SWBI - Earnings call transcript Q2 2022 | Smith & Wesson Brands, Inc.

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Operator

Good day, everyone and welcome to Smith & Wesson Brands, Inc.

Second Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, General Counsel, who will give us some information about today’s call.

Kevin Maxwell

Thank you and good afternoon.

contain may today comments forward-looking statements. Our

of believe and use forward-looking the intended words intend, expect, statements. estimate, project, other identify anticipate, to Our similar are expressions

product regarding may general. preference consumer conditions opportunities products, to such include and statements related our strategies, statements conditions products, Forward-looking as share, also for our in our development, inventory demand, trends, objectives, market industry topics growth and

today’s actual our today. that by are represent statements our to subject which could on website, current uncertainties call. described risks and our and are the from and Forward-looking materially our filings, are judgment along future to implied cause our of those These results differ or a SEC with in available uncertainties about expressed risks statements replay

obligation I important statements. no have have forward-looking update to items to few note. a We

certain First, financial results. we reference non-GAAP

related non-GAAP in we and on to distribution measures website. GAAP the SEC Reconciliations EPS. each to be planned exclude relocation The and other products Tennessee. accessories results spin-off outdoor Our our manufacturing related operations expenses and to XXXX, available measures the COVID-XX and which financial non-GAAP certain costs can costs. financial EPS, reference release, headquarters always and are referencing financial press fully of is in found filings fiscal in when of today’s of Also, we earnings of our our business diluted

due to by best metric Please those NICS purposes data. discuss the retail for we National counter. time to NICS in not end that law the in consumers, background firearms published mostly a when generally NICS Sports generally transfer demand not to firearm or Finally, checks the we than and are federally-licensed purchases. only does conducted NICS, NICS market proxy Because period, Foundation referring results, other our to checks are we any removes considered background on adjusted adjusted be and Shooting distributors to we consumer given NICS channel. retailers inventory shipments directly and levels available Adjusted FBI share remember for correlate at based to believe enforcement agencies firearms the

to refers Before I from to items results to our unless continuing speakers I reference remind call indicated. income operations the that you like to statement any hand would over today, otherwise

Joining Mark us call Deana. today’s our the call and I are turn CFO. and McPherson, on With President our CEO Smith, will to over Deana that,

Deana McPherson

line. from Thanks, nearly quarter, from Kevin. decrease second with The second Revenue was easing decline our XX-month that year reflects the of also million demand, consumer largely $XXX.X XXXX. for $XX of product that an replenished of of the or in combined with an million, has quarter our prior discontinuation an decline coming million $XX.X began Thompson/Center been surge March this a after X.X% channel

ability calendar count to due was year. entirely quarter. in $X.X increased $X.XX related million in realized reduction share impacts increase includes to margin in than now quarter’s lower elevated negatively gross million the prior expenses slightly comparable the consumer and the product $XXX.X and of the that with Reports remain This XXX%. by to representing from XXXX. still margin we more we Margins than XXXX per and in quarter. earnings lack year increase ended two of points second earnings volumes, last was $X.X was second realized remarkably million Because were as XXXX which product quarter, prior foot non-GAAP spin-related year the increased in production year of it hunting revenue still of over mix, were of the to Tennessee XXXX, of in quarter prior up our spending, replenished some synergy of Tennessee. reduced the comparable or year increase checks than resulted $X.XX decrease continues but with above impending costs, million compared $X.X accruals the believe of $X.XX in increased fully interest spin. production costs quarter lower traffic our costs products prior in by with in to quarter, compared was the $X.X revenue the volume-related was were of This margin of double. reduction a payroll-related Although promotions share with over volume X-year than a offset prior strong, The prior as a lower late were October the to relocation late results Compared were low $X.XX current our more ramping an from expense second year calendar quarter revenue and we XXXX, The the result offset compounded favorable increases in shares million quarter throughout we late QX is to fulfilling in by a our early levels, in for combined to million the savings and income. to share of such be per certain Gross in channel since of $X.X increased move year. million that our flat most profitability, in a X.X legal inflation XX.X% during including have year net for during promotions was indicate current price the $XX.X in deliver above of most large and the associated Operating channel million margin our impacted to our calendar GAAP increase impact basis XX.X% due lines. of compensation-related XXX

