Smith & Wesson Holding Corp. said net sales grew 7.1 percent in its third quarter ended Jan. 31. Excluding Walther products that were sold in the prior year
pursuant to a distribution agreement that has since ended, sales climbed 16.7 percent. Earnings jumped 42.5 percent to $20.8 million, or 36 cents a share, from $14.6 million, or 22 cents, a year ago.

Third Quarter Fiscal 2014 Financial Results

  • Net sales for the third quarter were $145.9 million, up 7.1 percent from the third quarter last year.    Handgun sales, which include sales of the company's popular M&P® pistols, grew 29.9 percent versus the year ago quarter.
  • Gross profit for the third quarter was $58.7 million, or 40.2 percent of net sales, compared with gross profit of $49.9 million, or 36.6 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 reduced promotions and the absence of lower-margin Walther product sales.
  • Operating expenses for the third quarter were $27.5 million, or 18.9 percent of net sales, compared with operating expenses of $21.9 million, or 16.1 percent of net sales, for the third quarter last year. A significant portion of the operating expense increase related to the company's ERP implementation, which commenced in the second quarter.
  • Operating income for the third quarter was 21.3 percent of net sales compared with 20.6 percent for the third quarter last year.
  • Income from continuing operations for the third quarter was $20.1 million, or $0.35 per diluted share, compared with $17.5 million, or $0.26 per diluted share, for the third quarter last year.
  • Non-GAAP Adjusted EBITDAS from continuing operations for the third quarter increased to $37.5 million from $33.3 million for the third quarter last year.
  • Operating cash generated for the third quarter was $29.6 million.  Cash used in investing activities of $21.9 million included capital spending of $10.2 million and equipment deposits of $11.7 million, yielding free cash flow of $7.6 million.  The company also used $15.3 million in cash from financing activities, primarily relating to its stock buyback program.

James Debney, Smith & Wesson Holding Corporation president and chief executive officer, stated, “Our performance  for the third quarter of fiscal 2014 reflected the ongoing successful execution of our growth strategy.  We maintained our focus on increasing market share of our Smith & Wesson® M&P® polymer pistol family of products and thereby delivered handgun revenue growth of nearly 30 percent, a solid result when we consider that the year-ago quarter reflected a surge in consumer demand.  We continued to demonstrate our strong track record of new product development, launching several new products at SHOT Show® in January, particularly in the revolver category, all of which were well received and drew incremental orders from our customers.  Our financial results were highlighted by our delivery of double-digit growth in net income and the ongoing expansion of our gross margins, all while we continued to drive a number of initiatives designed to strengthen our business and return increased value to our stockholders.  We believe that our long-standing approach of growing our business through the addition of flexible capacity has positioned us well to adapt to our dynamic environment.”

Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice President and Chief Financial Officer, stated, “During the third quarter, we repurchased 1.14 million shares of our common stock for $15 million.  Since December 2012, we have repurchased a total of 12.3 million shares of our common stock valued at $135 million, representing a total reduction in shares outstanding of nearly 19.0 percent.  With the successful completion of our stock buyback program, we continued to optimize our capital structure.  Overall, our balance sheet remains flexible and strong with no borrowings under our credit facility.”

Financial Outlook

The company estimates net sales for the fourth quarter of fiscal 2014 to be between $159.0 million and $164.0 million and GAAP earnings per diluted share from continuing operations of between $0.37 and $0.40.

The company has raised its full year fiscal 2014 guidance. It now estimates net sales of between $615.0 million and $620.0 million and GAAP earnings per diluted share from continuing operations of between $1.39 and $1.42.

All guidance takes into account the expected impact of the implementation of the company's new ERP system throughout fiscal 2014. While implementation costs are projected to continue in the fourth quarter, those costs are expected to continue to diminish from second quarter levels, since the most challenging aspects of the project have been completed and the system has reached steady-state mode.