Thanks for writing this up! I briefly looked at SPWH after the deal fell apart but got scared off by the same SWBI headline you noted. I wonder if retailer economics are different, though—do gun sales get pulled forward more than ammunition? And wonder if there’s a good attach rate on buying ammunition.
(Negative version of this is that the Covid pull-forward was more about fears of unrest rather than the usual fear of gun bans, so may have skewed more towards ammunition than guns. I’ll have to check some transcripts for that, but if so the trade is probably shorting SPWH’s comps.)
I'm honestly not sure. SNWI had the quote below on their call, which kind of skews to me thinking that the current environment is hotter than average, but just way less hot than 2020. But it's really tough to tell till we see a Q3 number and maybe some color
"That being said, however, the inventory levels in the channel indicate to us that our third quarter sales are likely to be quite a bit lower than what we realized in our third quarter of fiscal 2021. Last year's third quarter was impacted by strong consumer demand driven by the height of the pandemic, a recent change in the presidency, civil unrest and virtually no inventory in the channel. None of these factors exist in our current third quarter. In response, we have reduced production rates by nearly 27%."
Thanks for posting. I was looking at this also. Here are some industry/user observations from me and my friend (an avid gun guy).
1. When my wife & I visited a local store, we saw most of the folks in the gun section of the store. About 50% of the store is focused on hunting & guns but also apparel & fishing are there too. This is basically a “big box” duopoly for hunting with Cabella’s and Bass Pro Shops (BPS) as the other players Dick’s (via Field & Stream) & Gander Mountain (via bankruptcy & purchase by Camping World) have closed-down stores. In the Buffalo-Rochester-Syracuse market, you only have 3 stores to choose from (1 – SPWH & 1 each Cabella’s/BPS) in DMA of over 3 million folks with many hunters. The Rochester Gander Mountain used to sell the most guns & ammo of any store in NYS. Some Walmarts have some hunting guns & ammo but the selection is limited. The smaller shops have specialized into other areas as SPWH/Cabella’s/BPS have larger scale. Also, the reason for the merger falling apart was FTC rejection due to the potential monopoly described above.
2. It would be interesting to find what the situation is in other parts of the country. Also, as guns become more regulated it will favor large incumbents that have infrastructure to deal with the regulation. This may become a profitable niche like tobacco for convenience stores.
3. SPWH is a value targeted guns/hunting store vs. higher end Cabella’s & BPS. SPWH only has 100 stores & is located West of the Great Plains. It opened 10 stores last year. IMO it can open at least 100 more in the Midwest, East & South. They have been able to achieve 20% RoIC from new/existing stores as they are smaller than Cabella’s/BPS & focus on guns/hunting.
4. One downside is California is allowing folks to sue to gun companies & I am assuming the retailers (but they may have some protection as they follow/implement state law).
Thanks for writing this up! I briefly looked at SPWH after the deal fell apart but got scared off by the same SWBI headline you noted. I wonder if retailer economics are different, though—do gun sales get pulled forward more than ammunition? And wonder if there’s a good attach rate on buying ammunition.
(Negative version of this is that the Covid pull-forward was more about fears of unrest rather than the usual fear of gun bans, so may have skewed more towards ammunition than guns. I’ll have to check some transcripts for that, but if so the trade is probably shorting SPWH’s comps.)
I'm honestly not sure. SNWI had the quote below on their call, which kind of skews to me thinking that the current environment is hotter than average, but just way less hot than 2020. But it's really tough to tell till we see a Q3 number and maybe some color
"That being said, however, the inventory levels in the channel indicate to us that our third quarter sales are likely to be quite a bit lower than what we realized in our third quarter of fiscal 2021. Last year's third quarter was impacted by strong consumer demand driven by the height of the pandemic, a recent change in the presidency, civil unrest and virtually no inventory in the channel. None of these factors exist in our current third quarter. In response, we have reduced production rates by nearly 27%."
Thanks for posting. I was looking at this also. Here are some industry/user observations from me and my friend (an avid gun guy).
1. When my wife & I visited a local store, we saw most of the folks in the gun section of the store. About 50% of the store is focused on hunting & guns but also apparel & fishing are there too. This is basically a “big box” duopoly for hunting with Cabella’s and Bass Pro Shops (BPS) as the other players Dick’s (via Field & Stream) & Gander Mountain (via bankruptcy & purchase by Camping World) have closed-down stores. In the Buffalo-Rochester-Syracuse market, you only have 3 stores to choose from (1 – SPWH & 1 each Cabella’s/BPS) in DMA of over 3 million folks with many hunters. The Rochester Gander Mountain used to sell the most guns & ammo of any store in NYS. Some Walmarts have some hunting guns & ammo but the selection is limited. The smaller shops have specialized into other areas as SPWH/Cabella’s/BPS have larger scale. Also, the reason for the merger falling apart was FTC rejection due to the potential monopoly described above.
2. It would be interesting to find what the situation is in other parts of the country. Also, as guns become more regulated it will favor large incumbents that have infrastructure to deal with the regulation. This may become a profitable niche like tobacco for convenience stores.
3. SPWH is a value targeted guns/hunting store vs. higher end Cabella’s & BPS. SPWH only has 100 stores & is located West of the Great Plains. It opened 10 stores last year. IMO it can open at least 100 more in the Midwest, East & South. They have been able to achieve 20% RoIC from new/existing stores as they are smaller than Cabella’s/BPS & focus on guns/hunting.
4. One downside is California is allowing folks to sue to gun companies & I am assuming the retailers (but they may have some protection as they follow/implement state law).
The ebb and flow of gun sales is not the point. It's the ebb of investor sentiment towards companies that deal in guns.
0/39 bids in the go-shop period. Management should have seen that coming. They'd have been better off not shopping the deal.
It's crazy that this is trading significantly below $18 and lagging the four best comps by a huge margin.