than EBITDA the was prior million year $XX.X higher $X.X million XX.X% of revenue. adjusted of and Finally,

million a did in and quarter, any resulting not second from million in use cash result ended through to with We debt. quarter. in million us of our $X.X common the shares the available During $XXX.X $X.X as August no free of have million equipment stock of X-year we of used bank for utilized investments and million continue quarter cash XXXX, paid We in repurchase spin-off. cash of during the of the inventory million operations, the spent to the capital quarter primarily anniversary in dividends $XX $X.X and $X.X and

our per to has payment authorized shareholders dividend on December share quarterly payment January Board of the made $X.XX of be with to Our record X. on XX

throughout XXXX, fiscal Looking forward fiscal quarter. first quarter into second to our during our third our began to and channel in replenish inventory grow quarter continued the

channel. a pandemic, None increased to the of consumer distributors internal and they a there to good As enough third inventory response, unrest whenever in channel XX%. are of which levels channel we often height product. the That our channel demand as the products no we in demand of them. produce need recent indicate quarter likely reduced civil are in for quarter. being current company approximately XXXX. inventory virtually supply in us rates consumer weeks a in to the what we our strong representing of inventory This than within third wherever impacted our exist us however, our the year’s and by of provide by the thing Last be third have periods consumers lower sales In cannot said, in is production products. to of the realized in channel, XX presidency, third our quarter these by the growth factors bit our Inventory driven levels quarter nearly the was in help range a that quite of broad have today, in inventory fiscal change and and

to restock In last last expect manufacturers target In mitigation of effort in reduction been EBITDA after cash margin, meet expense of move, dealing during $X spite expected addition, we that we to that finished June. year’s Tennessee shared the approximately build our will months. over internal several depletion or that complete have related with the exceed we will inventory supply issues and in and our and goods to inventory sales gross to continue million our metrics to chain the in of continue due QX in all our

opportunistic capital shareholders share to not our Our strategy in to changed, has business be and and pay quarterly our will we and regarding of investing continue dividend our fixed repurchases. returning

turn With to deeper results. for now is Mark a XX%. effective call tax our Mark? I’ll our rate over Finally, approximately into dive that, the

Mark Smith

you, us. and joining everyone thanks Thank for Deana

Before take a the quickly like commentary quarter’s back step on going forward, provide results to the reflect I I’d and past on the and outlook months. XX

demand times. time keep important, remain long-term manufacturing who the business that years have on often gratitude cyclical, tremendous to fits pretty and while to deal past employees and great and over by coming equally through success our a demand during a for And has worked of particularly starts. of met our all experienced surge strong in hard trajectory same and As some can several be expect meet going this difficult you the positioning healthy knowing seen the know, surge action production our the have immediate as our during to operations team taking we demand historic industry all increase At that increase decades, we challenge owe for as those X.X the we growth in to past firearms the the continue, long-term always, in to firearms it time. and that success we our focused of

industry maintain to in thinking And to so preparing always several performance market financial moves condition. leadership need in and ahead be any position and we anticipation strong our

net to designed market strong top deliver quarter, our in a is we of in but actually conditions. decline financial model results margin increased and experienced for range the operating In revenue, example, Our recent most a gross income. line

overall just We improvements continues environment. continue to are allowing to not changes flexibility just production, in meet identify levels rapidly but to demand, not to us our volume positioning our operations but pay any capture share in in This to manufacturing. in dividends us by market adjust constantly mix to efficiencies to investing in product also making

consumers with and from like smarts consumer invest We kiosks point-of-sale our And ease and preference be pipeline of efforts. Smith & at our and market new of enthusiasts will biggest continue certainly, brand in to from the full gun historic resonated opportunities our and Initiatives the products. see one Wesson alike. and have our the keep exciting forefront highs for marketing consumers as demand levels results new

have surge shortly several the successful launches Shield millimeter, Plus, few a of and focused remain more even in throughout addition launches new weeks the the scheduled to Show winter. thereafter scheduled in and we Shotgun the and M&P during the for product XX M&P product the SHOT more Our and teams XX engineering

marketplace. plenty optimistic are to have the loyal and Our consumers very I’m to & in Wesson’s talk Smith going leadership continued about, about

