SWBI - Earnings call 2 2024 | Smith & Wesson Brands, Inc.

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Operator

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

Second Quarter Fiscal 2024 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Kevin Maxwell, Smith & Wesson's 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 on may preferences, consumer industry for opportunities such include conditions statements growth conditions strategies, statements products, trends Forward-looking as share, also inventory our and development, our demand, in objectives, market topics and general.

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

We have no obligation to statements. update forward-looking

non-GAAP results. financial certain We reference

costs can business non-GAAP the Reconciliations our to financial costs. press fiscal Our of the other planned and measures operations exclude Accessories non-GAAP available in today's of in headquarters filings of to release, and in results on measures & in of each earnings spin-off which GAAP Products distribution to our Tennessee, website. and manufacturing certain is SEC financial be our XXXX Outdoor relocation the financial found related

referencing reference is fully we are to EPS, EPS, when reference we to and any Also, diluted EBITDA. always EBITDA adjusted

the National the FBI results, are by referring we Foundation hand speakers, I NICS, that NICS discuss metric data. would Sports to published NICS I call Before our based you to over we like to when remind Shooting a on adjusted

to to share retailers any does given we period, licensed and in NICS market to firearm due correlate time the inventory counter. end federally agencies generally to transfer best available enforcement Adjusted only conducted demand Adjusted and believe, consumer NICS the is other in our shipments NICS law levels those or generally for than purposes for retail channel. and firearms considered Because the consumers, at distributors purchase. directly checks mostly background we not removes not proxy firearms

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

Mark Smith

for our were shipments our and unit Thank last in X% up slightly inventories and our preparation while holiday continue product the decreased everyone, the X,XXX Top inventory new both the in and busy Smith period enduring units channel introductions which about revenue by Wesson to were time just second you, a innovative versus loyalty to brand. thanks, over for actually during traditionally us pleased Kevin, consumers very reflect today. quarter with & the year, sees build joining results, line season. that distributor We

X% shipments our robust to share This in our counter. quarter strong sell-through, gains with retail that combined by the performance over was underscores NICS the our due outperforming at belief

key proud distribution to quality the awards new be trade reputation portfolio continue partners. to Our the and and from for been and industry product association major are the Guns NASGW, the Magazine have the and Innovator recipient Year partners, X Ammo of of representing we our differentiators, XXXX

in mix year, and momentum sales, In market. New our by XX% FPC including first M&P the for of received introduced and the products of very the have continue. accounted been Response this the half X.X, important products of the we revenue the overall quarter. the remain for driver all an Recently to XX% accounted fiscal well our products, and new expect

month, launches in Show for planned I some discussing next soon. forward which SHOT have very to detail exciting very We more look

sequentially. maintain balance to in as we ASPs down QX new healthy slightly versus and a year Accordingly, core products and up between digits remained products. continue last strong mid-single

our would the we headwinds. most seasonal what activity throughout would return moderation result we trends and fall fiscal this those portfolio to shared is strong but product QX in offset with where on associated our of normal the promotional XXXX, ASPs you call, noted of overall in All with some consistent that

in will we days, that healthy by the XX to following while pricing innovation to NICS our the be with expected targeted patterns. summer Promotional is mix Looking But product evidenced normal strong the as strategy, the participating results we and the seasonal the activity demand, with will are continue promotions half. second rebounded overall keep forward, demand slowdown in is overall throughout last strong award-winning confident return nicely our to ASPs industry market from continue. has and

GAAP onetime will the quarter move rates throughout and well onetime items, turn our cover as also move our $X as of million, are is although very detail than Deane metrics, reduce half current the these in costs by we margins adjusted with important in we negatively Tennessee. production from which the the in year Absent our dual of quarter pleased temporary our it further in inventories within note a and core moment. items of more our the EBITDA more first more impacts by should We and with couple profitability discrete in to earnings to absorption unfavorable impacted a million some were that $X second the lower expectations improve half the associated past than

they And or currently weeks. be we next at the order anticipate inventories components production the have scheduled abated enter demand process several meet major we will of QX. Tennessee QX, lines through few are while and are as headwinds The in complete the these to to move with orders. Therefore, likely increasing ramping up will levels complete in healthy either continue within we of

