American Outdoor Brands: Smith & Wesson By Any Other Name Still Faces The Same Headwinds

Wunderlich reiterated its Hold rating on American Outdoor Brands Corp AOBC, formerly Smith & Wesson, after the company lowered FY 2017 guidance on cooling demand in its core firearm business.

Third-Quarter Print

American Outdoor Brands reported third-quarter revenue of $234 million, in line with consensus, but GAAP EPS of $0.57 and adjusted EPS of $0.66 exceeded consensus forecasts of $0.48 and $0.55, respectively.

However, management reduced FY 2017 guidance for revenue to $870 million–$894 million from $920 million–$930 million, for GAAP EPS to $2.01–$2.11 from $2.11–$2.16, and for adjusted EPS to $2.33–$2.43 from $2.42–$2.47.

Guidance

Also, the guidance for fourth quarter revenue of $200 million–$220 million, GAAP EPS of $0.26–$0.36, and adjusted EPS of $0.32–$0.42 falls well short of current consensus estimates of $245 million, $0.51 and $0.57, respectively.

Analyst Commentary

“Management confirmed the concerns we have been voicing for several months now, specifically that consumer demand in firearms is deteriorating given pull forward into 2016, that retailer inventory remains elevated, and that the promotional environment is worsening given numerous competitive product introductions,” analyst Rommel Dionisio wrote in a note.

Dioniso noted that the sharp year-over-year declines seen in December 2016 and January 2017 indicate the U.S. firearms industry may be entering another period of below-trend demand in 2017.

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On the inventory front, many firearms distributors and dealers had stockpiled inventory of modern sporting rifles and other firearms prior to the election, as they wrongly predicted a Clinton win and resulting demand surge.

As such, promotions have begun to rise industrywide to clear excess inventory levels, triggered by declining sales trends, competitive new product introductions in polymer pistols and tactical rifles.

In this backdrop, Dionisio cut GAAP EPS forecasts for FY 2017 to $2.07 from $2.14, and revenue forecasts to $889 million from $920 million.

At last check, shares of American Outdoor Brands fell 1.75 percent to $19.04. The analyst also trimmed price target to $17 from $22.