I visited Smith & Wesson for the first time in 1978, came up to show my face and get the sporting goods VP, a nice gentleman named Del Shorb, to increase our wholesale allotment for the following year.  S&W was riding high back then, couldn’t ship enough 44-magnum ‘Dirty Harry’ revolvers, the newly-developed stainless steel guns were in demand, and everything appeared to be rosy for the iconic gun-maker whose brand name was probably as well-known as Coke.

              This was before the American gun market was invaded by European pistols, in particular Beretta, Glock and Sig, and literally overnight the fortunes of S&W began to ebb.  Things went from bad to worse when the company was purchased by a British investment group, Tompkins, who then entered into a disastrous agreement with the Clinton Administration, which led to a boycott which almost led to the company’s demise.  Eventually it all got sorted sorted out, the Clinton deal disappeared, a new ownership/management team took over and the company’s fortunes began to move forward again.

Yet despite the run-up in sales during the Age of Obama, gun companies like S&W know that tough times could lie ahead.  For one thing, every national election poses a risk that a pro-gun person will be sitting in the White House, which means that the fever to acquire guns before they are all ‘confiscated’ will die down.  For another, try as they might, gun companies find themselves selling most of their guns to people who already guns, and at a certain point even the most diehard gun enthusiast decides enough is enough. Which means that to maintain market presence and profits, publicly-owned gun manufacturers like Smith & Wesson need to think about selling something other than guns.

If you want to know what S&W is thinking, take a look at their new investor presentation that was distributed at SHOT.  It’s a glossy, 45-page catalog which may or may not presage an offering of new stock, but what caught my eye was the basic strategy statement which says the company intends to “expand organically and inorganically into adjacent and complementary markets.”  Which means either buy other companies or develop new products from within companies that you already own.

The possibility that S&W might acquire another gun company, Savage Arms, was the subject of an article in the Wall Street Journal this week.  Savage is part of Vista Outdoor, a collection of companies created by ATK, a major defense contractor who cobbled together guns, ammunition and outdoor sporting accessories with annual sales above $2 billion which is now on the block.

If S&W were to buy Vista, the company would immediately expand into all kids of adjacent and complimentary markets, because in addition to Savage, a leading manufacturer of long guns, the deal would also catapult S&W into a premier position in ammunition products, since Vista’s major holding is Federal Ammunition, whose presence and branding in the ammo market is huge.

The only problem in this strategy, however, is that none of these products will be able to sustain the performance of the last several years if something happens to slow or reverse the upward trend in gun sales. Few of the Vista brands can stand on their own outside the gun market, and shooting accessories only move off the shelves when consumers buy a gun.

What is most interesting about the investor’s presentation are several glossy pages devoted to new products from Smith & Wesson itself.  Except not a single new gun product is actually new. The 22-caliber shooter has been around for fifty years, the AR rifles have new accessory rails, the concealable Shield pistol has a ported barrel which makes no difference to performance at all.

The big run-up in gun company revenues doesn’t reflect new products or new customers. It reflects what has always driven gun sales – fears that guns will be taken away.  Try to build a multi-billion consumer-product company based on consumer fears?