Smith & Wesson Holding Corporation reported record net income and net sales from continuing operations as it cut marketing expenses amidst strong consumer demand for its new M&P (military and police) pistols.


The company said net sales from continuing operations for the first quarter were a record $136.0 million, up 48.3% from the first quarter last year. The increase was led by strong sales of the M&P product platform.

 


“Strong sales growth was fueled by orders for our most popular products,” said James Debney, president and CEO. “Our newest M&P pistol, the Shield, continues to be highly favored and sought after by consumers.”

 

Gross profit reached $51.3 million, or 37.7% of net sales, compared with gross profit of $26.5 million, or 28.9% of net sales, for the comparable quarter last year.  Increased sales volume of polymer firearms positively impacted gross profit margin, resulting in an improvement in manufacturing absorption.


Operating expense for the first quarter declined to $20.0 million, or 14.7% of net sales, compared with operating expense of $21.0 million, or 22.9% of net sales, for the first quarter last year.  Increased profit sharing and incentive compensation expense was more than offset by a temporary, nearly 16 percent reduction in selling and marketing expenses.


Net income from continuing operations for the first quarter was a record $18.9 million, or $0.28 per diluted share, compared with net income from continuing operations of $2.3 million, or $0.04 per diluted share, for the first quarter last year.


Non-GAAP Adjusted EBITDAS (earnings before interest, taxes, depreciation and amortization, and stock-based compensation) from continuing operations for the first quarter increased to a record $36.1 million compared with $12.2 million for the first quarter last year.


 

At July 31, 2012, firearm backlog was $392.4 million, an increase of $243.6 million, or 163.7%, compared with the end of the first quarter last year, and a decrease of $46.6 million, or 10.6%, from the most recent sequential quarter. Operating cash flow of $9.3 million and net capital spending of $6.3 million for the first quarter resulted in free cash flow of $3.0 million from continuing operations. In addition, during the quarter the company received an initial payment of $5.5 million in cash relating to the sale of the company's discontinued operations.  Cash at the end of the first quarter was $60.5 million.

“In the first quarter, we continued to deliver on our commitment to grow our company and improve profitability by focusing on our core firearm business,” said Debney. “Our results demonstrate that commitment, evidenced by record achievements in first quarter sales, net income, and earnings per share. Internal capacity increases, enhanced supply chain integration capabilities, and strong execution by our operations team allowed us to exceed our revenue and earnings guidance by capturing incremental sales.”


Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer, stated, “Our strong fiscal first quarter financial performance reflects successful execution of our strategic plan.  Based on our stronger than anticipated first quarter, current consumer orders for our products, and our ability to pull forward certain capacity expansions, we are increasing our full year fiscal 2013 financial guidance. Also of note, in keeping with our focus on our core firearm business, during the quarter we successfully sold the assets of our discontinued operations for just under $10.0 million, including proceeds from a two-year licensing agreement.”
 
Financial outlook for continuing operations
 
The company expects net sales from continuing operations for the second quarter of fiscal 2013 to be between $130.0 million and $135.0 million, which would represent year-over-year growth from continuing operations in excess of 40.0%. The typical seasonal reduction in second quarter net sales is expected to be less pronounced than in prior years, reflecting the net result of fewer production days partially offset by increases in manufacturing capacity.  The company anticipates GAAP earnings per diluted share from continuing operations of between $0.19 and $0.21 for the second quarter of fiscal 2013.
 
Based on the strength of the company's fiscal 2013 first quarter financial performance and current outlook for the year, the company is raising its full year fiscal 2013 financial guidance. The company now anticipates net sales from continuing operations for fiscal 2013 of between $530.0 million and $540.0 million, which would represent year-over-year growth from continuing operations of approximately 30.0%. The company anticipates fiscal 2013 GAAP earnings per diluted share from continuing operations of between $0.85 and $0.90.

 






























































































































































































































































































SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(Unaudited)

For the Three Months Ended,

July 31, 2012

July 31, 2011

(In thousands, except per share data)






Net sales

$

135,995

$

91,730


Cost of sales

84,702


65,213


Gross profit

51,293


26,517


Operating expenses:






Research and development

1,143


1,338

Selling and marketing

6,828


8,125

General and administrative

12,026


11,520

Total operating expenses

19,997


20,983


Operating income from continuing operations

31,296


5,534


Other income/(expense):






Other income/(expense), net

–


34

Interest income

368


403

Interest expense

(1,987)


(1,941)

Total other income/(expense), net

(1,619)


(1,504)


Income from continuing operations before income taxes

29,677


4,030


Income tax expense

10,807


1,753

Income from continuing operations

18,870


2,277


Discontinued operations:






Loss from operations of discontinued security solutions division

(1,682)


(2,702)

Income tax benefit

(599)


(1,216)

Loss from discontinued operations

(1,083)


(1,486)


Net income/comprehensive income

$

17,787

$

791













Net income per share:






Basic – continuing operations

$

0.29

$

0.04







Basic – net income

$

0.27

$

0.01







Diluted – continuing operations

$

0.28

$

0.04







Diluted – net income

$

0.27

$

0.01