Sandy Hook's Consequences For The Gun Industry

The mass shooting that took place on Dec. 14, 2012 at Sandy Hook Elementary School in Newtown, Connecticut, not only had a massive impact on the entire country; it has had a major impact on the gun industry. That day, a gunman armed with his mother's legally-owned weapons went on to kill 26 people, mostly children, at the school.

The violence and magnitude of the tragedy generated immediate outrage and a widespread call for tougher gun control legislation in the United States. The National Rifle Association released a statement, however, calling for armed guards in schools. The short-term aftermath has resulted in an increase in gun sales and permit applications and a drop in share value for gun manufacturers. The long-term impact will, in part, depend on any legislative changes to gun laws.

Gun Purchases
According to Connecticut's Department of Emergency Services, gun sales rose over 180% the day after the massacre over the same day last year. Retailers all over the country report increased sales of both firearms and ammunition. The sales spike is attributed to current and new gun owners' fears of potential new legislation banning or regulating assault or semi-automatic weapons.

Not all thriving retailers are basking in the revenue boost. Dick's Sporting Goods (NYSE:DKS) announced in the days after the shooting that it would suspend the sales of sporting rifles in all of its 500 nationwide locations and would remove all guns from its store closest to Newtown. The chain has not announced how long the suspension will last or whether it will make any permanent changes to its gun offerings.

Wal-Mart Stores (NYSE:WMT) reportedly has removed a semi-automatic weapon similar to the one used by the gunman from sale at all of its stores, but has not made a formal announcement of the change.

If tighter gun control is enacted, the sales of most classes of guns will likely drop as owning a weapon becomes a more difficult and longer process.

Investment
The most immediate financial impact of the Sandy Hook shootings was the drop in stock prices of the gun industry's two largest players: Smith & Wesson (Nasdaq:SWHC) and Sturm Ruger & Co. (NYSE:RGR). Smith & Wesson closed 18% down on the Tuesday following the shootings versus its close the day before the event. Ruger dropped 16%. Further gun legislation could affect stock values in the longer term.

Several large institutional investors, including teachers' pension funds, have announced that they will be reviewing all of their investments and divesting in any company related to the gun industry. Any increase in sales in the wake of the tragedy is likely to be overridden by the lack of demand for gun manufacturers' stock.

Regulation
In 1993, President Bill Clinton signed the Brady Bill into law, named after Ronald Reagan's press secretary, James Brady, who suffered brain injuries after a failed assassination attempt on the president's life. The bill required background checks for all gun purchasers as well as a five-day waiting period. The following year, Clinton enacted the 1994 Crime Bill, which banned a number of semi-automatic and assault weapons. The assault weapons ban was overturned in 1996 by the House of Representatives, and there have been no serious attempts at gun control legislation since then.

Following the Sandy Hook shootings, President Obama promised to make gun control a primary focus of his second term in office. He established a task force led by Vice President Joe Biden to come up with recommendations to address gun violence. The task force has one month to produce these recommendations, and Obama has stated that he wants to enact changes by the end of 2013.

Marketing
With the majority of public sentiment in the weeks following the shooting overwhelmingly negative towards the gun industry, companies and organizations carrying gun ads are rethinking their practices. Electronic Arts (Nasdaq:EA), the second-largest video game developer in the country, announced at the end of December that it would be taking down all links to gun manufacturer websites from its Medal of Honor Warfighter webpage. The links originally allowed players to shop for the real versions of guns found in the game. Other gun marketing partners are likely to reassess their relationships with the industry and follow EA's lead.

The Bottom Line
Whether the short-term financial and investment impacts of the Sandy Hook shootings has any longer-term effect on the gun industry depends on many issues, including the potential enactment of stricter gun control legislation. What is a certainty is that gun control, and gun manufacturing, will continue to be a hot topic during 2013.

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