• Net Sales: $129.7 million, up 3.8% from the prior year comparable quarter.
• Gross Margin: 26.6%, 1.2% above the comparable quarter last year.
• Operating Expenses: $27.6 million, $400,000 lower than the prior comparable quarter.
• Net Income: $4.1 million or $0.09 per share; $0.11 per share on a non-GAAP basis.
• Cash Used in Operations: $7.4 million, compared to $2.9 million in the prior year comparable quarter.
• Capital Expenditures: $3.3 million, significantly lower than $34.9 million in the prior year comparable quarter.
• Share Repurchase: Approximately 754,000 shares repurchased at an average price of $12.94, totaling $9.8 million.
• Dividends Paid: $5.8 million.
• Cash and Borrowings: Ended the quarter with $39.1 million in cash and $100 million in borrowings on the line of credit.
• Average Selling Prices (ASP): Overall ASP down 8%; Handgun ASP down 11%; Long gun ASP up 11%.
• Revenue Outlook: Full-year revenue expected to be 5% to 10% lower than fiscal 2024.
• Third Quarter Expectations: Top line expected to be 10% to 15% lower than fiscal 2024; margins a few points lower than the prior year quarter.

• Warning! GuruFocus has detected 2 Warning Sign with SWBI.

Release Date: December 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Smith & Wesson Brands Inc (NASDAQ:SWBI) reported an 8.7% increase in units shipped into the channel, indicating strong market performance.
• The company gained market share, with new products representing 44% of sales, led by the Bodyguard 2.0 pistol.
• Smith & Wesson Brands Inc (NASDAQ:SWBI) maintained a strong balance sheet, enabling strategic participation in promotional activities.
• The Bodyguard 2.0 was awarded 'Best New Handgun of 2024' by the National Association of Sporting Goods Wholesalers and 'Handgun of the Year' by Guns and Ammo magazine.
• The company repurchased 1.6 million shares since the beginning of the fiscal year, demonstrating a commitment to returning value to shareholders.

Negative Points

• Second quarter results were below expectations due to a normalization of firearm demand and inflationary pressures.
• Average selling prices (ASP) for handguns declined by 11%, driven by a mix of lower-priced products and increased promotional activity.
• The company anticipates sustained pressure on ASPs throughout the fiscal year due to competitive promotional spending.
• Smith & Wesson Brands Inc (NASDAQ:SWBI) expects full-year revenue to be 5% to 10% lower than fiscal 2024, reflecting softer demand trends.
• Operating expenses are projected to increase by 5% to 10% in the third quarter due to investments in R&D, promotions, and marketing.

Q & A Highlights

Q: Can you provide insights on the pressure on ASPs in the second half and whether they will hold at Q2 levels? A: Mark Smith, President and CEO, explained that while there will be some pressure from increased promotional activity due to a competitive market, this will be offset by the mix associated with new product launches. Overall, ASPs are expected to be flat for handguns and slightly up for long guns in the second half.

Q: What is the confidence level in reducing inventory in the second half given the cooling gun market? A: Mark Smith expressed confidence in reducing inventory, noting that the rise was more than anticipated due to a softer market. The company has a robust sales and operations planning process to align production with sales volume, and they are comfortable with inventory reduction by year-end.

Q: How are retailers and distributors responding to new product launches in the current inflationary environment? A: Mark Smith stated that innovation is key, and retailers are looking for new products. The Bodyguard 380 and Lever Action rifles have been successful, and the company is optimistic about new product introductions in the second half.

Q: How is the promotional environment affecting your business, and are rebate programs effective? A: Mark Smith mentioned that the company is thoughtful about promotions, ensuring a return on investment. Current rebate programs are meeting or exceeding expectations, and the company will continue to participate in promotions due to the competitive environment.

Q: What is the outlook for the firearms industry regarding fear-based buying and demand spikes? A: Mark Smith noted that the primary driver is the consumer's discretionary spending being affected by the economy and inflation. Fear-based buying around gun control regulation has decreased, but personal protection remains a factor.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.