Turning historically strong our team demand patterns financial results QX to changing our continued results. now and market to adjusted to and drive conditions,

And and ever. Our have QX achieved the also reach red I last level our events believe the during the It saw we have for history. we And through the desire market and brand choose levels highest for hot marketing offerings new second a to now marketplace firearms manufacturers interest kept our a we to Smith to in sales this period news and back the we the the healthy. the efforts environment in actually the continued is the Wesson. the pandemic, as second innovative charged consumers while to certainly industry, that overall & mentioned, entered are choice, safety year sports, leadership have important political a were has consumers level. at quarter quarter position as strong growing also highest catch shooting continuing paying year, in from believe demand is retail has as note comparable that up our just they to begun eased the personal and we that driving in product selection off continue Consumers maintain other a improved the even profit

winter most As versus of of QX second And a up were results indicate adjusted ‘XX. the have inventories. season through normal channel our unit historical internal for still replenished returning recent consumer strong, ability now that preparation last year, said, NICS surge we the matter interest produced, just ever, FY That while and seasonality. we in rebuild our the yesterday have we release to to every in firearms the the during sold in fully more where November XX% remains busy their big fact, essentially NICS highest QX last

production levels mentioned. adjusting And we begun have Deana as accordingly, so

in market production So reminder and to us issues incurring absorption delve operations. our response also therefore, production us without flexible up without model, allows allows costs, demand meet manufacturing any our ramp on large just in adding manufacturing surges changing this in to back fixed to to a large conditions,

or at that financial we that to conditions call As and model in during able result, will to we a the profitability operate June. varying demand levels in believe we of maintain we our above be our continue provided will that end healthy of top

late logistics we operations to XXXX, our to whose of operations of project in firearms the products groundbreaking headquarters Maryville has we X, open the opportunity this assembly technology forward held globe. the state-of-the-art ceremony new for questions are future will our November analysts. quarter, The come. new our to and to Tennessee molding, relocate to work With and Blount be serve enthusiasts Finally, the of our and shape County certain latest begun company that, to as Smith dedicated thank to We the we announced an and can for operator, around headquarters a successful such our and a the from on on would excited about intention welcome, our will produce in innovative, our and injection the warm and the that last organization look employees facility With Wesson, call Maryville, to earnest. home. solidify please leverage generations standard for the plastic will & set nimble community we state like calling Tennessee for home

Operator

the first Street Lake Ryan Instructions] of line Meyers comes Capital. Our question [Operator from of

Your open. line is

Ryan Meyers

Hi, guys. taking my for Thanks questions.

be revenue alluded inventory experience normalize First Or bit more. one to call just or into I starting wanted what the on to dive just about little shutdown kind of bit, of starting slowdown demand but with you Did here, kind any you talked refilled? the delays? is and a production-related guys this little bit is more you to to little a the a this

Mark Smith

Ryan, No, our our second from Hey, does quarter it’s – Mark. X of shutdown. week it’s shutdown have summer

that there. talked of So – there were on rebuild inventory. some to as call, the bit the we is little in able But a we about

to levels the it So it’s historic of the red of off kind year. more last related was coming market hot –

Deana McPherson

year. we as year we Right. same did The same – had production days of last the this in QX

Ryan Meyers

like That about rest guys And launches? you heading the long are for Okay. ASPs makes if environment it about promotional you’re the and Show both healthy thinking sense. looks and in saw product How of the pretty the handguns we And the for any SHOT guns. year? thinking this new

Mark Smith

pretty That’s the a going to to that some question. so it’s combination I it’s the of our – muddy heavy way as the the way be to had mix got MSRs of that that’s we in bit all as also we’ve a little were Yes, but think about towards more a and to healthy surge, are through great saw the QX going in forward and there And towards there the that – shift the going for – think pretty is water. a price going then really increases couple – you we now ASPs. so pandemic to going be handguns

forward probably were guys you little color kind to – average So where between probably of will last overall going in ASP be somewhere of QX and in just where I we our ended it, will here, of we QX give year. on think a bit probably

Ryan Meyers

That’s guys. Thanks all helpful. my taking that’s I Alright, for got questions.