Turning now to allocation our capital strategy.

stockholder as in stockholders authorized The second a second reduction throughout in investment facility purchases and authorized to payment we to wind once sheet the new under half position and drive underscoring and returns our Board for again announce significant to CapEx maximizing 'XX. very that expect the the quarter, we be the approach. of dividend, down program stock in balance horizon quarterly our our value commitment our on Tennessee, buyback to We major in our strong during FY are made a balanced recently the pleased through we strong

The great close manufacturing with which commenced is continue I'll celebration success, shipments update as balance begun It ramping. early molding, activity and the will fiscal of Tennessee the has progress of and site. which is coverage. through assembly XXXX, Festival initial X,XXX our And planned. already Fall working plastic with the the from to attendees stages the August, the facility an employees opening at injection in still but and a XXX on relocation, in was our we for grand process have over continues and media huge in

charities raised event. at for We local the $XXX,XXX for also -- local the

team Wesson efforts to employees for dedicated stockholders. our deliver our to tireless and we value for on of consistently the thank commitment their again to upholding of the want entire driving & brand excellence, loyal, Smith legacy ensure I our

With that, turn the I'll over financials. to call to Deana cover the

Deana McPherson

on $X.X the sell-through Mark. our inventory weeks of legal line in of negatively settlement $X.X in X.X% our $XXX Thanks, fiscal quarter. XX.X% were smaller than levels have increased has due which year to with million due million spike impacted by our first sales After returned new favorable with above increased distribution resulted temporary quarter, impact or our levels. quarter increased impact to to . Gross was volume, second the first million during declining quarter. Inventory accrual. ASPs XXXX new steady in comparable ASPs a ASPs having in the prior of in margin fiscal as for Net a channel products, products the remained shipping a of

than believe X.X% to result lower adjustments. than to absorption year, inflationary was is this continue temporary, lower decline of X.X% unfavorable levels, first and would inventory or have charge, better gross factors almost Excluding entirely fixed of our a combination quarter onetime margin we which last as quarter been due the last and cost year. reserve a The and XX% comparable from production

opening the in later recover prior from these Due partially compensation-related share normalized lower our Tennessee an million now the the to quarter due than costs Operating in by expenses, operating million associated expect expense. facility, onetime income year offset with were increase more accruals with our at income to anticipated. sublease $XX margins previously our of comparable the primarily to to fiscal combined new quarter, reclassification grand expenses other and persistence event profit than $X.X of we of to second higher for XXXX levels factors,

most net Cash free year used $XX.X was second inventory million, reduction million in a quarter $XX.X to cash quarter, $X the seasonal million of a operations reflects the capital This we which receivable. quarter offset million, of versus during $XX.X related in was $X.X our for in With million current in year. increase the better used in partially the $XX than quarter. during million last increase relocation, a prior spending accounts by

stock. We common $X.X In million $XX our credit. repurchase line of $X.X of an in September, quarter, $XX.XX, shares XXX,XXX of borrowings our Accordingly, repurchased the the and million price $XX.X in $XX paid in our the nearly we ended up at of million of during on to and cash quarter this with million authorization. dividends average utilizing authorized million Board

in credit is by our to repay of be relocation continue the to We line expect to position a time complete. our

to Finally, on stockholders with our X. of Board XX, on to payment December has authorized record to be dividend a $X.XX be quarterly made paid January

year, year elevated. as QX products third inventory forward particularly From much when grew was in X.X% when has last the noted is to earlier, our good quarter, been healthy, our sales more Mark inventory channel channel last of to Looking and declining. QX to demand compared with it

higher terms inventory current at at sales levels a robust, in to products. mix low and and of dollars. rate to our given in to X% note demand in expect and During units Please levels, we from drop last than expect year lower-priced therefore, do handgun QX by more remain and channel grow that increase shift promotions to a QX both to we approximately be an ASPs

products the sequentially. our manage term. our be as gross be days margins to volumes to on is margins we to pressured targeted continue continue we quarter levels, promotions result roughly expect the third holiday in of production for shutdown impact in demand and being basis a Lower to inventory While do healthy, production expected will on reported short flat

to margin XXs expect an fourth into production. the to the percentage low in in quarter We increase due rebound

the will in as in Operating likely be January offset same to a expenses the opening grand in QX, SHOT Show related expenses event with in QX experienced QX. we range by being in

