Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Smith & Wesson Brands Inc (SWBI, Financial) demonstrated resilience with a flexible manufacturing model, maintaining profitability despite softer-than-expected firearms demand.
- Gross margins improved by 80 basis points year-over-year, reflecting higher fixed cost absorption and efficiencies in Tennessee operations.
- The introduction of new products, such as the Bodyguard 2.0 and the 1854 Lever-Action Rifle, has been successful, contributing significantly to sales.
- The company maintained a solid cadence of new product introductions, with new products accounting for over 41% of sales in the first quarter.
- Smith & Wesson Brands Inc (SWBI) accelerated its share buyback program, repurchasing nearly 871,000 shares for $13 million and authorizing a new $50 million buyback program.
Negative Points
- Net sales for the first quarter were $88.3 million, down 22.7% from the prior year comparable quarter.
- Handgun ASPs declined by over 9% due to promotional activities and a shift to lower-priced products.
- The company reported a net loss of $2.1 million, or $0.05 per share, primarily due to lower revenue and increased interest expenses.
- Inventory levels increased by nearly $30 million, reflecting softer market conditions and higher internal inventory.
- Operating expenses remained flat year-over-year, but increased costs in new product development, compensation, and legal expenses were noted.
Q & A Highlights
Q: Can you walk through your confidence level on reducing finished goods inventory in Q2 or Q3?
A: The majority of the inventory was in finished goods. Inventory typically grows in the summer, and while it grew beyond expectations due to a softer July, August has been very strong. We are confident that the inventory, which is in high-volume SKUs, will move out quickly.
Q: What drove the significant increase in ASPs for long guns, and how do you feel about the mix of the rest of the long gun business?
A: The increase in ASPs for long guns was primarily driven by the 1854 Lever-Action Rifle, combined with lower shipments of other long guns. As we enter the busy fall season, we expect ASPs to normalize to levels seen in Q4.
Q: What are you seeing competitively as we enter the fall and holiday season, especially around pricing and rebate programs?
A: The recent rebate program was very successful in stimulating demand. We expect continued strategic promotional activity but believe the competitive environment will ease compared to the summer. Improved foot traffic should reduce promotional pressure.
Q: How do you feel about demand for higher-end products versus entry-level products, and how do your new products fit into this strategy?
A: The Bodyguard 2.0 has been extremely well received, offering entry-level pricing with desirable features. Higher-end products like the 1854 Lever-Action Rifle continue to perform well, as higher-end consumers are more resilient to economic pressures. We are comfortable with our product portfolio's pricing hierarchy.
Q: What gives you confidence in achieving mid to high single-digit revenue growth for the full year, and is the implied growth rate for Q2 and the second half accurate?
A: Historically, we see significant revenue increases from Q1 to Q2, and early results for August are encouraging. We expect Q2 revenue to be 5% to 10% above the $125 million from last year, with continued growth in Q3 and Q4, which are typically our strongest quarters.
Q: How should we view the new $50 million buyback program in terms of capital allocation and leverage?
A: We prioritize maintaining leverage and opportunistic share repurchases. We are negotiating our current revolver to provide more flexibility. The buyback program will be balanced with our leverage and stock price considerations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
