Smith and Wesson’s Continuing Earnings Improve

The second quarter included a reduced number of manufacturing days related to the planned two week annual factory shut down as well as previously announced downtime related to the company's enterprise resource planning (ERP) implementation.

Gross profit for the second quarter was $57.9 million, or 41.6 percent of net sales, compared with gross profit of $48.5 million, or 35.5 percent of net sales, for the comparable quarter last year.  Gross profit margin improved as a result of favorable product mix, absorption, and manufacturing efficiencies, as well as the absence of Walther product sales.

Operating expenses for the second quarter were $29.2 million, or 20.9 percent of net sales, compared with operating expenses of $21.8 million, or 16.0 percent of net sales, for the second quarter last year. Excluding one-time go-live costs related to the company's new ERP system, operating expenses would have been $25.3 million, or 18.2 percent of net sales.

Operating income for the second quarter was 20.7 percent percent of net sales compared with 19.5 percent percent for the second quarter last year.

Income from continuing operations for the second quarter was $17.1 million, or $0.28 per diluted share, compared with $16.4 million, or $0.24 per diluted share, for the second quarter last year.

Non-GAAP Adjusted EBITDAS from continuing operations for the second quarter increased to $36.9 million from $32.0 million for the second quarter last year.

Operating cash flow for the second quarter of $5.0 million and capital spending of $14.1 million resulted in cash outflow of $9.1 million.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, “Our results for the second quarter of fiscal 2014 reflected the continued successful execution of our growth strategy.  By maintaining a strategic focus on increasing market share of our M&P polymer pistol family of products, we delivered handgun revenue growth of over 27 percent and a significant expansion of our gross margins.  For the first six months of this fiscal year, our gross margins were 42.1 percent.  At the same time, we continued to drive a number of initiatives in the quarter designed to strengthen our business and return increased value to our stockholders.”

Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice President and Chief Financial Officer, stated, “During the second quarter, we continued to optimize our capital structure by successfully completing our $100 million stock buyback program.  In addition, our Board of Directors authorized the repurchase of an additional $15 million of our common stock, which will be permitted to commence after the full dissemination of the financial results we are announcing today.  We ended the second quarter with a cash balance of $52.9 million, $100 million of outstanding senior notes, and no borrowings under our credit facility.

“Our new enterprise resource planning (ERP) system, a key strategic building block that will provide our business with scalability and visibility for growth, 'went live' early in the second quarter.  We have moved through the challenging go-live phase of the implementation; the project is proceeding on track; and we have already begun to see daily improvements in the quality of our business functionality,” Buchanan concluded.  

Financial Outlook

The company estimates net sales for the third quarter of fiscal 2014 to be between $140.0 million and $145.0 million and GAAP earnings per diluted share from continuing operations of between $0.28 and $0.30.  This estimate takes into account $1.5 million in expected, non-recurring costs related to the ERP conversion.  As previously noted, the company ended its Walther distribution agreement at the end of fiscal 2013 and therefore the third quarter of fiscal 2014 will not contain Walther sales, which amounted to $12.7 million in the comparable quarter a year ago.

The company continues to expect full year fiscal 2014 net sales of between $610.0 million and $620.0 million and GAAP earnings per diluted share from continuing operations of between $1.30 and $1.35 for fiscal 2014. As previously noted, the company ended its Walther distribution agreement at the end of fiscal 2013 and therefore fiscal 2014 will not contain Walther sales, which amounted to $41.6 million in fiscal 2013.

All guidance takes into account the expected impact of the implementation of the company's new ERP system throughout fiscal 2014.