Smith & Wesson Holding Corporation reported net sales for the fourth quarter were $170.4 million, a decline of 4.6 percent from the fourth quarter last year. Excluding Walther products that were sold in the prior year pursuant to an agreement that has since ended, net sales declined 1.5 percent, reflecting strong handgun sales offset by lower long gun sales.
Gross profit for the fourth quarter was $69.7 million, or 40.9 percent of net sales, compared with gross profit of $68.4 million, or 38.3 percent of net sales, for the comparable quarter last year. Gross profit improved as a result of a favorable product mix, absorption, and manufacturing efficiencies, as well as reduced promotions and the absence of lower-margin Walther product sales.
Operating expenses for the fourth quarter were $26.7 million, or 15.6 percent of net sales, compared with operating expenses of $21.6 million, or 12.1 percent of net sales, for the fourth quarter last year. The increase in operating expenses as a percentage of net sales was primarily driven by higher sales and marketing expense, ERP implementation costs, and employee-related costs.
Operating income for the fourth quarter was $43.1 million, or 25.3 percent of net sales, compared with operating income of $46.9 million, or 26.2 percent of net sales, for the comparable quarter last year.
Income from continuing operations for the fourth quarter was $24.9 million, or $0.44 per diluted share, compared with net income from continuing operations of $28.6 million, or $0.44 per diluted share, for the fourth quarter last year.
Non-GAAP Adjusted EBITDAS from continuing operations for the fourth quarter was $50.0 million compared with $52.7 million for the fourth quarter last year.
Operating cash generated for the fourth quarter was $36.0 million, and capital spending totaled $17.0 million.
The quarter resulted in the highest sales, gross margin, and profits in the company's history, said James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer. The performance was driven by robust consumer demand, combined with carefully managed increases in manufacturing capacity.
“Our achievements aligned directly with our growth strategy, which is underpinned by a focus on our core firearm business,” said Debney. “That focus is further reflected in the vertical integration of a key manufacturing process by acquiring the assets of our principal injection molding supplier. This asset acquisition, completed in May 2014, strengthens our firearm business with increased flexibility, lower production costs, reduced risk in our supply chain, and more efficient new product development processes. We believe that by executing on our strategy, we are well positioned to continue to take market share and deliver profitability, even as the consumer market for firearms returns to a more normal environment.”
The record profitability and robust cash flows in fiscal 2014 allowed us to invest in businesses, optimize capital structure, and generate increased value for stockholders, said Executive Vice President and Chief Financial Officer Jeffrey D. Buchanan.
“We invested $30.4 million to upgrade our ERP system, providing improved scalability and operational flexibility for our business, Buchanan said. “We also leveraged the strength of our cash flows to generate value for our stockholders though an active share repurchase program.”
Since December 2012, the company has repurchased 12.3 million shares of its common stock valued at $135.0 million, representing a total reduction in shares outstanding of nearly 19.0 percent. In March of 2014, the company’s board of directors approved the repurchase of an addition $30 million of common stock, and presently has $27.0 million available for share repurchases under that program.
The company expects net sales for the first quarter of fiscal 2015 to be between $130.0 million and $135.0 million and GAAP earnings per diluted share from continuing operations of between $0.23 and $0.25 for the first quarter of fiscal 2015. It should be noted approximately one week of the company's annual two week shutdown will occur in the first quarter, reducing production by approximately $6 to $8 million.
Fiscal 2015 net sales are anticipated to be between $585.0 million and $600.0 million. The company anticipates GAAP earnings per diluted share from continuing operations of between $1.30 and $1.40 for fiscal 2015.
Smith & Wesson brands include Smith & Wesson, M&P, and Thompson/Center Arms. Its facilities are located in Massachusetts, Maine, and Connecticut.
SMITH & WESSON HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME