Smith & Wesson Brands(SWBI) - 2026 Q1 - Quarterly Report

Filing Information Provides details on the company's Form 10-Q filing, accelerated filer status, and common stock outstanding - Smith & Wesson Brands, Inc. filed its Quarterly Report on Form 10-Q for the period ended July 31, 2025[2] Common Stock Listing Information | Title of each Class | Trading Symbol | Name of exchange on which registered | | :--- | :--- | :--- | | Common Stock, par value $0.001 per share | SWBI | The Nasdaq Stock Market LLC | - The registrant is an accelerated filer and is not a large accelerated filer, non-accelerated filer, smaller reporting company, or emerging growth company[3][4] - As of September 2, 2025, there were 44,341,781 shares of common stock outstanding[4] Statement Regarding Forward-Looking Information Clarifies that the report contains forward-looking statements and outlines factors that could cause actual results to differ materially - The report contains forward-looking statements regarding future operating results, financial position, business strategy, and objectives, identifiable by terms such as 'anticipates,' 'believes,' 'estimates,' 'expects,' 'intends,' 'targets,' 'contemplates,' 'projects,' 'predicts,' 'may,' 'might,' 'plan,' 'will,' 'would,' 'should,' 'could,' 'can,' 'potential,' 'continue,' 'objective,' or similar expressions[8] - Specific forward-looking statements include expectations for unrecognized compensation expense, beliefs regarding litigation outcomes, capital expenditure plans for fiscal 2026, and the adequacy of existing capital resources for the next 12 months[8] - Actual results may differ significantly due to various factors including economic, political, social, legislative, regulatory, inflationary, and health factors; increased regulation of firearms; actions of social activists; lawsuits; demand for products; and general economic conditions[9] PART I - FINANCIAL INFORMATION Presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Smith & Wesson Brands, Inc. and its subsidiaries for the three months ended July 31, 2025 and 2024, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with accompanying notes detailing organization, basis of presentation, debt, fair value measurements, inventories, accrued expenses, stockholders' equity, commitments, contingencies, and segment reporting Condensed Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (In thousands) | ASSETS | July 31, 2025 | April 30, 2025 | | :--- | :--- | :--- | | Cash and cash equivalents | $17,964 | $25,231 | | Marketable securities | $3,219 | — | | Accounts receivable, net | $41,309 | $55,868 | | Inventories | $203,097 | $189,840 | | Total current assets | $275,513 | $277,265 | | Property, plant, and equipment, net | $239,407 | $242,648 | | Total assets | $554,633 | $559,612 | | LIABILITIES AND STOCKHOLDERS' EQUITY | July 31, 2025 | April 30, 2025 | | :--- | :--- | :--- | | Accounts payable | $21,225 | $26,887 | | Accrued expenses and deferred revenue | $18,104 | $24,678 | | Total current liabilities | $52,906 | $66,640 | | Notes and loans payable | $94,147 | $79,096 | | Total liabilities | $190,254 | $187,158 | | Total stockholders' equity | $364,379 | $372,454 | | Total liabilities and stockholders' equity | $554,633 | $559,612 | - Cash and cash equivalents decreased by $7.27 million (28.8%) from April 30, 2025, to July 31, 2025[12] - Inventories increased by $13.26 million (7.0%) from April 30, 2025, to July 31, 2025[12] - Notes and loans payable increased by $15.05 million (19.0%) from April 30, 2025, to July 31, 2025[12] Condensed Consolidated Statements of Operations Details the company's financial performance, including net sales, gross profit, and net loss over specific periods Condensed Consolidated Statements of Operations (In thousands, except per share data) | | For the Three Months Ended July 31, 2025 | For the Three Months Ended July 31, 2024 | | :--- | :--- | :--- | | Net sales | $85,077 | $88,334 | | Cost of sales | $63,003 | $64,148 | | Gross profit | $22,074 | $24,186 | | Operating expenses | $25,032 | $25,712 | | Operating loss | $(2,958) | $(1,526) | | Net loss | $(3,411) | $(1,855) | | Basic - net loss per share | $(0.08) | $(0.04) | | Diluted - net loss per share | $(0.08) | $(0.04) | - Net sales decreased by $3.26 million (3.7%) from $88.33 million in Q1 2024 to $85.08 million in Q1 2025[14] - Gross profit decreased by $2.11 million (8.7%) from $24.19 million in Q1 2024 to $22.07 million in Q1 2025[14] - Net loss increased by $1.56 million (83.9%) from $(1.86) million in Q1 2024 to $(3.41) million in Q1 2025, resulting in a diluted net loss per share of $(0.08) compared to $(0.04) in the prior year[14][97] Condensed Consolidated Statements of Changes in Stockholders' Equity Outlines changes in the company's equity accounts, reflecting transactions affecting stockholders' investment Changes in Stockholders' Equity (In thousands) | Item | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :--- | :--- | :--- | | Balance at April 30 | $372,454 | $399,914 | | Stock-based compensation | $1,892 | $1,854 | | Issuance of common stock under restricted stock unit awards, net | $(792) | $(1,057) | | Repurchase of treasury stock, including excise tax | $20 | $(12,958) | | Dividends issued, including accruals | $(5,784) | $(5,907) | | Net loss | $(3,411) | $(1,855) | | Balance at July 31 | $364,379 | $379,991 | - Total stockholders' equity decreased from $372.45 million at April 30, 2025, to $364.38 million at July 31, 2025, primarily due to net loss and dividend distributions[16] - No common stock repurchases occurred in the three months ended July 31, 2025, compared to $12.9 million in repurchases in the prior year comparable period[16][47] Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (In thousands) | Cash Flow Activity | Three Months Ended July 31, 2025 | Three Months Ended July 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,110) | $(30,815) | | Net cash used in investing activities | $(7,464) | $(4,665) | | Net cash provided by financing activities | $8,307 | $10,156 | | Net decrease in cash and cash equivalents | $(7,267) | $(25,324) | | Cash and cash equivalents, end of period | $17,964 | $35,515 | - Net cash used in operating activities significantly improved, decreasing from $30.82 million in Q1 2024 to $8.11 million in Q1 2025, primarily due to a $24.0 million reduction in working capital usage[19][99] - Net cash used in investing activities increased by $2.80 million, mainly due to $3.17 million in purchases of marketable securities in Q1 2025[19][101] - Net cash provided by financing activities decreased by $1.85 million, driven by lower net borrowings and dividend distributions[19][103] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements (1) Organization Describes the company's primary business activities and manufacturing locations - Smith & Wesson Brands, Inc. is a leading manufacturer and designer of firearms, including handguns, long guns, handcuffs, and suppressors, sold under Smith & Wesson and Gemtech brands[22] - Manufacturing facilities are located in Maryville, Tennessee; Springfield, Massachusetts; and Houlton, Maine. The Deep River, Connecticut facility was discontinued in fiscal 2025[22] (2) Basis of Presentation Explains the accounting principles and policies used in preparing the financial statements, including error corrections and new ASUs - An immaterial error related to legal expense accrual was identified and corrected, resulting in a $336,000 overstatement of general and administrative expenses and an $85,000 understatement of income tax expense for the three months ended July 31, 2024[23] - Marketable securities, totaling $3.2 million as of July 31, 2025, are reported at fair value, with $51,000 in net unrealized gains and losses recognized[26] - The company is evaluating the impact of new FASB ASUs on income tax disclosures (ASU 2023-09, effective FY2026) and disaggregation of income statement expenses (ASU 2024-03, effective FY2028)[28][29][30] (3) Notes and Loans Payable Details the company's credit facilities, outstanding debt, and compliance with financial covenants - On October 3, 2024, the company entered into the Second Amended and Restated Credit Agreement, providing a $175.0 million revolving line of credit, maturing on October 3, 2029, or earlier[32][33] - As of July 31, 2025, $95.0 million was outstanding on the Revolving Line, bearing interest at a weighted average rate of 6.69%[35] - The company was compliant with all financial covenants (minimum consolidated fixed charge coverage ratio and maximum consolidated leverage ratio) as of July 31, 2025[36] (4) Fair Value Measurement Describes the valuation methods and inputs used for financial assets and liabilities measured at fair value - Cash and cash equivalents ($18.0 million) and marketable securities ($3.2 million) are measured at fair value on a recurring basis using Level 1 inputs (unadjusted quoted prices in active markets)[40] - The company had no Level 2 or Level 3 financial