2020 marked a breakout year for the American firearms industry, but the first two months of this year may have already put the US on course to surpass last year’s record figures. January and February totals for background checks and gun sales were the highest ever for each month. Even as ammunition prices have surged, firearm owners continue to strip inventories dry across the nation.
A rush of sales is undoubtedly being driven by President Biden’s promises to take aggressive action on gun control measures, working in tandem with Democratic majorities in both chambers of Congress. While firearms regulation has taken a backseat to stimulus negotiations for now, we are likely to see federal action on guns heat up at some point within the early part of Biden’s term.
Related Stocks: Sturm, Ruger & Company, Inc. (RGR), Smith & Wesson Brands, Inc. (SWBI), Vista Outdoor Inc. (VSTO), Olin Corporation (OLN)
Per FBI data, the bureau processed a record 39.7 million firearm background checks in 2020, by far the most of any year since the agency started recording this data in 1998. That did not come as a surprise, as MRP had already noted that last year’s tally of background checks had already surpassed 2019 totals by October.
The National Instant Criminal Background Check System (NICS) accounts for checks related to anything from the sale of firearms themselves to concealed carry permits, suppressor sales, etc. Checks exclusively related to the sale of firearms also reached a record high at 21 million, according to firearm trade organization National Shooting Sports Foundation (NSSF). That represents a 60% increase over 2019’s total of 13.2 million.
Firearms manufacturers closed out the year on strong financial footing.
Sturm, Ruger & Co.’s (RGR) Q4 profits saw a nearly fourfold jump, as net income was $31.7 million, and sales grew 60.9%. Diluted earnings were $1.73 a share, compared with just $0.45 a year ago. Per CEO Christopher J. Killoy, “[the company’s] workforce has been strengthened by 250 folks since the middle of 2020, which drove a 30 percent increase in production during the latter half of the year.”
Smith & Wesson Brands, Inc. (SWBI) is set to report Q4 2020 earnings tomorrow. In their Q3 results, reported last December, the manufacturer saw non-GAAP income of $52.8 million and diluted earnings of $0.93 per share, up from $0.01 in the same quarter of 2019, and easily beating the consensus estimate of $0.63. The firm earned $248.70 million during the quarter, compared to analyst estimates of $222.99 million. Mark Smith, SWBI President and CEO noted that those figures represented a second consecutive record-breaking quarter for the 168-year-old company.
If the first two months of 2021 are any indication of what we can expect for the rest of the year, all of those annual records may be smashed again.
Gun merchants sold more than 2 million firearms in January, a 75% increase over the estimated 1.2 million guns sold in January 2020, according to the NSSF. Meanwhile, the FBI conducted a record 4.3 million background checks. If that pace continues, more than 50 million gun-related background checks will be conducted by the end of the year, shattering the current record set in 2020, according to a new report from Bespoke Investment Group.
Though gun sales alone have been robust, MRP has noted repeatedly that ammunition sales have been especially hot, stripping inventories to the bone for many months now. As the Houston Chronicle reports, gun and sport shops across the country have faced waves of gun owners outside of their stores before opening, lining up to get in and stock up before they sell out again. The spike in demand has driven prices on ammo up as much as 300% for those lucky enough to find it. Bullets that used to cost between 20 and 35 cents per round now cost $1 or more.
About 8.5 million people became new gun owners last year, according to the NSSF, an unprecedented increase. A MRP previously highlighted, dealers surveyed by the foundation last summer found that about 40% of their sales came from first-time gun buyers. Typically, this group represents just one quarter of guns sold.
The bullets business is typically a cyclical one. Sales rise and fall in tandem with the heat of hunting season and most gun owners stockpile their ammunition over the long-term. However, with so many new gun owners that needed to get their hands on ammo immediately, the rush for ammunition was fierce and unabating all through the year, giving ammo manufacturers no time for a re-stocking season…