Purveyors of firearms and ammunition hit the bullseye last year. It seems like ancient history, but last fall Hillary Clinton was widely forecasted to win the presidential election. Many gun owners and potential gun owners feared her election would result in elevated owner restrictions and rushed out to purchase guns before the results came in.

Add to this the turmoil of two large firearms retailers and gun manufacturers are in a corner.

Gander Mountain, a chain of 162 outdoor stores, filed for bankruptcy in March and held liquidation sales at all stores. Current owner Camping World is planning on closing many stores.

Cabela’s, whose chain of 82 stores is more focused on hunting and shooting than Gander, is being acquired by Bass Pro Shops. Anytime two retailers merge there is some weeding out of excess inventory.

Current revenue estimates do not look bearish enough. Both Sturm, Ruger and Smith and Wesson’s financials are already showing cracks. Both have seen a cut to profit margins, increased inventory levels and longer payment terms from customers. This pattern is an extremely negative signal.

Buy to open the August 18, 2017, put on Sturm, Ruger & Company (RGR) with a strike price of $60 at $2.30 or lower. Symbol (RGR170818P60)

Buy to open the September 15, 2017, put on American Outdoor Brands) with a strike price of $20 at $.60 or lower. Symbol (AOBC170915P20)

Neither company has announced its next earnings date. When this occurs, I will let you know the details of the investor calls and what to listen for on those calls.

Sturm, Ruger & Company saw its biggest burst of gun purchases in the September quarter last year right before the election. Revenue rose 34% after a strong 22% increase in the prior two quarters. Compare that to the prior year when revenue increased a tepid 1%.

This spike in demand stole from future quarters and will hurt depress sales going forward. Current estimates look for a meager single-digit decline in the next three quarters, too bullish versus my expectations.

Sturm’s product margins dropped dramatically in the March quarter coincident with an increase in inventory and a lengthening in the number of days that customers pay for product. All of these indicate problems ahead.

Sturm reports its June quarter in early August. While results for this quarter will likely be light, it is the guidance for the September quarter that I expect to be the bigger issue. Currently, estimates call for $153 million in revenue, 5% less than last year. Anything less than this will be a huge disappointment.

American Outdoor Brands, previously known as Smith and Wesson, saw the same magnified jump in sales last fall due to the pending presidential election.

While estimates look more conservative for its first quarter ending July, American Outdoor had a giant 60% increase in inventory the past two quarters. Excess inventory is a signal that sales are falling short of plan.

American Outdoors has an odd fiscal year and will not report its next quarter until early September. I will alert subscribers when the date is announced and provide details of the conference call.