Mark Smith

Ryan. Thanks,

Deana McPherson

Thanks, Ryan.

Operator

you. Thank

comes of question next Cowen. von Cai from Rumohr Our

line Your open. is

Cai von Rumohr

Yes. Thanks so much.

that – So you follow-up question, that any in pretty pricing have like have you really seen been that had have because robust the replenished pricing the and basically Ryan’s to you any now looked seen there? inventories on – change

Mark Smith

Yes.

do comes to in and ammunition our offering maybe need really, more before, to more We of Black pricing. that firearm activity some kind with competitors away said term. But any foresee as accessories a lot there really to a kind activity focused box where And doing for to holidays come of into the can near haven’t to the Friday. value a gone it’s providing or obviously, season it is promotion just different with not for the terms shopping Cai, we’re don’t of or from everything here for of we do of really going stay and I’ve well, going the that as as we normal – been some in on typical it’s us on more and

Cai von Rumohr

And let’s it. Got great. That’s see. then –

So you my recall, terms where model, is really think, – I’m of quarter as trying have where have big a I’m I the at quarter in downtick you to this looking numbers you then work in and mid-XXs days second the fair? My do usually you XX that – days. quarter. up have XX like the to fourth the versus go in Is

Deana McPherson

Right.

days. and – QX is XX Let XX me just – QX days, this XX is it’s yes, days XX days,

Cai von Rumohr

it. Got

you weeks mean So, like that XX remember – correct inventory. number – I X, you level? think I it was normal used of what have a or…? What’s it channel mentioned – to would is the I

Mark Smith

Yes.

of we is you right the year. a you got period the is are measure into to the best but X, you inventory the the consumer out activity, at our November, ramps highest. the up coming levels, when of And look average now, you winter, the which X try December, kind if obviously, seasonality target the of at of usually to normal a remember firearms So, NICS, of that look across

coming peak we period. the are into So,

expect season And supply be the spring. and through little that into so will then as the we elevated we out this bleed a at holiday and the go time

Cai von Rumohr

might showed Are risks? any Last up to difficult was of expenses there that, in litigation Massachusetts. guess you move that potential legal sort Tennessee legal more legal but to more states I the efficiencies, your regulations any seeing require mentioned Thanks. the And more $X.X of also expenses question, you and in you the million. also are challenges or

Mark Smith

any just anticipate timing. was changes. expenses the we litigation really kind expenses got but today still year. legal of no was in it different always legal there The have obviously, than mean risk, don’t I it’s No. We and last difference

to the overall terms long-term, So, of change a model. in it’s the not

Cai von Rumohr

you much. very Excellent. Thank

Operator

you. Thank

of Capital. comes Dionisio Aegis Our from Rommel next question

open. Your line is

Rommel Dionisio

just imagine Yes. in that launched about read category does in Good mean entry imagine afternoon. category? kind units of term I know works cost there? to product into I plans this wrench there into line sort to the kind of about Guys, any October. And the new for shotgun importantly, the you slowdown entry that does a just a Are and M&P is or of that the it of about change that new expand significant. of that was was kind your would have of recall recall kind for longer shotgun, in process the more all thoughts throw different many I this delay launched But I sort And August, want the I a wondered, that ask this is your thing. there in of calibers or can’t there you I repercussions but category? XX. of I an Thanks. you.

