Smith & Wesson Holding Corporation reported a net loss for the second fiscal quarter of $76.2 million, or $1.62 per fully diluted share, compared with net income of $2.9 million, or 7 cents per fully diluted share, for the comparable quarter last year.


The company said net product sales for the three months ended Oct. 31, 2008 were $72.7 million, a 2.8%, increase over net product sales for the three months ended Oct. 31, 2007.


Excluding the impact of a non-cash impairment charge of $76.5 million, net income would have been approximately $245,000, or one penny per fully diluted share.

Total firearms sales were $67.5 million, an increase of $1.7 million, or 2.6%, over the second quarter of last year. Pistol sales increased 40% to $18.5 million, driven by continued consumer demand and law enforcement adoption of the M&P polymer pistol line and by strong consumer sales of the Sigma pistol line.


Sales of M&P pistols increased 45% in the second quarter. M&P tactical rifle sales increased by 308% in the second quarter as demand for this product remained strong in both the consumer and law enforcement channels. Total revolver sales declined slightly in the second quarter versus the comparable quarter one year ago, based upon a large international order included in last year's results. Domestic revolver sales increased by 13% versus the second quarter of last year.

 

Sales of non-firearms accessories, including handcuffs, totaled $5.2 million, a 4.5% increase over non-firearms accessories sales of $5 million in the second quarter last year. Hunting rifle sales of $11.5 million represented a decline of $7.9 million, or 41%, from the comparable quarter in the last fiscal year.

 

Hunting products continued to be negatively impacted by a number of factors, including their position in the consumer discretionary marketplace and a distribution channel that is buying cautiously following an industry-wide inventory correction.

Michael F. Golden, President and CEO, said, “Our handgun and tactical rifle products continued to deliver very positive results. These products have consistently performed well over the past several quarters, despite the recession we have been experiencing for nearly a full year. Sales of our M&P products remained strong, supported by a number of law enforcement and international orders.


Gross profit of $20 million was $3.1 million, or 13.5%, lower than gross profit for the comparable quarter last year. Gross margins decreased to 27.3% from 32.3% for the comparable quarter last year. Gross margins were impacted by lower hunting rifle production volumes, which reduced overhead absorption at our Thompson/Center manufacturing facility; a shift in sales toward hunting rifles with lower gross margins; and promotional spending on both hunting rifles and handguns.

The company said the current environment for hunting rifle business made it appropriate for us to review the book value of assets originating from our purchase of Thompson/Center Arms.


Operating expenses, including the impact of the impairment charge, were $115.5 million. Excluding the impact of the impairment charge, operating expenses for the second quarter increased by approximately $708,000, or 4.3%, over the second quarter last year. Total other expense, net, increased to $2.2 million in the quarter, reflecting mostly a non-cash, mark-to-market adjustment on foreign exchange contracts offset by lower interest costs.

Adjusted EBITDAS, a non-GAAP financial metric introduced last quarter, was $6.6 million in the second quarter, compared with $11.4 million in the second quarter of fiscal 2008. On a year-to-date basis, adjusted EBITDAS was $16.8 million versus $24.8 million in the first six months of fiscal 2008.


Golden concluded, “The hunting market is uncertain for the foreseeable future. The burden that the hunting business places on the otherwise healthy majority of our business is a significant consideration as we plan for our future.”


 

SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

                         For the Three                  For the Six
                           Months Ended:               Months Ended:
                               ————–              ————–

                  October       October      October        October
                   31, 2008      31, 2007     31, 2008       31, 2007
                    ——–      ——–     ——–       ——–

Net product and
services
sales:           $72,729,122   $70,775,676  $150,762,053  $145,187,384

 

License
revenue:            497,561       620,614       944,149     1,050,454

 

Cost of  products and services sold:    

 

                       53,259,126    48,318,050   106,362,569    95,950,812

Gross profit     19,967,557    23,078,240    45,343,633    50,287,026

 

Net income/ (loss)/comprehensive income/(loss):      $(76,231,460)   $2,941,800  $(73,977,785)   $7,632,291