Hunting for Economic Gains

This fall should have been an excellent time for companies that cater to well-heeled hunters and fishers. The farm-based economies of the Great Plains and Midwest are roaring. And the onset of the presidential campaign season, during which you often find city slickers posing as big-game hunters, usually provides a boost—for retailers and comedians alike. President Bush, in what now looks like foreshadowing, went out to shoot for doves during his 1994 gubernatorial campaign, and instead brought down a killdeer, which was protected by state law. John Kerry's duck hunting in the fall of 2004 failed to sway rural voters. More recently, tough guy Vice President Dick Cheney bagged a septuagenarian, and ex-Massachusetts Gov. Mitt Romney bragged about his long history of hunting varmints.

But this fall has been a terrible one for those in the business of making and selling rifles and shotguns. And for the dwindling core of optimists who believe the American consumer is doing just fine, the stock charts of companies like Cabela's, Gander Mountain, and Smith & Wesson should cause them to check their scopes.

Cabela's, which started as a catalog retailer in Nebraska in the 1960s, has enjoyed explosive growth: It now boasts 26 stores, with seven more to open soon. (As Cabela's grew into a huge phenomenon—Cabela's is to the rural well-off what REI is to blue-staters, or L.L. Bean to preppies—clueless New York-based editors occasionally dispatched writers like Manny Howard to decode the alien, rural culture of the company for their urban audiences.) But Cabela's has done poorly in recent months. Its third-quarter earnings, reported on Nov. 1, were decent, although the company reported disappointing margins. But as the geese began to migrate south, investors soured on the company's prospects. As this three-month chart shows, Cabela's has lost 40 percent of its value since September.

Like Cabela's, Gander Mountain is a Midwest-based (St. Paul, Minn.) purveyor of hunting and fishing gear that evolved from a catalog retailer into a large (115-store) chain. After a solid first half of the year, Gander Mountain has tumbled. In its third quarter, which ended Nov. 3, same-store sales plummeted 8.4 percent from 2006, and the company reported a loss. The culprits, according to CEO Mark Baker: "warm weather across northern states, which affects our critical fall hunting seasons, and soft consumer demand across our store base." Baker also said the fourth quarter wasn't looking much better "in light of continued softness in consumer discretionary purchases." But what's good for geese has been bad for Gander Mountain. As this three-month chart shows, the company's stock has lost about 60 percent of its value this fall.

Smith & Wesson, the iconic gun manufacturer, is doing even worse. Its shares are down more than 70 percent in the past three months. Earlier this month, Smith & Wesson reported disappointing second-quarter results. While sales to law enforcement are doing well—after all, violent crime has been up for two straight years—the consumer channel is dead. CEO Michael Golden blamed "softness in the market for hunting rifles and shotguns driven by lower-than-expected consumer demand, an industrywide buildup of preseason retail inventories, and unseasonably warm autumn weather, which compressed the fall hunting season." Golden also noted that consumers are buying fewer handguns. As a result, retailers stuck with too much inventory are slashing prices and reducing orders.

What gives? The unexpectedly warm weather may be playing a role, although the weather tends to play out in unexpected ways every year. And it's probably too soon to conclude that America's long romance with guns is waning.

Rather, the poor results for the legal gun runners provide yet another piece of evidence that the discretionary aspirational consumer is pooped. Despite what you might hear during Republican primary debates, very few people actually need a shotgun or a hunting weapon to get through the winter. Nowadays, most Americans buy fresh meat at stores like Kroger and rely on services like ADT to ward off hostile intruders. And well-made guns, which aren't cheap, last for several years. They don't need to be replaced every fall.

Cabela's and Gander Mountain stores are found in parts of the country where housing and job markets haven't been ravaged by subprime mortgages gone bad. And they're not in places where spending on discretionary goods is dependent on Wall Street bonuses. We've said it before, and we'll say it again: The subprime debacle is a symptom of the nation's economic challenges rather than a cause of them. Slowing growth, stagnant incomes, and rising inflation are taking a toll on the ability and desire of American consumers—at all income levels below plutocrat—to spend. That's why these companies' gruesome stock charts look like ski slopes. And that's why the stock of Vail Resorts, the leading player in another expensive, purely discretionary leisure pursuit, is off 30 percent since October.

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