Smith & Wesson Brands(SWBI) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2025 were $115.9 million, down $21.6 million or 15.7% from the prior year [21] - Gross margin decreased to 24.1%, which is 4.6% lower than the comparable quarter last year due to unfavorable fixed cost absorption and higher promotional costs [23] - Net income for the quarter was $1.7 million, or $0.04 per share, with non-GAAP income per share at $0.02 [24] Business Line Data and Key Metrics Changes - New products accounted for over 41% of sales in the quarter, indicating strong performance [10] - Handgun average selling prices (ASPs) declined by 7.8%, while long gun ASPs increased by 17.2% due to strong demand for higher-priced lever rifles [13][14] - Shipments into the channel declined by 7.7%, with a noted gain in market share for handguns despite an overall NICS decline of 4.1% [11] Market Data and Key Metrics Changes - Adjusted NICS was down 4.5%, reflecting a decline in consumer demand [11] - Long gun unit sales grew at a compounded annual rate of nearly 20% over two years, outperforming NICS [12] - Channel inventory at distributors is currently under nine weeks, indicating a clean inventory situation [17] Company Strategy and Development Direction - The company is focused on innovation, with several new products expected to be introduced in the upcoming quarters [10] - A flexible manufacturing model is in place to ensure profitability regardless of demand conditions [9] - The company plans to continue investing in innovation and manufacturing while managing capital allocation to return value to stockholders [19][29] Management's Comments on Operating Environment and Future Outlook - Management anticipates a steady firearms market with no major demand catalysts expected in the near term [41] - The company expects full-year revenue to decline by 5-10%, now leaning towards a 10% decline due to softer demand trends [26] - The effective tax rate is expected to be approximately 28% [28] Other Important Information - The company repurchased approximately 220,000 shares during the quarter, totaling $2.8 million [25] - A quarterly dividend of $0.13 per share has been authorized, with payment scheduled for April 3 [26] Q&A Session Summary Question: What is affecting sales of legacy products? - Management indicated that the Bodyguard 2.0 is cannibalizing some of their own product lines, alongside competitive pressures and consumer discretionary spending being impacted by inflation [33][35] Question: How is the industry behaving regarding distributor inventory? - Management noted that distributor inventory is at about 8.5 weeks, indicating a healthy inventory management across the channel [38] Question: What is the company's exposure to tariffs and the regulatory environment? - Management stated that while there is some exposure to tariffs, it is not expected to materially impact financials. They also expressed satisfaction with the current regulatory stability [44][46] Question: What are the expectations for ASPs in Q4? - Management expects handgun ASPs to remain flat, while long gun ASPs should maintain their current mix [52] Question: What are the company's goals for 2026? - Management aims to continue focusing on new product introductions and expanding market share, while maintaining profitability through flexible manufacturing [58][60]