Smith & Wesson Holding Corporation, parent company of Smith & Wesson Corp., said net product sales for the third fiscal quarter ended Jan. 31, 2009 were $83.2 million, a $17.1 million, or 25.9%, increase over net product sales for the three months ended Jan. 31, 2008.
Total firearms sales for the third quarter were $78.5 million, an increase of $16.9 million, or 27.5%, over the third quarter of last year. Pistol sales increased 45.7% to $24.9 million, driven by continued consumer demand, law enforcement adoption of the M&P polymer pistol line, and strong consumer sales of the Sigma pistol line. Sales of M&P pistols increased 77.1% for the third quarter. M&P tactical rifle sales increased by 111% to $8.8 million for the third quarter as demand for this product remained strong in both the consumer and law enforcement channels.
Michael F. Golden, president and CEO, said, “I am pleased to report these very positive results for our third fiscal quarter. Our handgun and tactical rifle products have consistently delivered favorable results throughout the past several quarters, and during the third quarter, we experienced significant increases in the consumer demand for these products. Despite continuing weakness in the overall economy, we focused on our strategy to grow our business in the consumer and the professional channels, and we launched some important new products. At the same time, we addressed recent, very strong demand, for our pistols, revolvers, and tactical rifles. In fact, sales of handguns and tactical rifles into our consumer channel for the third quarter grew 62% over the prior year. We delivered solid profits, and we made significant progress toward bolstering our balance sheet by reducing our inventories and effectively managing our accounts receivable, which resulted in a strengthening of our cash position.
“Sales of M&P pistols continued to be strong throughout the third quarter,” he continued. “During the quarter, we received orders for our M&P pistols from a number of police agencies, including the Raleigh, North Carolina Police Department. To date, over 489 domestic law enforcement agencies have adopted or approved the M&P for duty use. The M&P pistol also continues to penetrate the international market. In the third quarter, we recorded orders for the M&P pistol from Puerto Rico and the M&P was added to the approved officer purchase list by the Lebanese government.”
Golden added, “Robust sales of our M&P15 tactical rifles also continued throughout the third quarter, benefitting from heightened demand at the consumer level. We expanded the M&P tactical rifle family with the introduction in January of the M&P15-22 semi-automatic sport rifle. The M&P15-22 has been designed along the same, popular lines as our entire M&P15 family of tactical rifles; yet, it is chambered in the much more economical .22 caliber ammunition. We believe this new product will appeal to consumers seeking an economical alternative in this very popular product category. We continue to win new business in the law enforcement market as well, both domestically and internationally, and in the third quarter we added law enforcement agencies in Miami, North Carolina, and Mexico to the growing list of police departments we serve. To date, over 213 domestic law enforcement agencies have approved or adopted the M&P15 rifle for duty use. Building upon the popularity of the M&P line with law enforcement, we also introduced at SHOT Show the M&P4, a fully automatic capable version of the M&P tactical rifle, designed exclusively for law enforcement and military applications.”
Gross profit of $21.6 million for the third quarter was $5.0 million, or 29.9%, higher than gross profit for the comparable quarter last year. Gross margins increased to 25.8% from 25.0% for the comparable quarter last year. Gross margins were favorably impacted by full capacity production of handguns and tactical rifles, combined with reduced promotional expense in the quarter. Gains in gross margins were offset by continuing weakness in demand for hunting rifles, which caused lower production levels at the Rochester, New Hampshire facility and led to reductions in labor, underutilized capacity and reduced overhead absorption. In addition, gross margins were also negatively impacted by a $2.0 million charge for the recall of Walther pistols due to a possible problem recently detected with the hammer block system.
Golden added, “While our hunting business continues to suffer in the current economic environment, the market for hunting rifles in a healthy economy is a sizeable one. In addition, this portion of our business produces barrels for our tactical rifles, products that are clearly in very high demand right now. Finally, the barrel manufacturing expertise we possess via our hunting business defines us as a firearms manufacturer with a full portfolio of products and capabilities, an important distinction when seeking business from the federal government and military markets. For these reasons, we continued to selectively invest in our hunting business while focusing on reducing its cost structure. During the third quarter, we implemented a reduction in force and a work furlough at our Rochester, New Hampshire factory. At the same time, we launched the T/C Venture bolt-action hunting rifle at this year's SHOT Show. The T/C Venture carries the respected Thompson brand, but at a lower price point, designed to allow us broader penetration of the hunting rifle market. We believe the Thompson/Center brand is uniquely positioned to profitably deliver a broader portfolio of high-quality hunting products at various price points, which will expand our addressable hunting market.”
Operating expenses for the third quarter increased by approximately $699,000, or 4.3%, over the third quarter last year.
The company ended the current quarter with approximately $21.3 million of cash without accessing its revolving line of credit. In addition, the company secured an amendment to its revolving line of credit with TD Bank, which expands the leverage ratio covenant from 3.0 to 3.5 for Apr. 30, 2009 through fiscal 2010, and from 3.0 to 3.25 for fiscal 2011. The effect of this amendment is to provide the company with incremental borrowing capacity at a future date should the company elect to access it.
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months
Ended: For the Nine Months Ended:
-------------------- --------------------------
January 31, January 31, January 31, January 31,
2009 2008 2009 2008
----------- ----------- ----------- -----------
Net product and
services sales $83,160,093 $66,067,310 $233,922,146 $211,254,694
License revenue 552,259 497,171 1,496,408 1,547,625
Cost of products
and services sold 62,124,455 49,941,651 168,487,024 145,892,463
Cost of license
revenue - 3,125 - 3,125
--- ----- --- -----
Gross profit 21,587,897 16,619,705 66,931,530 66,906,731
---------- ---------- ---------- ----------
Operating
expenses:
Research and
development 700,455 521,204 2,092,489 1,410,209
Selling and
marketing 7,244,038 6,884,341 22,323,153 20,757,941
General and
administrative 9,063,784 8,904,196 28,972,738 28,086,078
Impairment
of long-
lived
assets - - 98,243,188 -
--- --- ---------- ---
Total
operating
expenses 17,008,277 16,309,741 151,631,568 50,254,228
---------- ---------- ----------- ----------
Income/(loss) from
operations 4,579,620 309,964 (84,700,038) 16,652,503
--------- ------- ----------- ----------
Other income/
(expense):
Other income/
(expense),
net 308,377 (729,072) (1,258,506) (552,819)
Interest
income 25,788 15,091 212,695 44,972
Interest
expense (1,218,819) (2,354,864) (4,684,143) (6,671,673)
---------- ---------- ---------- ----------
Total
other
expense,
net (884,654) (3,068,845) (5,729,954) (7,179,520)
-------- ---------- ---------- ----------
Income/(loss)
before income
taxes 3,694,966 (2,758,881) (90,429,992) 9,472,983
Income tax expense/
(benefit) 1,339,614 (951,811) (18,807,559) 3,647,762
--------- -------- ----------- ---------
Net income/(loss)/
comprehensive
income/
(loss) $2,355,352 $(1,807,070) $(71,622,433) $5,825,221
========== =========== ============ ==========
Weighted average
number of common
and common
equivalent shares
outstanding,
basic 47,205,685 40,390,246 46,592,482 40,209,841
---------- ---------- ---------- ----------
Net income/(loss)
per share, basic $0.05 $(0.04) $(1.54) $0.14
===== ====== ====== =====
Weighted average
number of common
and
common equivalent
shares
outstanding,
diluted 48,091,426 40,390,246 46,592,482 41,877,639
---------- ---------- ---------- ----------
Net income/(loss)
per share,
diluted $0.05 $(0.04) $(1.54) $0.14