assets or liabilities as of July 31, 2025[42] (5) Inventories Provides a breakdown of inventory components and changes over the reporting period Inventories, net of reserves (In thousands) | Category | July 31, 2025 | April 30, 2025 | | :--- | :--- | :--- | | Finished goods | $127,794 | $115,686 | | Finished parts | $58,161 | $55,119 | | Work in process | $4,622 | $6,037 | | Raw material | $12,520 | $12,998 | | Total inventories | $203,097 | $189,840 | - Total inventories increased by $13.26 million (7.0%) from April 30, 2025, to July 31, 2025, primarily in finished goods[44] (6) Accrued Expenses and Deferred Revenue Details the composition and changes in various accrued liabilities and deferred revenue Other Accrued Expenses (In thousands) | Category | July 31, 2025 | April 30, 2025 | | :--- | :--- | :--- | | Accrued employee benefits | $3,877 | $3,240 | | Accrued taxes other than income | $3,471 | $5,907 | | Accrued customer incentives and promotions | $2,564 | $4,853 | | Accrued professional fees | $2,306 | $1,774 | | Current portion of finance lease obligation | $1,736 | $1,701 | | Current portion of operating lease obligation | $222 | $233 | | Accrued other | $3,928 | $6,970 | | Total accrued expenses and deferred revenue | $18,104 | $24,678 | - Total accrued expenses and deferred revenue decreased by $6.57 million (26.6%) from April 30, 2025, to July 31, 2025, driven by reductions in accrued taxes, customer incentives, and other accrued amounts[45] (7) Stockholders' Equity Discusses changes in stockholders' equity, including share repurchases, stock-based compensation, and net loss per share - The Board authorized a $50.0 million share repurchase program (2024 Authorization) through September 20, 2025. As of July 31, 2025, $4.1 million had been repurchased under this authorization[46][108] - No common stock repurchases occurred during the three months ended July 31, 2025, compared to $12.9 million in repurchases during the same period in 2024[47][109] Net Loss Per Share (In thousands, except per share data) | | For the Three Months Ended July 31, 2025 | For the Three Months Ended July 31, 2024 | | :--- | :--- | :--- | | Basic - net loss | $(0.08) | $(0.04) | | Diluted - net loss | $(0.08) | $(0.04) | | Weighted average common shares outstanding (Basic/Diluted) | 44,262 | 45,321 | - Total stock-based compensation expense was $1.9 million for both the three months ended July 31, 2025 and 2024[52] - As of July 31, 2025, there was $9.1 million of unrecognized compensation expense related to unvested RSUs and PSUs, expected to be recognized over a weighted average remaining contractual term of 1.8 years[57] (8) Commitments and Contingencies Outlines significant legal proceedings, potential liabilities, and contractual commitments - The company is actively defending several significant lawsuits, including a breach of contract claim by Gemini Technologies, product liability cases, a class action in Ontario, Canada, and actions related to shootings in Poway, Highland Park, Buffalo, and Rochester[58][59][60][61][62][64][65] - The U.S. Supreme Court ruled in the company's favor on June 5, 2025, in the Mexican Government lawsuit, holding that the Protection of Lawful Commerce in Arms Act bars the lawsuit[62] - A putative stockholder derivative lawsuit was filed on February 4, 2025, alleging breach of fiduciary duty and Exchange Act violations, which the company is moving to dismiss[68] - The company is unable to reasonably estimate the probability or range of possible losses related to material adverse judgments for known claims but believes adequate accruals for defense costs have been provided[71][72] - Commitments related to the Maryville, Tennessee relocation include incurring at least $120.0 million in capital expenditures by December 31, 2025, creating 620 new jobs, and sustaining an average hourly wage of at least $25.97[73] (9) Segment Reporting Describes the company's operating segments and how financial performance is evaluated - The company operates as one reportable segment: firearms, encompassing the design, manufacture, and sale of firearms and related products[74][75] - The Chief Executive Officer, as the chief operating decision maker, evaluates financial performance and allocates resources on a consolidated basis, with net income being the measure of segment performance[75][78] Segment Interest Information (In thousands) | | For the Three Months Ended July 31, 2025 | For the Three Months Ended July 31, 2024 | | :--- | :--- | :--- | | Interest