Release Date: June 20, 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) reported a 10% increase in Q4 top-line revenue compared to the previous year, driven by unit growth in both handguns and long guns.
- Full-year revenue was up 12% year-on-year, with unit shipments increasing by 13%, outpacing the market where NICS was down by 5.4%.
- The company launched over 100 new products in fiscal 2024, with new product sales accounting for over 27% of total revenue.
- Smith & Wesson Brands Inc (SWBI) generated more than $106 million in cash from operations, ending the year with over $60 million in cash on hand and only $40 million in debt.
- The successful launch of the 1854 lever-action rifle created a new whitespace opportunity, contributing significantly to long gun ASPs, which improved by nearly 11%.
Negative Points
- Operating expenses for Q4 were $31.1 million, $7 million higher than the prior year, due to increased profit-related compensation costs and legal expenses.
- The company anticipates a much more competitive marketplace throughout the traditionally slower summer months, impacting consumer discretionary spending.
- Handgun ASPs declined by less than 2% compared to the prior-year quarter, driven by the introduction of the entry-level priced SD9 2.0 millimeter.
- Smith & Wesson Brands Inc (SWBI) expects Q1 fiscal 2025 revenue to be down approximately 10% from the prior-year quarter in terms of units and dollars.
- Margins are expected to stabilize in the low 30s for the full year, an improvement over fiscal 2024, but still impacted by the full-year costs of operating the new Tennessee facility and one-time costs associated with facility consolidations.
Q & A Highlights
Q: Can you provide more insight into the ASPs in handguns and the demand for entry-level priced products?
A: Mark Smith, President and CEO: In Q4, demand held up well, and ASPs were down slightly due to increased demand for entry-level priced products. We anticipate that ASPs for handguns will come down a bit in Q1 as we launch new products and promotions targeting the entry-level price point.
Q: How is the higher-end handgun market performing, particularly the performance center and large frame revolvers?
A: Mark Smith, President and CEO: Our highest-end products, including large frame revolvers and performance center products, are holding up well. We are adding capacity to meet demand in these categories, which should provide a tailwind in the second half of the year.
Q: Can you provide the percentage of new product sales for Q4 and insights into their performance?
A: Mark Smith, President and CEO: New products made up 29.1% of total revenue in Q4. The 1854 lever-action rifle was a significant contributor, but other new products like the FPC and Sport III also performed well. We expect this level of new product contribution to continue.
Q: Can you summarize the financial outlook for fiscal 2025?
A: Deana McPherson, CFO: We expect revenue to grow mid- to high-single digits, with gross margins stabilizing in the low 30s for the full year. Operating expenses will be 3% to 5% higher due to compensation-related inflation and increased R&D investment. Adjusted EBITDA is expected to grow at a similar rate to sales.
Q: Are you expecting any significant demand changes due to the upcoming election?
A: Mark Smith, President and CEO: We expect a tailwind from election campaign activity in the late summer or early fall, but we also anticipate growth from new product introductions and capacity additions. The overall year should see nice growth, weighted more towards the back half.
Q: What marketing strategies are you employing during the slower summer months?
A: Mark Smith, President and CEO: We are focusing on aggressive promotions, including consumer rebates and targeted promotions with retailers and distributors. We are also working closely with retailers on various marketing initiatives to drive demand.
Q: How are you managing inventory levels and production capacity?
A: Deana McPherson, CFO: We believe channel inventory is in a good spot and do not anticipate a material impact from changes in inventory. We are adding capacity, particularly in categories where we are currently constrained, to support demand in the second half of the year.
Q: What are your expectations for gross margins in fiscal 2025?
A: Deana McPherson, CFO: We expect gross margins to stabilize in the low 30s for the full year, with fluctuations due to volume and operating days. The benefits of automation and reduced facility footprint will be more fully realized later in the year, improving margins in the back half.
Q: How are you addressing the competitive landscape and consumer price sensitivity?
A: Mark Smith, President and CEO: We are launching new entry-level priced products and running promotions to address consumer price sensitivity. We believe these initiatives will provide tailwinds in Q2 and throughout the second half of the year.
Q: Can you provide more details on the financial performance in Q4?
A: Deana McPherson, CFO: Net sales for Q4 were $159.1 million, up 9.9% from the prior year. Gross margin was 35.5%, and net income was $26.1 million. GAAP EPS was $0.57, and non-GAAP EPS was $0.45. We generated $43.6 million in cash from operations and repurchased approximately 77,000 shares.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
