The Freedom Group Rides Gun Sales to Profitability in 2012

The company, which owns 13 brands including Remington, Bushmaster, DPMS and Mountain Khakis, reported net sales of $931.3 million in the year ended Dec. 31, 2012, up 20.2 percent from a year earlier. Gross profits soared 42.3 percent to $313.7 million, or 33.7 percent of sales, up 540 basis points from a year earlier.

 

Operating expenses jumped 56.2 percent to $256.7 million. Net income before taxes reached $5.5 million, compared with a loss of $8.0 million in 2011.

The company, which is the only major U.S. supplier that makes both guns and ammunition, sold approximately 1.4 million long guns and 2.1 billion rounds of ammunition during the year.  The company said demand for those products continues to outstrip its product capacity.

Fireamrs net sales for the year ended Dec. 31, 2012 were $550.9 million, an increase of $125.1 million, or 29.4 percent, as compared to the year ended. Dec. 31, 2011. Centerfire rifle sales increased $90.0 million, while handgun sales increased $15.5 million. In addition, shotgun sales increased $17.6 million, while sales of rimfire rifles and other firearms products increased $2.0 million. These increases were primarily due to increased interest in recreational and shooting sports and home defense, increased demand for modern sporting products, volumes associated with our new handgun introductions, the acquisition of Para USA, Inc., and new shotgun product offerings, along with high demand associated with the concern of more restrictive government legislation. Gross profit was $173.6 million, an increase of $53.8 million, or 44.9 percent, as compared to the year ended Dec. 31, 2011. Gross margin was 31.5 percent for the year ended Dec. 31, 2012 and 28.1 percent for the year ended Dec. 31, 2011. The increase in gross profit was primarily due to higher sales volumes and favorable sales mix across all product lines of approximately $45.2 million, and favorable pricing on certain product lines of $9.1 million, offset by higher other costs of $0.5 million.

Ammunition net sales for the year ended Dec. 31, 2012 were $331.7 million, an increase of $17.9 million, or 5.7 percent, as compared to the year ended Dec. 31, 2011. Sales of centerfire ammunition increased $19.5 million, while sales of rimfire ammunition increased $6.8 million. These increases were the result of increased market demand supported by improved factory production. These increases were partially offset by decreased sales of shotshell ammunition of $7.1 million and decreased sales in our other product lines of $1.3 million, as the Company continued its initiative to rationalize unprofitable SKUs. Gross profit for the year ended Dec. 31, 2012 was $104.3 million, an increase of $19.9 million, or 23.6 percent, as compared to the year ended Dec. 31, 2011. Gross margin was 31.4 percent for the year ended Dec. 31, 2012 and 26.9 percent for the year ended Dec. 31, 2011. The increase in gross profit was primarily related to favorable pricing of $10.2 million, higher sales volumes and favorable sales mix in certain product lines of $10.0 million, and lower other costs of $3.5 million. These increases were partially offset by lower hedging gains of $3.8 million.

 

Net sales of all others were $49.3 million, an increase of $13.9 million, or 39.3 percent, as compared to the prior-year period. Primary changes within the All Other businesses consisted of increased sales of $12.6 million in our various accessories businesses, due in part to recent acquisitions, as well as increased sales of $1.3 million in our apparel businesses, which includes a 75 percent stake in Mountain Khakis. Gross profit for the year ended Dec. 31, 2012 was $20.9 million, an increase of $5.6 million, or 36.6 percent, as compared to the year ended Dec. 31, 2011. Gross margin was 42.4 percent for the year ended Dec.. 31, 2012, and 43.2 percent for the year ended Dec. 31, 2011. The decrease in gross margin percent was primarily due to an unfavorable sales mix, partially offset by increased demand in our accessories and apparel businesses, as well as the impact of our newly acquired accessories businesses.

 

The Freedom Group was put up for sale by its parent company Cerberus Capital Management Dec. 18, a little more than a week after an assailant used a Bushmaster rifle in an attack on a Connecticut school that resulted in the death of 20 school children and seven adults.

While conceding that concern over more restrictive governmental regulation on the federal, state and local levels contributed to increased demand, Freedom Group said it continues to experience a continuous upward trend across all our products and product lines. We believe that returning military are likely to purchase firearms for recreational use and to maintain training. The company said Wal-Mart accounted for 16 percent of its sales in 2012, up from 15 percent in 2011 and 12 percent in 2010.

 

Our industry is also experiencing increased interest in recreational and shooting sports, as well as home defense, the company reported in its annual report. We are also experiencing a renewed interest in the outdoors, which is driving increased participation in hunting and target shooting.