Smith & Wesson Holding Corporation slashed its fiscal 2015 guidance, saying it expects excess inventory at retail to hurt sales much more than expected in the current quarter, when many hunting sales peak.
The gun maker expects net sales for the fiscal second quarter of 2015 to be between $100.0 million and $110.0 million, down 28 to 21 percent from the year earlier quarter. It forecasts GAAP earnings per diluted share from continuing operations of between 4 and 8 cents, compared with 28 cents in the fiscal second quarter ended Oct. 31, 2013
The gun maker now expects Fiscal 2015 net sales to be between $530.0 million and $540.0 million as compared with $585.0 million to $600.0 million forecast June 19. The company lowered full-year guidance on GAAP earnings per diluted share from continuing operations of 89 cents and 94 cents from $1.30 to $1.40.
“We believe that the current environment reflects high inventories industry-wide resulting from channel replenishment that occurred following an earlier surge in consumer buying,” said SWHC President and CEO James Debney. “That environment, combined with typical seasonality that slows consumer buying activity during the summer, is causing us to lower our financial outlook for fiscal 2015. We expect that these conditions will have the largest impact on our second fiscal quarter, especially on sales of our modern sporting rifles, and that we will return to a more normalized environment in the second half of our current fiscal year.”
SWHC estimated its inventory at $88.7 million at the end of the fiscal first quarter, which ended June 31, down 14.4 percent from a year earlier.
The dramatically lower guidance came even though SWHC reported results for the fiscal first quarter met or exceeded its June guidance.
The company reported net sales declined $39.2 million, or 22.9 percent, to $131.9 million, compared with the fiscal first quarter ended July 31, 2013, or within its guidance of $130.0 million to $135.0 million. A decline in the sales of long guns, including modern sporting rifles, drove 87 percent of the decline. Demand remained strong for the company's small concealed carry polymer pistols and revolvers, but were more than offset by lower sales of large frame polymer pistols
Gross profit for the first quarter was $49.1 million, or 37.2 percent of net sales, compared with gross profit of $72.8 million, or 42.6 percent of net sales, for the comparable quarter last year. While gross profit margin was favorably impacted by the company's acquisition of the assets of its principal injection molding supplier in May, total gross profit declined as a result of reduced sales volumes of modern sporting rifles and related decreases in fixed-cost absorption, combined with three fewer production days versus the first quarter last year.
SWHC reduced operating expenses6.0 percent, but they still increased to 17.7 percent of net sales, compared with 14.5 percent of net sales, for the first quarter of 2014. Operating income reached $25.8 million, or 19.5 percent of net sales, compared with $48.0 million, or 28.1 percent of net sales, for the first quarter of 2014.
Income from continuing operations for the first quarter was $14.6 million, or 26 cents per diluted share, compared with income from continuing operations of $26.5 million, or 40 cents per diluted share, for the first quarter of 2014. Net income, which includes losses from discontinued operations, reached $14.6 million, or 26 cents per diluted share, compared with $26.5 million, or 40 cents a year earlier, or within.