Smith & Wesson Holding Corp. (Nasdaq:SWHC) firearms shipments grew at twice the rate of Adjusted NICS checks during the company’s fiscal fourth quarter, ended April 30, indicating the business grew its share of handgun sales significantly during the period.
Firearms sales rose 22.4 percent to $203.7 million, while its accessories sales rose 19.8 percent to $17.5 million over the comparable quarter last year. Gross margin rose to 41.6 percent compared with 37.1 percent.
Net income rose to $35.6 million, or 63 cents per diluted share, up from $21.9 million, or 40 cents per diluted share. The record results easily exceeded Wall Street expectations and enabled Smith & Wesson to end the quarter with more cash on hand than what it owes on bank loans and senior notes.
Firearms sales were driven by increased orders for handguns designed for personal protection, including the SDVE, M&P Shield, M&P Bodyguard and small-frame revolvers. Handguns accounted for about 81 percent of total firearm units shipped, compared to a 19.9 percent increase in NICS checks for such guns. Units shipped into the consumer channel grew by 25.4 percent, largely driven by increased shipments the M&P SHIELD. Long guns, which made up the remaining firearms shipments, grew 41.9 percent compared with NICS growth of just 2.2 percent.
Accessories sales growth was led by the Thompson/Center accessories business and orders for new products introduced at the SHOT Show.
Despite record shipments, distributor inventory of Smith & Wesson firearms remained flat with the end of the preceding quarter at about 92,000 units, indicating healthy consumer pull through. Unit shipments into the consumer channel grew 28.4 percent compared with levels in the fourth quarter of 2015, or more than twice the growth in Adjusted NICS background checks over the period. indicating that we gained market share.
Smith & Wesson issued guidance calling for fiscal 2017 sales to reach $740-$760 million, or 2.4- to 5.1-percent growth compared with the fiscal year ended April 30, 2016. Earnings are forecast to reach $1.71-$1.81 per diluted share, compared to the $1.68 reported for fiscal 2016. The guidance anticipates slowing comps in firearms sales following the strong growth of fiscal 2016; continued double-digit growth in accessories sales; and does not take into account any potential consumer spike in firearms demand driven by fear of firearms regulation. Gun stocks rallied on Wall Street this past week, following the June 12 mass shooting in Orlando, FL for that very reason.
Still gun makers such as Smith & Wesson acknowledge there’s a potential peak the business and they’re looking to diversify. The company expanded its management team this spring to prepare for a new phase of growth that includes acquiring “rugged outdoor” brands outside its legacy firearms and accessories business.
“As we look ahead to FY17, we see many organic and inorganic growth opportunities,” said CFO Jeff Buchanan. “These include continued product innovation across our firearms and accessories divisions, as well as targeted high-margin and earnings-accretive acquisition opportunities.”
