Smith & Wesson Holding Corp (NASDAQ:SWHC) reported fourth quarter and full year fiscal 2014 financial results on Thursday, June 19th. The fourth quarter results were actually pretty decent, but the firm’s downward revision to their forward guidance spooked investors and sent S&W shares down as much as 10% on Friday.

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While net sales were down 4.6% for the quarter, gross profit for 4Q was $69.7 million, or 40.9% of net sales, compared with gross profit of $68.4 million, or 38.3% of net sales, for 4Q 2012.

Boom and bust cycle

The gun industry has enjoyed a great run recently. Demand spiked a couple of years ago, fueled by worries about stricter gun laws after President Obama’s reelection and the string of mass shootings including Sandy Hook massacre and others.

These concerns led to gun enthusiasts coming out of the woodwork to buy semiautomatic assault rifles “while they still could”, exhausting the supply and driving up the prices. However, Obama and the Democrats did not mange to get significant gun control legislation passed, so the public stopped being so worried that guns might be be hard to come by. Analysts say it’s this change in attitude that led to the decline in rifle sales.

Smith & Wesson: Rifle sales down, handgun sales up

Smith & Wesson Holding Corp (NASDAQ:SWHC) fourth quarter sales showed a solid increase in handgun sales that almost offset the losses in the long gun (rifle) category. Analysts say this has become an industry-wide trend.

“[New buyers] are people who have never touched a gun before and want to get into shooting,” says Ben Shim, a gun industry analyst for CRT Capital and an NRA instructor.

“This is a hot category,” Shim continued, with reference to small handguns. As an example, he cites Smith & Wesson’s Bodyguard .380 pistol, which only weighs 12 ounces and has a less than three inch barrel. “These are pistols that you can literally put in your pocket and they won’t bulge out or make your pants drop. If someone jumps you, you can shoot through your coat pocket.”

In fact, the shift in demand towards handguns is strong that Smith & Wesson Holding Corp (NASDAQ:SWHC) rival Colt is re-purposing some of its manufacturing facilities to make handguns instead of rifles.