Mark Smith

Hi No, is answer short it change doesn’t at great plans Rommel, all. question. a no, the our

to I of products, I our we putting call think very, our we utmost the that it, the a have we of products, approach want work. to make are is to strict and will sure that quality out everything

it those as actually mentioned, hasn’t a units a that are them low it. large are back channel. was know lot hitch. if trust in we bump of So, part, a again actually corrected – about not in is mirror probably or to if bit a going going and mean that go, are maybe to fairly that marketing more just is we in in of consumers I And number road. rearview got channel think we in a fairly our of in problem, it a back products a we recalls us any most the frankly, problem off us We immediately fairly our bit see little and becoming believe ever for see whatsoever, already that That let because conservative about because out really of caused a I the there without the as them and whatever and are any is positive issues, And know ends and our issues recall, and the up consumers we going understand you they approach. the recall. went have minor to do

as frankly, if And they will it. again, look care expect I them let as unfortunately the just at in you you long will it, goods recalls consumer about and take industry, – consumers the you know appreciate firearms that that So not uncommon. are they think in of the

Rommel Dionisio

prior Thanks. that Sure. Could just that sale. to the weeks was Mark, had well market? of us – few And while first how those share around in received topic, with you it gone, just or the

Mark Smith

extremely Yes, hunting that pretty our think coming consumers about the excited I And category. us into category back well to are received.

top was off Deana increase our think also the prepared the but large of was versus of hunting I was products, a hunting last year mentioned a part remarks, and a in line large as part the little that products. ASP

on line, the top actually so margin And were gross up. the we off on line, and but on were we bottom the

of to I come so lot of kind and strategy And lot us. and going profitable Wesson that And other to products for that’s the successful. our brand end should things, amongst & kind be – hunting Smith it’s reflection more be market back that that’s a think in a more on and a the lower frankly, of with out of exit

Rommel Dionisio

much. very Thanks Great.

Mark Smith

Okay.

Operator

Instructions] Our line Stember comes Scott of next King. [Operator from of CL the question

open. line Your is

Scott Stember

Good evening guys.

Mark Smith

are How Hi Scott. you?

Scott Stember

in as in third be looking well talking the modeling? I guess production at look decline at when that about, were guess XX%. quarter, the Should about was we down commensurate you I we Deana, year-over-year. revenues

Deana McPherson

Yes.

We should. talking unit you think I about were capacity.

of adding walks we keep be through where overall said that production ASPs You would will mind have ASPs also But will we be. down as be But to keep to be in kind Mark will mind that inventory. the in that unit XX%.

by inventory, going are not you which So, of through all probably through telling that in if building we it’s to go a production but is all piece that doesn’t go it, sales, sales.

build. some will So, of inventory level be there

produced, then of range in an in what into you. that are the So, on that now but for and Mark seeing in unit just complex gave a right inventory you, based the it’s increase kind calculation we units expect ASP we reduction a

Mark Smith

little I give think a that. just to on help you Scott, Yes.

last think in is increase noise just of year, our versus think I do there can’t ASPs about mix lot if just you of I a because terms a you mentioned. price in there

So, sold I understand much probably was everything guys well think we was year. you year, – sold as can through. last everything assume that about ASPs last think And pretty you we made

a there. pretty will than And dollars, tight there goods this nice can correlation in I we of is then year, than just to terms maybe QX. probably less build in you So, did a we expect QX think inventory finished in little

So, it should give you enough there to kind of get there.

Scott Stember

up. back to in for just us, your year, that Got are structure, we it. quarter, guess this see flexible your to show you rubber start margins the a And these with and we gross I how margins regards mid-XX% Could now the right to, the the least your decline can at in hold cost to declining will ability fourth hits environment you I a assuming road guess of similar on give hold half in the range? production really

Mark Smith

Yes.

back healthy in prepared margins, bit our a come model in very those at slower is said If above to come are you very, above. as continue will we June. of timeframe, That as be shared I will still of little amount the down be or will kind into there a in they we But – shared back bit. going that model I and we at a we that of little that to we we mean back said, probably our margins or give you can color most remarks, remember June, I to operate the

Scott Stember

That’s all I it. Thank Got have. you.

Mark Smith

Alright. Scott. Thanks

Operator

no more And questions. I the I Smith. Mark over call now am will turn showing to

Mark Smith

strong again stay safe. Wesson to please members & for my Thank of happy a and Smith Have for you. today. to And everyone, joining again, holidays thank I all us just team Once want Everyone, another fellow Christmas, yet thanks everybody. quarter. merry do

Operator

for This conference call. concludes today’s participating. Thank you

now You may disconnect.

Smith & Wesson Brands (SWBI) 3 Dec 212022 Q2 Earnings call transcript