Smith & Wesson Brands, Inc. Q4 FY2026 earnings call

- Overall Financial Performance * Q4 fiscal 2026 net sales hit $178.4 million, a 26.7% (=$37.6 million) year-over-year increase. Full fiscal 2026 net revenue grew over 10% year-over-year. * Q4 adjusted EBITDA increased 31.7% year-over-year, and adjusted diluted EPS increased nearly 77% to 36 cents (from 19 cents in the prior year quarter). Full fiscal 2026 adjusted EPS increased more than 25% year-over-year, and adjusted EBITDA increased 7% year-over-year. * Q4 gross margin reached 29.8%, a 1 percentage point year-over-year improvement, driven by higher production volume, reduced promotions, and a 2%-3% general price increase implemented in January 2026, partially offset by higher tariffs, volume-related spending, and inventory reserves. * Q4 operating expenses were $31.7 million, a $4.3 million year-over-year increase driven by higher profit-related compensation, freight costs, and R&D spending. Q4 net income was $16.2 million, a $7.6 million year-over-year increase.

- Balance Sheet and Cash Flow * Q4 generated $74.6 million in cash from operations, for $69.7 million in net free cash after $4.8 million in capital expenditures. Full fiscal 2026 generated $114 million in operating cash and $90.4 million in net free cash after $23.7 million in capital expenditures. * The company retired $60 million in debt in fiscal 2026, ending the year with just $20 million in total outstanding debt (down from $80 million at the end of fiscal 2025), and ended Q4 with a net cash position of $8.2 million ($28.2 million in cash against $20 million in borrowings). * The board authorized a quarterly dividend of 13 cents per share, payable July 15 to stockholders of record as of July 1.

- Operational and Strategic Highlights * New products accounted for 37.5% of Q4 revenue and 38% of full fiscal 2026 shipments, driving market share gains and supporting strong average selling prices. * Total company channel inventory (across all segments) remained flat year-over-year and sequentially, indicating strong retail sell-through of Smith & Wesson products. * Internal inventory at the end of Q4 was $156 million, down from $190 million year-over-year, leaving the company well-positioned entering fiscal 2027. * Smith & Wesson gained substantial market share in fiscal 2026: total channel shipments rose 14.7% for the full year, while overall industry adjusted NICS fell 2.3%.

1. Handguns: Represented over 80% of total units shipped in Q4 fiscal 2026. Unit shipments into the sporting goods channel increased 23.2% year-over-year, while overall industry adjusted NICS background checks (a proxy for consumer demand) only rose 1.1%, with no change in channel inventory, indicating strong consumer sell-through and market share gains. Sequentially, Q4 handgun average selling prices (ASPs) increased 4.3% year-over-year. For the full fiscal 2026, handguns account for approximately 83% of total company revenue. 2. Long Guns: Represented approximately 17% of total company revenue for full fiscal 2026. Unit shipments into the sporting goods channel increased 28.7% year-over-year in Q4, compared to a 3.5% rise in long gun adjusted NICS. Sequentially, Q4 long gun ASPs increased 4.5% year-over-year. The business saw strong growth in the MSR category and new hunting segment (a new market for Smith & Wesson) during the quarter.

- Overall firearm industry demand in fiscal 2027 is expected to be healthy and slightly higher than in fiscal 2026. - Full fiscal 2027 revenue is expected to grow in the mid-single digits compared to full fiscal 2026. - First quarter fiscal 2027 revenue is expected to be 15% to 20% higher than the prior year first quarter, with gross margins 1 to 2 percentage points higher driven by increased sales volume. No repeat of the prior year first quarter's negative inventory reduction impact is expected. - First quarter average selling prices are expected to decline sequentially by approximately 5%, driven by product mix: a decline in handgun ASP will be partially offset by an increase in long gun ASP. - First quarter operating expenses are expected to be approximately 20% higher than the prior year first quarter, driven by higher volume and profit-related costs including freight, customer marketing allowances, and profit sharing. - The effective tax rate for fiscal 2027 is expected to be approximately 30%, up from fiscal 2026 due to favorable one-time adjustments that lowered the prior year's rate. - Capital expenditure for fiscal 2027 will be ~$20 million above the historical average of $25 to $30 million, allocated to capacity expansion and operational efficiency upgrades at the Springfield facility.

- All forward-looking statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from management projections. These risks are detailed in the company's SEC filings, which are publicly available. - Ongoing headwinds include existing tariffs on imported materials/components, which continue to pressure gross margins.

Q: The company mentioned meaningful incremental growth in new, historically untapped segments. Where is this growth coming from? A: The largest area of new growth is the 1854 hunting rifle line, a brand new category for Smith & Wesson introduced 18 months prior, which is already gaining solid market share. The company is also seeing strong performance from the FPC folding carbine, a successful new product in a long gun subsegment that Smith & Wesson had not previously competed strongly in.

Q: What factors drove the better-than-expected Q4 gross margin improvement? A: The improvement came from a combination of three core factors. First, production volumes increased significantly after the company completed inventory reduction in fiscal 2025, leading to higher fixed cost absorption. Second, the 2-3% general price increase implemented in January 2026 went into effect smoothly with no pushback from distributors. Ongoing tariffs remain a headwind, but these tailwinds more than offset that pressure.

Q: How do new products contribute to margin and ASP performance? A: New products not only drive their own direct sales with strong pricing, they also elevate overall consumer perception of the entire Smith & Wesson brand, which supports higher ASPs and demand for the company's core existing product line. Strong new product innovation combined with the power of the Smith & Wesson brand has allowed the company to hold up average selling prices very effectively.

Q: What is the company's capital allocation strategy for fiscal 2027 after paying down significant debt? A: The top priority remains investing in the business where high returns are available; this year that means a $20 million above-average capital investment to add 20 new CNC machines at the Springfield facility to expand machining capacity and support the sustainable market share growth and upcoming new product pipeline. The company remains committed to its regular quarterly dividend, and share repurchases remain an opportunistic option under the existing board authorization.

Q: Why is the capacity expansion located at the Springfield facility rather than the newer Tennessee facility? A: The company's long-term operating model assigns Springfield as its center of excellence for precision machining, which is where the capacity constraint exists. The Tennessee facility serves as corporate headquarters, and handles assembly, distribution, finishing, and plastic injection molding. This split of operations will remain in place going forward, so the machining capacity expansion naturally occurs at Springfield.