmen and gun enthusiasts perceive as backdoor efforts driven by politics.
Yet there's some sense in Wal-Mart's insistence on this being a business decision. Net sales at Ruger were down 8% in the latest quarter, while they were down more than 2% in its fiscal fourth quarter at Smith & Wesson and off 12% for the full year. And Wal-Mart isn't pulling all guns from its racks. It says it will be replacing the sporting rifles with more hunting rifles and shotguns (though many hunters do use the AR platforms to hunt with, too).
Still, sporting goods outfit Cabela's recently reported there was an uptick in comparable-store sales of firearms, suggesting the lull the industry had been experiencing may be turning around. Wal-Mart might be getting out at precisely the wrong time, though that could only benefit retailers such as Cabela's and independent sporting goods stores that continue to stock modern sporting rifles.
Because of the emotion that surrounds the AR platform and Wal-Mart's position as the biggest retailer of guns and ammunition, a move like this was bound to get caught up in the politics of the issue. Regardless of whether it played a role in its decision, Wal-Mart may find the optics of the move causes sportsmen and gun enthusiasts to opt for patronizing other outlets that maintain the sale of all rifles.
Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.