American Outdoor Brand’s announcement that the company that it will essentially reverse course in its business planning and separate the companies it’s spent the past several years accumulating is another indication the industry is preparing for radical change.
Yesterday’s announcement acknowledged what has been implied via “virtue signaling” by some big-box retailers, investment groups and banks. Big boxes have stopped selling guns and accessories, investment groups have pulled back from deals, and bankers have discontinued long-established relationships.
And as those sales outlets and capital sources have disappeared, liability insurance rates have quietly moved in the opposite direction.
AOB’s decision to bifurcate into a pair of freestanding companies is yet another confirmation of the business climate. In the announcement, AOB said the split would enable the management of each company to “focus on its specific strategies” but also cited the desire to “align its external financial resources, such as stock, access to markets, credit and insurance factors, with its particular type of business.”
In the separation, Smith & Wesson, M&P Performance Center, Thompson/Center and Gemtec will become Smith & Wesson Brands, Inc. According to AOB’s James Debney, that new company is expected to generate between $450 million and $500 million in sales in its first 12 months. If that’s the case, it will remain one of the major players in the firearms industry.
American Outdoor Brands, Inc. is expected to generate significantly smaller numbers, with $200-$210 million gross sales. The outdoor enthusiast category, however, represents a much larger potential marketplace of $30 billion dollars, compared to the $4.5 billion firearms universe.
Debney, who championed Smith & Wesson/AOBC’s move into that marketplace, will move -literally- to the American Outdoor Brands’ CEO position in Columbia, Missouri.
Smith & Wesson Brands, Inc., will remain in S&W’s longtime Springfield, Massachusetts headquarters. The President of AOBC’s current Manufacturing Division, Mark Smith, will become its CEO. Something else will also remain in Springfield - the debt associated with today’s AOBC. American Outdoor Brands will leave the separation debt-free with a balance sheet carrying approximately $25 million in cash.
That decision was explained by Debney as a reflection of two differing business strategies.
Smith & Wesson will position itself to grow via paying down debt, profiting investors via dividends and the long-term strength of reduced obligations.
American Outdoor Brands, being more consumer-focused, will be focused on growth across the much larger potential marketplace, looking to a mix of growth and strategic acquisitions to add to overall share values.
The two companies, however, will still remain linked by business relationships that include the joint distribution facilities in Missouri, and licensing agreements between Smith & Wesson and accessories that will be under the new company’s management in Missouri.
The timing of yesterday’s announcement and the recent Supreme Court decision regarding Remington, we were told in unequivocal terms, were totally unrelated. As Debney told analysts, this decision was being discussed -and was decided- far in advance of the Supreme Court’s decision.
That decision, however, is still top-of-mind with many in the industry, along with the fact that there are more outdoor-related businesses closing between now and the end of the year.
More on that next week as we keep our promise: we’ll keep you posted.
—Jim Shepherd
