SMITH & WESSON BRANDS, INC. Q3 FY2025 earnings call

• Revenue for the third quarter was slightly below target, but lower operating expenses and flexible manufacturing helped maintain profitability. - New products introduced within the past year account for over 41% of sales in the quarter, with several exciting new products expected in the final quarter of FY2025 and next year. - Gained market share in handguns as handgun NICS was down 4.1% in Q3 while shipments into the sporting goods channel were only down 3% due to Bodyguard 2.0. Long guns: NICS down 3.9% but unit sales grew at nearly 20% CAGR on two-year basis. - ASPs trended lower in Q3; handguns down 7.8% due to Bodyguard 2.0 and lower revolver sales; long guns up 17.2% due to lever rifles. - Macroeconomic conditions skew to new products and lower price points; flexible manufacturing used in holiday promotions. - Balance sheet strong; internal inventory slightly elevated but channel inventory at distributors is under nine weeks; expect strong cash flows in Q4.

Net sales for the third quarter were $115.9 million, which was $21.6 million or 15.7% below the prior year comparable quarter. Handguns: ASPs declined 7.8% due to strong demand for the Bodyguard 2.0 and lower revolver sales; new products like Bodyguard 2.0 account for a significant portion of sales. Long guns: ASPs increased 17.2% due to strong demand for higher-priced lever rifles; on a two-year basis, Q3 long gun unit sales grew at a compounded annual rate of nearly 20%. Gross margin was 24.1%, 4.6% below the comparable quarter last year due to unfavorable fixed cost absorption from lower production volumes and higher promotional costs, partially offset by lower labor costs.

• Full-year revenue expected to be down 5-10% from fiscal 2024, now anticipating lower end of range (closer to 10% decline). - Q4 revenue down 2-5% from prior year, lower margins due to lower production levels. - Operating expenses in Q4 expected to be in line with prior year comparable quarter, with R&D, promotions, and marketing programs offsetting lower profit-related compensation costs. - Effective tax rate expected to be approximately 28%; balance sheet to reduce inventory, repay additional debt, with ending leverage under two times.

• Macroeconomic conditions impacting consumer demand for firearms. - Tariff exposure, though not material to financial results. - Regulatory environment, including outcome of Supreme Court case related to the industry.

Q: Mark Smith asks about sales of legacy products, whether due to consumer weakness or competitive pressures.

A: Mark Smith responds that the Bodyguard 2.0 is cannibalizing some own line, pistol category is gaining share, but there's consumer discretionary spend pressure and competition.

Q: Matthew Raab asks about Q4 ASPs and 2026 outlook.

A: Mark Smith says handgun ASPs likely to remain similar to Q3; focus on new products for growth in 2026 with continued innovation.

Q: Rommel Dionisio asks about handgun category and long gun margin impact.

A: Mark Smith says handgun market is bifurcating to entry-level and new products; long gun margin of lever actions not materially different from core rifle line, with plans to expand long gun product line.