Blaming an “anticipated post-election reduction in demand” that started in the middle of the first quarter, Remington Outdoors reported sales in the first quarter declined 27.7 percent in the first quarter, to $157.6 million.
The company showed a net loss in the quarter of $48.5 million, partly reflecting a $33.2 million impairment expense tied to intangible assets in its Firearms segment, consisting of $28.6 million of goodwill impairment and $4.5 million of intangible assets impairment. In early March, The Utica Observer-Dispatch reported that Remington had laid off 122 employees at its manufacturing facility in Ilion, NY. In the 2016 first quarter, earnings reached $9.5 million in the same period a year ago.
But even excluding the impairment charges, adjusted EBITDA tumbled 70.1 percent to $10 million from $33.5 million in the same period a year ago.
The November election of Republican Trump slowed demand for guns as consumers became less worried the government would curtail their ability to purchase firearms. Sales had been boosted prior to the election in anticipation of a Democratic win, leading to an over-inventoried marketplace.
In its 10Q filing, Remington said it believes the slowdown in firearms sales, especially in the MSR market, is not only being driven by “lower expectations of potential legislation,” but by increased competitive pressures from reduced consumer demand and excess inventories; increased manufacturing capacity in the industry; low barriers to entry in the MSR segment, particularly for existing firearms manufacturers; lack of differentiation and “true value” in the segment; and an increase in import products.
“We believe our customers in the market are adjusting their inventories to current market tendencies with lower purchasing volumes, and utilizing advertising and promotional activities to improve sell through rates,” said Remington. “We have continued to adjust to these market changes by managing our operating costs, adjusting factory production levels, making selective investments in promotions and introducing new products.”
The company also noted that new Remington firearm product introductions in 2017 include the Model 870 Tac-14 (no tax stamp required). New ammunition product introductions in 2017 so far include the Remington Performance Wheelgun ammunition, the Remington HTP Copper ammunition, the Remington 20 Gauge Sportsman Hi-Speed Steel Line Extension and the Barnes VOR-TX LR Long Range ammunition.
Gross margins declined to 19.8 percent from 27.9 percent in the 2016 first quarter. Operating expenses jumped 80.3 percent to $65.1 million from $36.1 million Excluding the impact of the impairment expense, operating expenses were $31.9 million, a decrease of $4.2 million, or 11.6 percent, as compared to the year-ago quarter.
Among its segments, Firearms were $84 million, a decrease of $31.3 million, or 27.1 percent. MSR sales decreased $29 million, of which $10.8 million was related to an international shipment in the year-ago quarter that did not recur. Sales of handguns, rimfire and centerfire rifles decreased $3.8 million. These decreases were partially offset by increased sales of shotguns and lower accrued discounts of $0.8 million and $0.7 million, respectively.
Gross profits in the Firearms segment reached $14.5 million, a decrease of $18.9 million, or 56.6 percent. The decline was primarily due to lower sales volumes of $10.9 million, an unfavorable sales mix of $3.6 million, unfavorable pricing of $0.6 million and higher manufacturing costs of $5.1 million, partially offset by lower accrued discounts of $1.3 million. Gross margin was 17.3 percent for the latest quarter versus 29 percent a year ago.
Ammunition sales were $62.6 million, a decrease of $23.5 million, or 27.3 percent versus the year-ago quarter. Sales of centerfire ammunition, rimfire ammunition and shotshell ammunition decreased $24.3 million. These decreases were caused primarily by market softness.
Gross profit in the Ammunition segment declined 36.3 percent to $17.2 million. The decrease was due to lower sales volumes of $7.8 million, an unfavorable sales mix of $2.8 million, unfavorable pricing of $1.3 million, and higher manufacturing costs of $1.7 million, partially offset by lower hedging costs and lower accrued discounts of $3.8 million. Gross margins in the segment lowered slightly to 27.5 percent from 31.4 percent.
Consumer net sales were $11 million, a decrease of $5.6 million, or 33.5 percent, as compared to the three months ended March 27, 2016. The decrease was primarily due to lower sales in its other Consumer businesses of $4.1 million and lower part sales of $1.5 million. The decline in consumer sales was primarily due to the sale of a business in 2016. The Consumer segment includes accessories, silencers, other gun-related products, licensed products and lifestyle products.
Gross profit in the Consumer segment gave back 13.7 percent to $4.4 million due to lower sales volumes. Gross margins improved to 40 percent from 30.7 percent due to a favorable sales mix.
Beyond the flagship Remington brand, the company’s brands include Marlin, Bushmaster, Barnes Bullets, Advanced Armament Corp. and DPMS.
Photo courtesy Remington Outdoors
