Smith & Wesson Brands, Inc. reported a significant decline in earnings year-over-year in the second quarter ended October 31 as sales dropped 47.5 percent and gross margins decreased.
Net sales were $121.0 million, a decrease of $109.4 million, or 47.5 percent, from the comparable quarter last year, but $7.3 million, or 6.4 percent, higher than the comparable quarter in fiscal 2020, which was the last pre-pandemic comparable second quarter.
Gross margin was 32.4 percent compared with 44.3 percent in the comparable quarter last year and 28.4 percent in the comparable quarter in fiscal 2020. Excluding relocation costs, gross margin would have been 33.9 percent.
GAAP net income was $9.6 million, or $0.21 per diluted share, compared with $50.9 million, or $1.05 per diluted share, for the comparable quarter last year, and $343,000, or $0.01 per diluted share, for the comparable quarter in fiscal 2020.
Non-GAAP net income was $12.0 million, or $0.26 per diluted share, compared with $55.3 million, or $1.13 per diluted share, for the comparable quarter last year, and with $520,000, or $0.01 per diluted share, for the comparable quarter in fiscal 2020. GAAP to non-GAAP adjustments for income exclude costs related to the planned relocation of our headquarters and certain manufacturing and distribution operations to Tennessee, the spin-off of the outdoor products and accessories business in fiscal 2021, COVID-19-related expenses, and other costs.
Non-GAAP Adjusted EBITDAS was $25.6 million, or 21.1 percent of net sales, compared with $80.4 million, or 34.9 percent of net sales, for the comparable quarter last year, and $13.4 million, or 11.8 percent of net sales, for the comparable quarter in fiscal 2020.
Mark Smith, president and chief executive officer, commented, “With firearm demand continuing to normalize, our second quarter results once again demonstrated the significant progress we’ve made over the past several years in creating a highly adaptive and robust business model that consistently delivers strong profitability, regardless of market conditions. Consumer demand for firearms was significantly down from a year earlier, coinciding with a broader consumer slowdown driven by persistently high inflation, the beginning of the winter heating season across the northern half of the country, and rising interest rates. Nonetheless, compared to the second quarter of fiscal 2020, our current quarter results reflected a significant increase in profitability. While fiscal 2023 continues to be a year of recalibration and adjustment for our industry and Smith & Wesson, we expect to remain highly profitable and continue delivering on our commitments to customers, employees, and stockholders well into the future.”
Deana McPherson, executive vice president and chief financial officer, commented, “An ongoing inventory correction combined with the impact of promotional activity by our competitors and the trading down by consumers to lower priced products negatively affected our quarterly sales. On a positive note, however, the discipline that we’ve exhibited in promotions during the current quarter has improved our overall profitability when compared with pre-pandemic levels, reflecting average selling prices that were approximately 45 percent above fiscal 2020. We remain focused on managing the business for long-term profitability, market share performance, and capital returned to our stockholders. Consistent with our capital allocation strategy, our board of directors has authorized a $0.10 per share quarterly dividend, which will be paid to stockholders of record on December 20, 2022 with payment to be made on January 3, 2023.”