Smith & Wesson (SWHC) Troubled As Crime Falls

Smith & Wesson (SWHC) shareholders are having an awful day. The stock is off 28% to $7.10 and hit a 52-week low of $6.68. The period high is $22.80.

Part of the reason is that gun inventories are building up. The company said that net product sales for the quarter ended October 31, 2007 were $70.8 million, an increase of 39.4% over the comparable quarter last year. Net income was $2.9 million, or $0.07 per fully diluted share, for the quarter ended October 31, 2007 was $87,000 higher than the comparable quarter last year.

But, the company added some poor news which was that an industry-wide inventory buildup, accentuated by lower retail traffic, caused order activity to slow beginning in October. SWHC added that several manufacturers responded with significant discounts on both long guns and handguns. This caused increased price competition in the channel and served to exacerbate already inflated inventory levels.

It may be tough for the company that crime is down. A look at US crime rates over the last few years shows that most violent crimes are dropping. While the US population rose from 285.3 million in 2001 to 299.4 million last year, violent crimes fell from 1.439 million in 2001 to 1.418 million in 2006.

A drop in criminal activity may be hurting the gun business.

Douglas A. McIntyre