income | $632 | $714 | | Interest expense | $1,837 | $1,446 | | Interest expense, net | $(1,205) | $(732) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes the company's financial condition and results of operations, highlighting key performance indicators and liquidity Overview Provides a general introduction to the management's discussion and analysis, including key comparative periods and error corrections - The discussion focuses on year-to-year comparisons between the three months ended July 31, 2025, and 2024[82] - An immaterial error in legal expense accrual was corrected, impacting general and administrative expenses and income tax expense for prior periods[83] First Quarter Fiscal 2026 Highlights Summarizes key financial performance metrics for the first quarter of fiscal year 2026 compared to the prior year First Quarter Fiscal 2026 Highlights (In millions, except per share data) | Metric | Q1 FY2026 (July 31, 2025) | Q1 FY2025 (July 31, 2024) | Change ($M) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | $85.1 | $88.3 | $(3.2) | -3.7% | | Gross margin | 25.9% | 27.4% | -1.5 pp | - | | Net loss | $(3.4) | $(1.9) | $(1.5) | 83.9% | | Diluted net loss per share | $(0.08) | $(0.04) | $(0.04) | 100.0% | Results of Operations Analyzes the company's financial performance, detailing changes in net sales, gross profit, operating expenses, and net loss Net Sales and Gross Profit (In thousands) | Category | 2025 | 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Handguns | $64,944 | $53,277 | $11,667 | 21.9% | | Long guns | $13,595 | $24,721 | $(11,126) | -45.0% | | Other products & services | $6,538 | $10,336 | $(3,798) | -36.7% | | Total net sales | $85,077 | $88,334 | $(3,257) | -3.7% | | Cost of sales | $63,003 | $64,148 | $(1,145) | -1.8% | | Gross profit | $22,074 | $24,186 | $(2,112) | -8.7% | | % of net sales (gross margin) | 25.9% | 27.4% | - | - | - Handgun sales increased by 21.9% due to increased shipments of newly introduced products (37.7% of handgun sales), partially offset by a shift to lower-priced models[86] - Long gun sales decreased by 45.0% due to lower consumer demand, despite newly introduced products representing 53.2% of long gun sales[87] - Gross margin decreased from 27.4% to 25.9%, primarily due to unfavorable fixed-cost absorption from lower production volumes and higher tariffs (estimated 120 basis points impact), partially offset by favorable inventory adjustments and lower promotional costs[89] - Inventory balances increased by $13.3 million to $203.1 million, attributed to level loading manufacturing facilities to meet anticipated future demand, with an expectation for inventory levels to decline during the remainder of the fiscal year[90] Operating Expenses (In thousands) | Expense Category | 2025 | 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Research and development | $3,007 | $2,515 | $492 | 19.6% | | Selling, marketing, and distribution | $8,752 | $9,889 | $(1,137) | -11.5% | | General and administrative | $13,316 | $13,366 | $(50) | -0.4% | | Total operating expenses | $25,032 | $25,712 | $(680) | -2.6% | | % of net sales | 29.4% | 29.1% | - | - | - Operating loss increased by $1.4 million (93.8%) to $(2.96) million, resulting in an operating margin of -3.5%[92] - Interest expense, net, increased by $473,000 (64.6%) due to higher average debt balances and lower average cash balances[93] - Income tax benefit increased by $281,000 (68.7%) due to a higher operating loss. The effective tax rate before discrete items increased to 33.7% from 25.5% due to decreased forecasted pretax income and changes in state apportionment[94] - The recently enacted One Big Beautiful Bill Act (OBBBA) is not expected to have a material impact on the consolidated financial statements[95][96] Liquidity and Capital Resources Discusses the company's cash flows, debt facilities, capital expenditures, and ability to fund future operations Cash Flow Information (In thousands) | Activity | 2025 | 2024 | $ Change | | :--- | :--- | :--- | :--- | | Operating activities | $(8,110) | $(30,815) | $22,705 | | Investing activities | $(7,464) | $(4,665) | $(2,799) | | Financing activities | $8,307 | $10,156 | $(1,849) | | Total cash flow | $(7,267) | $(25,324) | $18,057 | - Cash used in operating activities improved by $22.7 million, primarily driven by a $24.0 million reduction in working capital usage, including favorable impacts from inventory, accounts payable, accrued payroll, and accounts receivable[99][100] - Capital expenditures