Despite ongoing weakness in firearms demand, American Outdoor Brands, the parent of Smith & Wesson, managed to post a 10.2 percent gain in revenues in its firearms segment in the second quarter ended October 31. The improvement stemmed from a successful ‘bundle’ promotions booked earlier in the year and shipped in the second quarter

Along with strength in its Outdoor Products & Accessories segment, both earnings and sales topped the company’s guidance for the quarter, prompting the company to raise its full-year guidance. Shares of American Outdoor Brands rose $1.88, or 15.4 percent, to $14.09 Friday in over-the-counter trading.

Quarter highlights include:

  • Sales were increased 8.9 percent to $161.7 million, ahead of guidance calling for sales between $150 million and $160 million;
  • Gross margin improved to 34.9 percent compared with 34.2 percent for the second quarter last year;
  • GAAP net income doubled to $6.7 million, or 12 cents per share, from $3.2 million, or 6 cents. Results were well ahead of guidance between 4 and 8 cents.
  • Non-GAAP net income improved 74.6 percent to $11.0 million, or 20 cents per share, topping guidance between 11 cents to 15 cents.
  • Non-GAAP adjusted EBITDA improved 15.6 percent to $26.7 million, or 16.5 percent of sales.

Non-GAAP adjustments exclude a number of acquisition-related costs, including amortization, one-time transaction costs, and fair value inventory step-up expense.

On a conference call with analysts, James Debney, president and CEO, said the Outdoor Products and Accessories segment, first entered just four years ago with the acquisition of Battenfeld Technologies, grew 10.2 percent year-over-year and generated gross margins of 45 percent. The segment accounted for more than 30 percent of total revenue in the quarter.

Other brands in the segment include Crimson Trace, Caldwell Shooting Supplies, Wheeler Engineering, Tipton Gun Cleaning Supplies, Frankford Arsenal Reloading Tools, Lockdown Vault Accessories, Hooyman Premium Tree Saws, BOG POD, Schrade, Old Timer, Uncle Henry, Imperial, Bubba Blade, and UST. The core offerings in its Firearms segment, Smith & Wesson, M&P, Thompson/Center Arms, also have some accessories offerings in the segment.

Said Debney, “Sales growth occurred in both our hunting and shooting product categories as well as our cutlery and tool product categories and came from a variety of retailers, particularly our online retailers, a result of good work by the sales team in partnering with key customers to focus on several of our growth brands and our strong product portfolio.”

He added, ”We continued to expand our addressable market in electro-optic products with the launch of several new Crimson Trace products including rifle scopes designed for short, medium, and long-range applications, as well as five new, innovative red dot sights.”

In the Firearms segment, the 10.2 percent year-over-year growth in revenue and higher gross margins “reflected a consumer preference for many of our products,” said Debney. New firearm products, defined as products launched within the past twelve months, represented 26.6 percent of Firearm revenue in the quarter and included strong sales of the M&P Shield 380 EZ pistol, which launched in February.

This growth also reflects the success of two bundled promotions that booked in Q1 and shipped in Q2.

One bundle offered the M&P Shield 380 EZ pistol from the firearms division along with a handgun safe from our outdoor products and accessories division. Said Debney, “These bundle promotions demonstrate our unique ability to create packages, featuring our popular consumer brands, our multiple products from across our shooting, hunting and rugged outdoor businesses.”

He also said the company is capturing incremental sales for the Firearms business, while improving financial performance, including gross margins across multiple divisions of the company.  The company’s new logistics facility in Missouri will further enhance the ability to create profitable promotions in the future.

Debney said that while adjusted NICS background checks for handguns in the second quarter declined 8.8 percent year-over-year, the company’s units shipped to distributors and retailers declined just 1.9 percent. For the same period, background checks for long guns declined 11.2 percent year-over-year, while the company’s units shipped to distributors and retailers increased 14.1 percent.

For November, NICS were down about 10 percent on a year-over-year basis but Debney said he was “encouraged to see that normal seasonality appeared to be in place. We’re also encouraged to see that Black Friday sales came in at the full highest day for background checks ever recorded by the NICS system. We recently presented our Spring 2019 show specials to our distributors, buying groups and strategic retailers and the feedback has been very positive.”

He added that at this time each year, promotions are normal and highly anticipated part of the industry show season. Debney added, “Judging from the positive feedback, we believe that the strength of our promotions this year is appropriate. We are hearing from distributors as well as large and small retailers that our promotions are a strong match with the current market environment.”

American Outdoor Brands said it made significant progress in the quarter on the completion of new Logistics & Customer Services facility in Missouri. The 632,000 square foot, state-of-the-art facility will serve as its centralized logistics, warehousing, and distribution operation, for all of its products, facilitating growth, enhancing efficiencies, and supporting customer service. Said Debney, “We remain on track to begin ramping initial operations in the near future.”

The company raised its guidance for the year. For the year, American Outdoor Brands now expects earnings in the range of 69 cents to 73 cents, up from previous guidance of 62 cents to 66 cents. Revenues are expected between $625 million and $635 million, up from $620 million and $630 million previously.