Smith & Wesson Brands(SWBI) - 2025 Q2 - Quarterly Results

Financial and Operational Highlights The company reported its second-quarter fiscal 2025 financial results and provided management commentary on performance and future outlook Second Quarter Fiscal 2025 Financial Highlights Smith & Wesson reported Q2 FY2025 net sales of $129.7 million, up 3.8% year-over-year and 46.8% sequentially, with GAAP net income rising to $4.1 million Q2 Fiscal 2025 Key Financial Metrics (in millions) | Metric | Q2 FY2025 | Q2 FY2024 | Change (YoY) | | :--- | :--- | :--- | :--- | | Net Sales | $129.7M | $125.0M | +3.8% | | Gross Margin (GAAP) | 26.6% | 25.4% | +1.2 p.p. | | Net Income (GAAP) | $4.1M | $2.5M | +64.0% | | Diluted EPS (GAAP) | $0.09 | $0.05 | +$0.04 | | Net Income (Non-GAAP) | $4.8M | $6.5M | -26.2% | | Diluted EPS (Non-GAAP) | $0.11 | $0.14 | -$0.03 | | Adjusted EBITDAS | $18.5M | $19.3M | -4.1% | - Net sales showed strong sequential growth, increasing by $41.3 million, or 46.8%, compared to the prior quarter[3] Management Commentary and Outlook Management reported Q2 results below expectations due to normalizing demand and consumer caution, lowering H2 FY2025 outlook, but highlighted market share gains and strengthened capital position - CEO Mark Smith stated that Q2 results were below expectations as firearm demand normalized late in the quarter, attributing the pressure primarily to inflation and consumer cautiousness with discretionary spending[4] - Despite headwinds, the company believes it gained market share, driven by innovation, with new products representing 44% of sales in the quarter[4] - CFO Deana McPherson announced reduced expectations for the second half of fiscal 2025, forecasting that Q3 revenue will be approximately 10-15% lower than the same period in fiscal 2024[4] - The Board of Directors authorized a new $50 million share repurchase program and a quarterly dividend of $0.13 per share[4] - The company secured a new unsecured $175 million line of credit, increasing total available borrowings by $75 million and extending the maturity to October 2029[4] Consolidated Financial Statements The company's financial statements reflect increased assets and liabilities, decreased equity, and a shift to net cash outflow from operations Condensed Consolidated Balance Sheets As of October 31, 2024, total assets increased to $587.4 million, total liabilities rose to $218.4 million, and stockholders' equity decreased to $369.1 million Balance Sheet Highlights (in thousands) | Account | Oct 31, 2024 | Apr 30, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $39,093 | $60,839 | | Inventories | $196,035 | $160,500 | | Total current assets | $306,067 | $287,878 | | Total assets | $587,443 | $577,996 | | Notes and loans payable | $98,994 | $39,880 | | Total liabilities | $218,378 | $179,836 | | Total stockholders' equity | $369,065 | $398,160 | Condensed Consolidated Statements of Income Q2 FY2025 net sales reached $129.7 million with gross profit of $34.5 million, while quarterly net income increased to $4.1 million ($0.09 EPS) Income Statement Summary - Three Months Ended Oct 31 (in thousands, except per share data) | Metric | 2024 (Q2 FY25) | 2023 (Q2 FY24) | | :--- | :--- | :--- | | Net sales | $129,679 | $124,958 | | Gross profit | $34,546 | $31,766 | | Operating income | $6,972 | $3,768 | | Net income | $4,134 | $2,498 | | Diluted EPS | $0.09 | $0.05 | Income Statement Summary - Six Months Ended Oct 31 (in thousands, except per share data) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net sales | $218,013 | $239,201 | | Gross profit | $58,737 | $62,167 | | Operating income | $5,110 | $8,116 | | Net income | $2,026 | $5,616 | | Diluted EPS | $0.04 | $0.12 | Condensed Consolidated Statements of Cash Flows For the six months ended October 31, 2024, operating activities resulted in a net cash outflow of $38.2 million, primarily due to inventory increases Cash Flow Summary - Six Months Ended Oct 31 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(38,212) | $37,756 | | Net cash used in investing activities | $(7,879) | $(67,063) | | Net cash provided by financing activities | $24,345 | $19,943 | | Net decrease in cash and cash equivalents | $(21,746) | $(9,364) | - Key uses of cash in financing activities for the six months included $22.6 million for treasury stock purchases and $11.7 million for dividend distributions[15] Reconciliation of GAAP to Non-GAAP Financial Measures The company provides non-GAAP financial measures to offer a clearer view of underlying performance by excluding specific non-recurring or non-cash items Explanation of Non-GAAP Measures The company uses non-GAAP measures like non-GAAP net income and Adjusted EBITDAS to provide a clearer understanding of underlying performance trends - The company uses supplemental non-GAAP measures to provide a better understanding of underlying performance trends[6] - These measures facilitate operating performance comparisons by eliminating potential differences caused by certain expenses, such as relocation costs, legal settlements, and stock-based compensation[6] Reconciliation Tables Q2 FY2025 non-GAAP gross profit was $35.2 million, non-GAAP net income was $4.8 million, and Adjusted EBITDAS reached $18.5 million Q2 FY2025 GAAP to Non-GAAP Reconciliation (in thousands) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | Gross Profit | $34,546 | $622 | $35,168 | | Operating Income | $6,972 | $934 | $7,906 | | Net Income | $4,134 | $696 | $4,830 | Q2 FY2025 GAAP Net Income to Adjusted EBITDAS Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | GAAP net income | $4,134 | | Interest expense | $2,081 | | Income tax expense | $1,414 | | Depreciation and amortization | $8,181 | | Stock-based compensation expense | $1,869 | | Settlement | $70 | | Relocation expense | $738 | | Non-GAAP Adjusted EBITDAS | $18,487 | Q2 FY2025 Free Cash Flow Reconciliation (in thousands) | Description | Amount | | :--- | :--- | | Net cash used in operating activities | $(7,397) | | Payments to acquire property and equipment | $(3,302) | | Free cash flow | $(10,699) | Other Information This section provides details on the upcoming conference call and important safe harbor statements regarding forward-looking information Conference Call and Webcast A conference call and webcast were scheduled for December 5, 2024, at 5:00 p.m. ET to discuss Q2 FY2025 results - A conference call to discuss Q2 FY2025 results was scheduled for December 5, 2024, at 5:00 p.m. Eastern Time[5] Safe Harbor Statement The press release contains forward-looking statements regarding market navigation and financial outlook, subject to various economic, political, and regulatory risks - Forward-looking statements include expectations to navigate a challenging demand environment, preserve profitability, gain market share, and an anticipated 10-15% top-line decrease in Q3 compared to fiscal 2024[8] - The company cautions that results could be impacted by various risks, including economic and political factors, potential for increased firearm regulation, lawsuits, and consumer spending patterns[8]