Smith & Wesson Holding Corporation reported net sales for the first quarter ended July 30 were $171.0 million, up 25.8 percent from the year-ago quarter. Excluding last year's sales of Walther products pursuant to a distribution agreement that Smith & Wesson ended in April 2013, net sales grew by 36.4 percent.
Gross profit for the first quarter was $72.8 million, or 42.6 percent of net sales, compared with gross profit of $51.2 million, or 37.7 percent of net sales, for the comparable quarter last year. Gross profit improved as a result of increased sales volume, leveraging of fixed costs, and a planned favorable product mix to meet the needs of consumers.
Operating expenses for the first quarter were $24.8 million, or 14.5 percent of net sales, compared with operating expenses of $19.9 million, or 14.7 percent of net sales, for the first quarter last year.
Operating income for the first quarter was 28.1 percent percent, compared with 23.0 percent percent for the first quarter last year.
Income from continuing operations for the first quarter was $26.5 million, or $0.40 per diluted share, compared with net income from continuing operations of $18.9 million, or $0.28 per diluted share, for the first quarter last year. Income from continuing operations for the first quarter of fiscal 2014 included $5.1 million, or approximately $0.05 per diluted share, of one-time expense associated with the retirement of 9.5 percent senior notes and the issuance of 5.875 percent senior notes.
Non-GAAP Adjusted EBITDAS from continuing operations for the first quarter increased to $55.2 million compared with $36.1 million for the first quarter last year.
Operating cash flow of $19.0 million and capital spending of $12.0 million for the first quarter resulted in free cash flow of $7.0 million.
James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, “Our results for the first quarter of fiscal 2014 reflect the continued successful execution of our growth strategy. We delivered improvements across all of our key metrics, including a meaningful increase in year-over-year sales and significant expansion of our gross margins. Ongoing increases in our manufacturing capacity, combined with strong consumer demand for firearms, resulted in increased market share and higher sales of our most popular M&P® products. Amidst that robust growth, we drove a number of significant initiatives in the quarter designed to strengthen our business and return increased value to our stockholders.”
First Quarter Fiscal 2014 Balance Sheet Highlights
Smith & Wesson issued $100 million of new 5.875 percent senior notes due in 2017 and used $49.2 million of the proceeds to repurchase the company's outstanding 9.5 percent senior notes.
The Board of Directors approved and the company initiated a $100 million common stock repurchase program, replacing the $15 million remaining from the authorization in December, 2012.
Under the common stock repurchase program, Smith & Wesson purchased approximately 1.4 million shares of common stock for $15.6 million through a stock tender offer, leaving a balance of $84.4 million dollars available for repurchases in the open market.
The company ended the first quarter with a cash balance of $146.5 million, $100 million of outstanding senior notes, and no borrowings under the company's credit facility.
“During the first quarter, we took several meaningful steps to optimize our capital structure,” said Jeffrey D. Buchanan, Smith & Wesson Holding Corporation EVP and CFO. “These actions have increased the strength and flexibility of our balance sheet, providing a solid foundation to support the further development and growth of our business. In addition to the 1.4 million shares of common stock purchased in the tender offer, we have so far purchased an additional 1.82 million shares in the open market utilizing cash on hand. In addition, after the end of the first quarter, we completed a new $75 million unsecured revolving line of credit, which includes an accordion feature for up to $175 million, and which replaced our $55 million credit facility.
“Early in the second quarter we 'went live' with our new SAP enterprise resource planning (ERP) system, a key strategic building block that will provide our business with the scalability and visibility required for future growth. While we have worked through what we believe are most of the issues surrounding the implementation, the initial impact of going live will amount to several days of lost production in the second quarter. Despite that short-term impact, which is factored into our guidance, today we are raising our full year sales outlook,” concluded Buchanan.
Financial Outlook
The company estimates net sales for the second quarter of fiscal 2014 to be between $135.0 million and $140.0 million and GAAP earnings per diluted share from continuing operations of between $0.20 and $0.22. It should be noted that the company ended its Walther distribution agreement at the end of fiscal 2013 and therefore the second quarter of fiscal 2014 will not contain Walther sales, which amounted to $9.7 million in the comparable quarter a year ago.
The company is increasing its previously issued full year fiscal 2014 revenue guidance and now anticipates net sales for fiscal 2014 of between $610.0 million and $620.0 million. The company expects GAAP earnings per diluted share from continuing operations of between $1.30 and $1.35 for fiscal 2014.
All guidance takes into account the expected impact of the implementation of the company's new ERP system throughout fiscal 2014.
