Gun stocks rally as major retailers restrict sales

Last Updated Mar 1, 2018 4:43 PM EST

Gun industry stocks rose even as the overall market plunged, with investors seemingly betting that moves by large retailers to restrict firearm sales would spur consumer demand for the products.

After seeing a double-digit slide in their stock prices following the Feb. 14, school shooting in Parkland, Florida, firearms makers American Outdoor Brands (AOBC) and Sturm Ruger (RGR) surged on Thursday, with shares of both up 6.7 percent in afternoon trade. Shares of Vista Outdoor (VSTO) and Sportsman's Warehouse (SPWH) also outperformed the S&P 500 (SPX).

"We're seeing a short-term bump in some of the gun companies on the thinking we may not be able to buy their products anymore, so let's horde," said Art Hogan, chief market strategist at B. Riley RBR, who noted bipartisan talk on gun control on Capitol Hill as a factor lifting shares.

On Wednesday, Sturm Ruger shares declined 6.6 percent and American Outdoor fell 3.2 percent after Dick's Sporting Goods (DKS) said it would no longer sell assault-style rifles like the AR-15 used to kill 17 people at Marjory Stoneman Douglas high school in Parkland, Florida. 

Two other retailers -- Walmart (WMT) and Kroger (KR) -- quickly followed suit, with Walmart saying it would no longer sells guns or ammunition to people under 21 and Kroger making the same policy change at its Fred Meyer locations. 

Larry Hyatt, owner of Hyatt Guns, in Charlotte, North Carolina, said business tends to pick up when people sense they might not be able to purchase firearms in the future. President Donald Trump's election had a dampening effect on gun sales, which have since picked up along with calls for gun control. 

But Hogan believes the current trend does not bode well for gunmakers. "Corporations can act a lot faster than Congress, and they know consumers are angry. This is a real groundswell. It's starting with the kids, and the 15-to-25 age demographic is the most important for people selling things."

After-hours trading in American Outdoor, the company formerly known as Smith & Wesson, was halted prior to the company releasing results. The company reported sales fell nearly 33 percent in its fiscal third quarter from the year-earlier period, reflecting what it called a "continuation of challenging market conditions in the consumer market for firearms."

The trading halt called at about 4 p.m. Eastern was lifted 35 minutes later, with shares falling as much as 26 percent after hours.