Ammo, Inc. reported a loss in its fiscal third quarter ended December 31 on a 40 percent sales drop while slashing its outlook for the second straight quarter. Recently-hired company President Jared Smith highlighted changes the company expects will revive growth for the ammunition manufacturer’s business and the GunBroker.com marketplace.
“Regardless of the political spin we all hear coming out of Washington, the U.S. is already in the throes of a recession, and the inflationary drivers are hitting consumers hard in their pocketbooks,” said Fred Wagenhals, chairman and CEO, in brief comments on Ammo’s analyst call. “Those pressures are being felt across the market both by Ammo and its peers alike. However, we are responding to those challenges.”
Wagenhals introduced Smith, a 17-year veteran in the firearms and ammunition industry who was named COO and president on January 3. Smith was, most recently, general manager at Fiocchi of America, the ammunition maker.
Smith echoed Wagenhals’ comments that a large part of Ammo’s struggles was tied to inflation’s impact on the economy. He said, “For the last two quarters, the industry has seen serious headwinds from its record highs in 2021 and early 2022. Consumer confidence and increased inflations cause erosion of the customer’s wallet for other items such as gas, milk, and bread.”
The cost of copper, zinc, lead, and labor are all up, but ammunition prices on retail shelves are down. As a result, Ammo sees margin compression “in almost every sector” with non-vertically integrated manufacturers such as the company’s business getting “squeezed in the middle” in the marketplace. Ammo makes few of its projectiles and none of its primary components.
GunBroker.com likewise faces a supply chain that’s “more difficult than ever” with European primers and powders being sourced at high prices. The pricing pressures have impacted 9 mm and .233 calibers and the continued sell-off of slower-moving inventory at discounts has depressed margins.
Smith added, however, that Ammo was. not “fully prepared as a manufacturer for this shift with the Ammo’s manufacturing operations focusing on commodity products in 2021 and 2022 and not “sufficiently focused on our brand and margin maintenance during this time, which leaves us where we are today.”
The ammunition manufacturing segment has shifted to emphasize more profitable opportunities such as premium rifle brass. The shift is supported by the opening, in August 2022, of a 185,000-square-foot brass manufacturing, loading and testing facility that can produce calibers ranging from 25 auto up to 50 BMG.
“This is where we refine and enhance the operations at all levels to position the company for a bright and profitable future,” said Smith. “It is here where our skill set and core competencies are ready for the real demand that will thrive in strong markets and execute profitably and normalize markets. It is here where we will be positioned to react in a nimbler fashion to the market’s macro trends.”
Smith remains bullish on long-term growth trends in the ammunition space, supported by the arrival of 16 million new firearm buyers over the last two years and trapshooting emerging as the fastest-growing high school sport in the U.S.
Other tailwinds to ammunition’s growth include the Ukraine war that is estimated to lead to restocking of inventories for the next 10-to-15 years, increasing demand for longer-range, flatter, and heavier payloads with greater energy and greater overall interest in lead-free alternatives.
Smith said the shift to brass manufacturing and loading high-performance rifle ammunition manufacturing requires less working capital and enables higher margins and better cash flow.
“Ammo, Inc. will finally compete in the high performance, high margin categories that it hasn’t effectively participated in due to a lack of premium powers,” said Smith. “We are in a better position to execute and our outlook is healthier today than it’s ever been.”
Regarding the Gunbroker.com business, Smith said the long-awaited transition from a one-item per transaction platform to a cart-based platform and a payment suite will occur in the first half of its fiscal 2024 year. Smith said, “This 600-pound gorilla becomes the 900-pound gorilla that it was meant to be.”
Smith said Gunbroker.com remains the largest auction and marketplace in the firearms space, representing roughly six percent of the entire firearm trade in the U.S.. The added features will support “multiple” revenue sources. Smith said, “Hunting and shooting sports participants will have a user-friendly marketplace where the consumer can interact with new and used equipment dealers, distributors, and other enthusiasts reselling their equipment to get out their next endeavor.”
In the fiscal third quarter, sales were down 40 percent to $38.7 million. Ammunition manufacturing sales fell 54 percent to $20.3 million due to inflationary pressures. Gunbroker.com’s sales were down 12 percent to $15.4 million, although margins in the marketplace business remained comparable to historical performance.
Gross margins eroded to 32.4 percent from 34.8 percent due to increased commodity costs. The net loss came to $4.9 million, or 4 cents a share, against earnings of $8.3 million, or 7 cents, a year ago.
Looking ahead, Ammo lowered its full fiscal year guidance due to a decline in sales activity caused by the market shift. Guidance now calls for revenues of $185 million, adjusted EBITDA of $22 million, and EBITDA of $17 million. Previously, guidance called for revenues in the range of $220 million to $240 million, EBITDA in the range of $30 million to $40 million and adjusted EBITDA in the range of $50 million to $60 million.
Rob Wiley, CFO, said, “Looking forward to our next fiscal year, we expect the new direction of our company to increase profitability through increased sales of our brass casings and performance rifle ammunition that will increase the gross margins of our ammunition segment. Additionally, the launch of the payment processing suite, cart-based platform, and analytics offerings are anticipated to position our GunBroker.com marketplace to allow for increases in our gross merchandise volume and as a result, increasing revenue and profitability.”