are expected to be $25.0 million to $30.0 million in fiscal 2026[102] - Cash provided by financing activities was $8.3 million, mainly from $15.0 million in net borrowings under the revolving line of credit, offset by $5.9 million in dividend distributions[103] - The company had $95.0 million outstanding on its $175.0 million revolving line of credit as of July 31, 2025, and was in compliance with all debt covenants[104][107] - The Board authorized a $0.13 per share quarterly dividend, payable on October 2, 2025[109] - Existing capital resources and credit facilities are believed to be adequate to fund operations for at least the next 12 months[111] Other Matters Addresses critical accounting policies and recent accounting pronouncements relevant to the financial statements - No material changes to critical accounting policies were noted since the Fiscal 2025 Annual Report[113] - Recent accounting pronouncements are discussed in Note 2 to the condensed consolidated financial statements[114] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company did not engage in any forward option contracts or have any outstanding forward contracts during the period ended July 31, 2025, indicating minimal exposure to certain market risks - No forward option contracts were entered into or transacted, and no forward contracts were outstanding during the period ended July 31, 2025[115] Item 4. Controls and Procedures Management concluded that the company's internal control over financial reporting was not effective as of July 31, 2025, due to a material weakness related to the review of legal expense accruals. Remediation plans are underway, including personnel training, and are expected to continue throughout fiscal 2026 - Management concluded that internal control over financial reporting was not effective as of July 31, 2025[119][123] - A material weakness was identified in the control to review the accrual for certain legal expenses, stemming from insufficient knowledge and experience of personnel[121] - This material weakness led to immaterial misstatements in legal expense accruals in prior interim and annual periods[122] - Remediation plans include developing a training program for personnel to enhance knowledge of legal expense accruals, with efforts ongoing through fiscal 2026[124][125] - No changes in internal control over financial reporting occurred during the first fiscal quarter of 2026 that materially affected or are reasonably likely to materially affect internal control[126] PART II - OTHER INFORMATION Contains additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 8 for a detailed discussion of the nature of legal proceedings against the company, which includes various product liability, class action, and other lawsuits - Details regarding legal proceedings are incorporated by reference from Note 8—Commitments and Contingencies of the condensed consolidated financial statements[129] Item 1A. Risk Factors Investors are directed to review the Risk Factors section in the Fiscal 2025 Form 10-K for factors that could materially affect the business. No material changes to these risk factors were identified in this report - No material changes to the Risk Factors discussed in the Fiscal 2025 Form 10-K were identified[130] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports on the absence of unregistered equity sales or common stock repurchases by the company during the period - No purchases of common stock by the company or affiliated purchasers occurred during the three months ended July 31, 2025[131] Item 5. Other Information States that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the reporting period - None of the company's directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended July 31, 2025[132] Item 6. Exhibits Lists the exhibits included with or incorporated by reference into the Quarterly Report on Form 10-Q, including certifications, employment agreements, and credit agreement amendments - The report includes various exhibits, such as Rule 13a-14(a)/15d-14(a) Certifications (31.1, 31.2), Section 1350 Certifications (32.1, 32.2), and an Amended and Restated Employment Agreement for Mark P. Smith[135][138] SIGNATURES Confirms the official signing of the Quarterly Report on Form 10-Q by authorized officers - The report was signed on September 4, 2025, by Mark P. Smith, President and Chief Executive Officer, and Deana L. McPherson, Executive Vice President, Chief Financial Officer, Treasurer, and Assistant Secretary[140]