Despite difficult comps versus very strong results from the comparable period last year, Smith & Wesson Brands Inc. utilized increased manufacturing capacity, relied on consumer product preferences and increased market share to post-sales growth of nearly 20 percent in the fiscal first quarter ended July 31.
“I would like to thank the entire Smith & Wesson team for a tremendous start to FY22,” offered company President and CEO Mark Smith on a conference call with analysts. “Continuing on the momentum from the record-breaking FY21, the results for the first three months of the new year were the highest ever for our first quarter, both in terms of revenue and profitability, and marks the fifth straight record-breaking quarter.”
Smith said the two-year compounded growth rate for the company at the end of the first quarter was nearly 170 percent and “puts into perspective” the market share gains that the team has been able to achieve over the last 18 months.
“But simply outproducing the competition during the surge period that we experienced in our industry will only lead to short-term share gains,” he continued. “To hold those gains long term, we need to ensure that during these times we are working just as hard, if not harder, in sales and marketing, developing marketing plans and programs to connect with the consumer, launching new products, strengthening channel partnerships, etc., so that we are ready and waiting when the supply inevitably catches up with the demand.”
One example he shared regarding new products was the “highly successful” launch of the M&P12 shotgun that has “opened up an entirely new category for the iconic Smith & Wesson brand” and the company’s excitement about the potential for the category. “This entry into the shotgun market generated nearly three million impressions and 300,000 engagements on social media and email in the first 24 hours, making this one of our most talked-about product launches ever. Within 48 hours of introduction, we had received orders reflecting 43 percent of our first-year forecast,” he shared.
Fiscal first-quarter revenue increased 19.5 percent to $274.6 million, which came on top of a 124.8 percent increase in the year-ago quarter. Company EVP/CFO Deana McPherson said the increase in sales was possible due to an increase in capacity implemented in the year-ago second quarter. She said the achievement was “all the more remarkable” given that the first quarter of last year had inventory on hand at the beginning of the year, while inventory at the beginning of this year was very low.
McPherson noted that reports from channel checks indicated that consumer foot traffic remained elevated above 2019 levels but is lower than in 2020 during the Q1 period when “the pandemic was still fairly new, and fear for personal safety was at a very high level.” She said that because of the company’s ability to deliver, some of its very high volume products are now more available within the channel than in 18 months.
Gross margin in the first quarter expanded 710 basis points to 47.3 percent of net sales, compared to 40.2 percent of sales in the year-ago comparable quarter.
“This increase in margin was due to increased production and the impact of two price increases since the prior year’s first quarter, one in November and one on June 14,” explained the CFO. “Margins were slightly negatively impacted by increased volume-related spending, some inflation impacts, increased depreciation on machinery purchases, and compensation-related costs associated with increased headcount. However, it is important to note that production output in the first quarter of this year was 42.6 percent higher than in the prior year’s first quarter, while fixed production costs were only 8.1 percent higher, demonstrating our ability to control costs while flexible growing manufacturing output.”
Operating expenses of $30.1 million for our first quarter were $3.6 million lower than the prior-year comparable quarter, due entirely to spin-related costs in the prior year quarter. “Excluding those costs, operating expenses were flat to the prior year despite increased volume-related shipping costs and customer allowances due to the synergy savings realized from the spin, primarily in compensation-related areas, again, demonstrating our ability to control costs,” McPherson noted.
The resulting net income was $76.9 million, or $1.57 per diluted share, compared with $43.3 million, or 77 cents per diluted share, in the comparable quarter last year.
During the first quarter, SWBI generated $109.1 million of cash from operations and spent $5.8 million on capital equipment, resulting in over $100 million in free cash flow in the quarter. The company ended the quarter with over $170 million in cash and no bank debt.
Photo courtesy Smith & Wesson M&P12 Shotgun/TFBTV
