12/19/2012 07:07 pm ET Updated Dec 06, 2017

Assault Weapons Sales Boom Fuels Gun Industry Profits, And Tragedy

MIAMI, FL - DECEMBER 18:  In this photo illustration a Rock River Arms AR-15 rifle is seen on December 18, 2012 in Miami, Flo
MIAMI, FL - DECEMBER 18: In this photo illustration a Rock River Arms AR-15 rifle is seen on December 18, 2012 in Miami, Florida. The weapon is similar in style to the Bushmaster AR-15 rifle that was used during a massacre at an elementary school in Newtown, Connecticut. Firearm sales have surged recently as speculation of stricter gun laws and a re-instatement of the assault weapons ban following the mass shooting. (Photo illustration by Joe Raedle/Getty Images)

In February 2006, Smith & Wesson, the storied gunmaker founded in 1851, unveiled its first-ever semi-automatic assault-style rifle. The company dubbed it the M&P15, for "military and police," but the gun was very much aimed at the retail market.

Consumer response was "overwhelming," Mike Golden, the former CEO, told investors in a conference call the following year. Sales of the M&P15 and other military-style weapons were playing a crucial role in pulling the company out of a deep sales slump, he said.

Sales continued to surge, with more than 100,000 M&P15 rifles built in 2010, up from 4,600 in 2006, according to federal firearms manufacturing data. Smith & Wesson's revenues broke records and its stock price quadrupled. Then tragedy struck.

In July 2012, James Holmes, a disturbed 24-year-old graduate student, was accused of opening fire in a movie theater in Aurora, Colo., using an M&P15 fitted with a high-capacity magazine, killing 12 and wounding 58. Holmes bought the gun at a local sporting goods store two months earlier, police said.

The U.S. consumer firearms market has undergone a seismic shift in recent decades, away from bolt-action hunting rifles, shotguns and revolvers, and toward military-style semi-automatics like the M&P15, according to industry analysts.

The boom in assault weapons has more than offset dropping sales of traditional firearms caused by a declining national interest in hunting, said Rommel Dionisio, a securities analyst at Wedbush Morgan Securities who follows the gun industry.

"That category of firearms has been a primary growth engine and profit driver for firearms companies for the last seven or eight years," Dionisio said.

The profits are not limited to gun manufacturers. Assault weapons have become big sellers for national retailers like Walmart and Dick's Sporting Goods, Dionisio said. "You also have to look at the retailers," he said. "Firearms have certainly been very profitable for them."

But as sales of assault weapons accelerated in recent years, they have surfaced in a growing number of mass killings, most recently the murder of 20 children and six adults in an elementary school in Newtown, Conn., last Friday. Adam Lanza, 20, used a military-style Bushmaster .223 semiautomatic rifle in the killings, police said.

The Newtown massacre quickly led to calls for new controls on assault weapons from Washington, D.C., and caused waves on Wall Street, as a private equity firm announced Tuesday it was dumping its ownership stake in several leading gun manufacturers, including Bushmaster. Stocks in Smith & Wesson and Sturm, Ruger, the largest publicly owned gun makers, also tumbled in the wake of the shooting.

For gun-control advocates, the proliferation of military-style weapons -- and high-capacity ammunition clips that greatly increase their lethality -- is directly responsible for the rising frequency of high-casualty mass shootings. Semi-automatic rifles like the M&P15 are modeled on 20th century battlefield weapons and are designed to quickly spray high volumes of bullets, making them a weapon of choice for mass shooters.

"If you want to stop mass shootings, you need to ban assault weapons and high-capacity magazines. You have to look at the industry and its products," said Kristen Rand, legislative director for the Violence Policy Center in Washington, D.C.

A spokeswoman for Smith & Wesson declined to comment on its sales of military-style weapons, or on the possibility of legislative action on gun control in the wake of the Newtown tragedy.

The National Rifle Association did not respond to a request for comment. In its first public statement since the shooting, the organization said it was “prepared to make meaningful contributions to help make sure this never happens again.”

Leading Democrats pledged this week to introduce legislation renewing a lapsed 1994 assault weapons ban, and prohibiting high-capacity ammunition clips. Such bills are expected to be a key focus of a new executive-branch task force on gun violence to be led by Vice President Joseph Biden, announced by President Barack Obama on Wednesday.

Some retailers have already backed away from military-style rifles in the aftermath of Newtown. Dick's Sporting Goods said on Monday it was suspending sales of rifles like the Bushmaster .223 from its more than 500 stores.

Walmart continued to sell assault-style rifles, but pulled an online advertisement for a Bushmaster semi-automatic rifle that directed consumers to the nearest retail outlet where they could buy the gun.

Walmart did not respond to email and phone messages requesting comment. David Tovar, a Walmart spokesman, told CNN the Bushmaster ad was pulled out of "sensitivity" to the Newtown killings, but that the company had no immediate plans to pull assault-style rifles from its shelves.

"We have not made any changes to the assortment of guns we sell," Tovar said.

Walmart discontinued gun sales at many of its stores in the mid-2000s, but quietly began returning firearms to most of its outlets last year. At an October 2012 shareholder meeting, a company executive boasted that gun sales were up 76 percent at stores open a year or more. The company, with roughly 1,700 stores in the U.S., is the nation's largest firearms retailer.

A major shift by retailers away from stocking assault-style rifles would hit gun makers hard, industry experts said.

A 2011 annual report by Freedom Group, the country's top manufacturer of assault-style rifles, noted that Walmart accounted for 15 percent of its total sales in 2011. Another retailer, which was not named, accounted for 6 percent of sales, it said.

Were Walmart to terminate its purchases, the company wrote, "our financial condition or results of operations could be adversely affected."

Yet Freedom Group -- now up for sale by Cerberus Capital Management, a New York-based private equity fund -- saw a rosy outlook for assault rifles, which it calls “modern sporting rifles.” The market for such weapons grew 27 percent between 2007 and 2011, it wrote.

“In 2011, demand for modern sporting rifles and handguns continued its upward trend in the industry,” the company said.

Source: Project Vote Smart, Graphic by: Chris Spurlock