Smith & Wesson Brands Inc. (SWBI) 2025 Q1 Earnings Call Summary

Optimistic Highlights

• Resilient Manufacturing Model

Despite softer-than-expected firearms demand, the company maintained bottom-line profitability due to its flexible manufacturing model.

• Strong New Product Performance

New products accounted for over 41% of sales in Q1, with the Bodyguard 2.0 and 1854 lever action rifle performing particularly well.

• Improved Gross Margins

Gross margins improved by 80 basis points year-over-year, reflecting higher fixed cost absorption and efficiencies in Tennessee operations.

• Share Repurchase Program

The company repurchased nearly 871,000 shares for $13 million in Q1 and announced a new $50 million buyback program.

• Positive Outlook for Fall Season

Demand has begun to rebound as the company enters the busy fall season, with expectations for sales and earnings growth over fiscal 2024.

Pessimistic Highlights

• Lower-than-Expected Revenue

Net sales for Q1 were $88.3 million, down 22.7% from the prior year, primarily due to softer firearms demand.

• Increased Inventory Levels

Inventory increased by nearly $30 million, slightly above expectations due to softer market conditions.

• Operating Loss

The company reported a net loss of $2.1 million or $0.05 per share, primarily due to lower revenue and increased interest expenses.

• Competitive Market

The firearms market remains highly competitive, with heightened promotional activity, especially around lower-priced entry-level handguns.

• Inflationary Pressures

Continued inflationary pressure on consumer discretionary spending impacted foot traffic and overall demand.

Company Outlook

• Revenue Growth Expectations

The company expects full-year revenue to grow mid to high single-digits compared to fiscal 2024, with significant growth anticipated in Q2.

• Gross Margin Targets

Gross margins are expected to improve in the second quarter and reach the low 30s for the full year.

• Capital Allocation

The company plans to remain debt-free by the end of the fiscal year and continue its share repurchase program.

• Inventory Management

Inventory levels are expected to return to prior year levels by the end of the year, excluding new product launches.

• Strong Cash Flow

The company expects to generate operating cash of at least $75 million annually, with normal capital spending requirements of approximately $25 million per year.

Q & A Highlights

• Q: Inventory Confidence and Management (Mark Smith, Lake Street Capital)

A: Inventory built during the summer is already moving out the door, with August showing strong demand. (Mark Smith)

• Q: Long Gun ASPs and Product Mix (Mark Smith, Lake Street Capital)

A: The increase in long gun ASPs was driven by the 1854 lever action rifle. ASPs are expected to normalize in the fall. (Mark Smith)

• Q: Competitive Environment and Promotions (Mark Smith, Lake Street Capital)

A: The competitive environment is expected to ease in the fall, with promotional activity continuing strategically. (Mark Smith)

• Q: Product Strategy and Market Segments (Mark Smith, Lake Street Capital)

A: The Bodyguard 2.0 and 1854 lever action rifle cater to both entry-level and high-end market segments, respectively. (Mark Smith)

• Q: Revenue Growth Confidence (Matthew Raab, Craig-Hallum Capital Group)

A: Confidence is based on historical seasonality and strong early results in August. (Mark Smith and Deana McPherson)

• Q: Capital Allocation and Buybacks (Matthew Raab, Craig-Hallum Capital Group)

A: The company prioritizes business investment, debt management, and opportunistic share repurchases. (Deana McPherson)