SMITH & WESSON BRANDS, INC. Q2 FY2025 earnings call

Key Points

• Second quarter results were below expectations due to normalized firearm demand, but the company outperformed the market with new products making up 44% of sales.
• Handgun shipments were up 19.2% driven by strong demand for the Bodyguard 2.0. Long gun shipments were down 26.4%, but core long gun line shipments were down 4.8% excluding outliers.
• Demand pressure is driven by inflation and consumer cautiousness with discretionary spend. Lower or opening price point products are performing better.
• New products like the Bodyguard 380 and lever-action rifle are performing well.
• Net sales for the quarter were $129.7 million, 3.8% above prior year. Gross margin was 26.6%, operating expenses were $27.6 million, $400,000 lower than prior year.

Net sales for the second quarter were $129.7 million, 3.8% above the prior year comparable quarter. Handgun shipments were up 19.2%, significantly outperforming the market due to strong demand for new products like the Bodyguard 2.0. Long gun shipments were down 26.4%, but core long gun line shipments were down only 4.8% when removing outliers. Gross margin was 26.6%, 1.2% above the comparable quarter last year due to a one-time legal settlement accrual in the prior year quarter. Excluding that, prior year margin would have been higher.

Forward-Looking Statements

• Full year revenue expected to be 5% to 10% lower than fiscal 2024.
• Third quarter top line expected to be approximately 10% to 15% lower than fiscal 2024 with margins a few points lower due to increased promotions and lower ASP.
• Operating expenses for third quarter expected to be 5% to 10% above prior year comparable quarter.
• Capital spending expected to be between $25 million and $30 million for the year.

• Inflation impacting consumer discretionary spend leading to trade-down activity.
• Increased promotional activity creating margin pressure.
• Channel inventory remains cautious and will continue to manage inventory carefully.

Q: On the outlook for shooting sports industry regarding fear-based buying?

A: Mark Smith said fear-based buying around regulation has abated, primary driver now is inflation and consumer discretionary spend.