Smith & Wesson reported third-quarter sales sunk 10.5 percent to $130.6 million, but the decline was ahead of guidance calling for sales between $113.0 and $118.0 million.
The decline marked notable improvement from the 22.1 percent drop seen in the second quarter and sales are expected to decline of about 4 percent in the fourth quarter.
On a conference call with analysts, James Debney, president and CEO, said the better-than-expected sales performance reflected solid orders from its distributors and key retailers.
“Our third-quarter results reflect our successful navigation of the post-surge consumer firearms environment, combined with ongoing execution of our long-term strategy,” said Debney.
Firearm division sales decreased 14.7 percent to $124.5 million. Firearm inventories declined $14.1 million in the quarter. Sales of the company's handguns declined $6.8 million, or 6.8 percent, while long guns fell $13.5 million, or 39.8 percent. Said Debney, “Strong sales of our concealed-carry polymer pistols and revolvers reflect the consumer's ongoing need and desire for concealed-carry firearms.”
Accessories division sales were $6.1 million. The division is comprised entirely of Battenfeld Technologies, Inc. (BTI), which it acquired last December.
Gross margins eroded to 33.6 percent from 40.2 percent in the year-ago quarter. The decline was a result of reduced firearm manufacturing volumes, unfavorable product mix changes, increased promotions, and decreased fixed-cost absorption, partially offset by favorable spending relative to sales volumes.
Operating expenses increased to 21.5 percent of sales, up from 18.9 percent. Excluding $4.8 million in acquisition-related expenses, operating income was $20.5 milllion, down 34.1 percent versus the year-ago period. Net earnings were down 60.9 percent to $8.1 million, or 15 cents a share.
Debney said that at the SHOT Show, S&W continued to expand its product offerings in its M&P line of firearms as well as new hunting firearms from S&W, Performance Center, and Thompson/Center Arms. He added, “Our products remain popular with consumers and our internal data indicates that we remained the market leader in the handgun and the modern sporting rifle categories.”
He added, however, that channel inventories “remain somewhat elevated” for certain products such as MSRs.
At SHOT Show, BTI also unveiled 38 new products. Said Debney “We are excited about the opportunities for additional growth and profitability that our newly established accessories division will provide us.”
For the fourth quarter of fiscal 2015, the company expects sales to be between $162 million and $166 million and EPS from continuing operations to come in between 24 and 26 cents a share. In the 2013 fourth quarter, it earned 44 cents a share on sales of $170.4 million.
