Smith & Wesson significantly cut its fiscal year revenue outlook as the company posted a substantial loss during the fiscal second quarter ended Oct. 31 on declining gun sales and a considerable write-down related to the waning value of its Perimeter Security division.
Consolidated revenues for the Springfield, MA-based manufacturer of firearms and ammunition missed analysts’ forecasts, sinking 12.2% to $96.3 million from $109.7 million a year ago on declining consumer demand.
“The consumer environment (for) the firearms industry appears to have returned to levels no longer driven by fear of increased gun control or political uncertainty,” said company President and CEO Michael Golden in a conference call with analysts.
SWHC posted a net loss of $37.3 million, or 62 cents per diluted share, in fiscal Q2, versus a profit of $14.4 million, or 22 cents per share, in the year ago period. Included in the loss was a significant charge-off of $39.5 million related to the decreasing value of the company’s recently purchased Universal Safety Response division, which management said was suffering from declining government and corporate orders.
Total company gross margins declined 370 basis points to 29.4% from 33.1% a year ago, which management attributed to lower volumes and increased promotions in the Firearms Division along with lower margins in the Perimeter Security Division.
Among other results, management said handgun sales were “slightly down” for the quarter while tactical rifles and Walther products – which had been the primary beneficiaries of the 2008 post-election spending surge declined “significantly.” Hunting products, which were a casualty last year of the increasing demand for personal protection products and “black guns,” rebounded to post solid growth of 26.3%.
Management said strength from black powder products, bolt action-rifles and new products particularly the Venture and Impact rifles drove growth for hunting products.
Total revenue for the Firearms segment declined 10.5% to $83.6 million in fiscal Q2 from $93.4 million a year ago, a decline that management collectively attributed to tough year-ago comparisons, tighter inventory management from distributors and slowing sales into international law enforcement and federal sales channels. Total firearms backlog was $32.4 million, down approximately 66% from backlog of $95.8 million at the end of the year-ago quarter. Gross margins in the Firearms Division were 30.4%, down 360 basis points from the year-ago period on the aforementioned decrease in sales and a more promotional environment.
Regarding outlook, Smith & Wesson projected sales for fiscal 2011 to be between $405.0 million and $425.0 million, down from its prior target of between $430 million and $445 million. Fiscal third quarter sales are expected to be between $70 million and $99 million.
In related news, Golden, citing challenging industry conditions, reduced consumer spending and difficult comparisons, confirmed the company will consolidate its Rochester, NH-based Thompson/Center Arms operations into its Springfield, MA headquarters in order to “streamline firearms manufacturing processes and improve margins.” The move, which was announced last week, is expected to put more than 200 employees from the Rochester facility out of work. S&W will reportedly start to cut jobs in January and eventually close the plant permanently late next year. The company will hold job fairs and offer severance packages for displaced employees, adding that some employees may be offered the opportunity to transfer to Springfield.
