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%, a decline of 4.6% compared to the same 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 two months of year-over-year declines followed by a small increase in January [11] - Long gun unit sales grew at a compounded annual rate of nearly 20% over a two-year basis, 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 aims to continue its focus on innovation, with several new products expected to be introduced in the upcoming quarters [10] - The flexible manufacturing model is designed to ensure profitability regardless of demand conditions, allowing the company to adjust production levels based on sales forecasts [16] - The company plans to maintain a disciplined capital allocation strategy, including debt repayment and dividends [17][29] Management's Comments on Operating Environment and Future Outlook - Management anticipates that the firearms market will remain steady at current demand levels, with no major demand catalysts expected in the near term [18] - The company expects full-year revenue to decline by 5-10% from fiscal 2024, leaning towards the lower end of this range due to softer demand trends [26] - Management expressed optimism about the potential for increased consumer discretionary spending in the long term, which could positively impact demand [41] Other Important Information - The company repurchased approximately 220,000 shares during the quarter, reducing the share count by more than 1.5 million shares net of dilution [17] - The board has authorized a quarterly dividend of$ 0.13 per share, with payment scheduled for April 3 [26] Q&A Session Summary Question: What is impacting 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 challenges [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 situation across the industry [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 ASPs for handguns 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 focus on new product introductions and market share growth, with a continued emphasis on innovation [56][58]