SMITH & WESSON BRANDS, INC. Q4 FY2025 earnings call

• Fourth quarter was more difficult due to macroeconomic and industry trends; lower sales and production volumes pressured margins, but cost management helped. New products accounted for 44% of Q4 sales. - In Q4, overall adjusted NICS was down 5.4%, with market share gains in handguns and mixed trends in long guns. ASPs trended lower year-over-year but slightly higher sequentially. - Consumers are cautious due to macroeconomic factors, but new products and lower price point offerings perform well. Channel inventory is managed conservatively, and smaller manufacturers exiting the market may benefit the company. Balance sheet is strong, internal inventory levels are clean, and production schedules are proactively managed with an extended summer shutdown. Focus on innovation, cost control, and driving sales through new product pipeline.

Fourth quarter net sales were $140.8 million, which was $18.4 million or 11.6% below the prior year comparable quarter. New products accounted for 43.9% of total revenue for the quarter. Gross margin was 28.8%, 6.7 percentage points below the prior year comparable quarter. GAAP earnings per share was $0.19, below the prior year comparable quarter's $0.59, while non-GAAP earnings per share was $0.20, down from $0.48 in Q4 fiscal 2024.

• Fiscal 2026 demand for firearms expected similar to 2025, subject to economic headwinds. - Q1 2026 likely approximately 10% lower than last year, margins lower due to promotions and tariff-related cost increases. - Q1 pricing expected sequentially lower 5-10%, particularly impacting long guns. Margins under pressure due to low volume and cost increases. - Operating expenses for Q1 expected roughly flat to last year. - Effective tax rate expected to be approximately 30%. - Extended summer shutdown in Q2 to better align inventory levels with demand.

• Macroeconomic factors pressuring discretionary spending affecting firearms demand. - Channel inventory fluctuations impacting shorter-term out-the-door shipments. - Smaller firearm manufacturers exiting the market, though viewed as market share opportunity but also part of industry cyclicality. - Tariffs on raw materials like steel causing cost increases and impacting gross margin.

Q: Dig in more on smaller competitors exiting the market and impact on inventory and market share A: Mark Smith says smaller players exiting don't bring flood of liquidated inventory, viewed as tailwind for market share leadership Q: ASPs and pricing in competitive market, need for cuts/discounting A: Mark Smith says brand doesn't need pricing cuts, new products participate in entry-level pricing, and value through promotions/maintaining ASPs Q: Demand down, consumer behavior across price points A: Mark Smith says high end and entry level performing well, mid-to-lower tier trending lower, new products to take advantage Q: Extra week of summer shutdown impact A: Mark Smith says extension is in Q2 to align inventories Q: Tariffs, particularly on steel, and impact to gross margin A: Mark Smith says tariffs are volatile, company has exposure but impact less pronounced than competitors due to U.S. manufacturing Q: Inventory cadence and year-end stocking level A: Mark Smith says significant inventory reduction expected in 2026, Q1 has inventory build then reduction through rest of fiscal year Q: Balance sheet and debt repayment plans A: Mark Smith says healthy cash generation expected, inventory reduction will convert to cash for debt repayment