XX% and be is Our XX%. expected rate between effective to tax

and million, to sheet this next cash strong million about only with $XX balance several expected to within time targets spend the $XX next normal to spending relocation, project this on year position. a investment $XX approximately debt-free annually requirements in to capital have above generation with left and million months. for cash the be a by $XX of capital is conclude Finally, million we expect

With stockholders. that, continues reminder, remain can questions open business, allocation As for to debt-free capital analysts? we our a please and operator, in call our our our from invest cash return the plan be to

Operator

[Operator Street our Instructions] comes question Lake And Capital. first Mark with Smith from

Mark Smith

may insights, promotional to Do feel I lower it's Do question, for any excluding promotional in you continued same have guess, staying like out and new feel the first going today additional everybody Mark, push is just the environment on relatively the have outlook items. into looking kind ASP, there maybe like to that you you environment? of today?

Mark Smith

there's it's it's continue. see, the Yes, for kind encouraging picked that prepared definitely picked it to the and good up -- sure, and was activity and definitely to from Mark, nicely markets, has of We the up. summertime expect demand I is promotional we think

of days, look last October, If in that's XX we last NICS don't slow increase, months, couple see that to in kind down. the at you November, anything that of going the

of we're what forward. forecasting going kind that's So

said, still That a out there. marketplace competitive it's

of go back it's heavy So being there. maybe back A crazy. X, X but We cadence. continue, environment a normal to We lot that that, not dollars lot of promotional really, coming spent years as go see kind into that anticipate ago. to really of not going It's do don't that will promotions. promotion. we're

anything So as It's but do the to we I little the on range. Deana of not anticipate bit be crazy. it's in said, ASPs, going X% think going pressure a be to

Mark Smith

NICS the you Okay. then environment. of brought up kind demand the And and

October? this out demand from And conflict. as outbreak growth? kind the is in higher October, did was through sustainable in As around of see you do you that October, here November, getting early guys events Or tailwinds some seen NICS at November you there, like look uptick feel maybe remain we've then

Mark Smith

Yes. that I in it turned corner October. mean, definitely the think I

of steady kicked remember, off to the in the bit sit years". corner You later in got kind steady. some remained off, season when as October. That's still previous But of kind now. little it's today, "normal usually it's has maybe And kicked it I'll turns you, we here a tell pretty than

So next our look and chart, traditionally this holiday time, up. we're season, kind of it's into stack the the holding which busy and you is busy is at if

anything we tends going into a firearms materially to again, to don't the the year year, we're demand around firearms. next And which usually elevated see and an So around change going industry that's that. be rhetoric lot the of election industry to the

Mark Smith

And maybe give your throughout little pretty SHOT your we be still see some quarter, SHOT we then next as year? this we things here us with but stacked pipeline any products? feel new flow here got products, into Do a especially maybe Show. mix It the month the move pretty long look you can solid at you've should a sounds we'll heavier up of comfort like level into like products new guns. new Show? around coming steady insights as around you Or

Mark Smith

is X mix, participating increase that. kind we're very on Yes, I'll in well that long Yes, the of the and bigger answer gun definitely ways. in

the We new lot that well and that extremely for introductions. we're is we product that taking particularly believe product, share continue of So doing with FPC cadence anticipate of us. to a

that undisputed X years, think mean, keep prepared continue we're there definitely the we're over mentioned and last remarks, as pressure I in leader and in innovation anticipating I that the out the up. I to cadence

a have same get launches. will place great our So of definitely It's new in SHOT coverage lot get for on a a to big us of everybody and couple products. Show all the opportunity

that ones repeated we coming more going that this year, that's to a again out. then, look coming expect -- cadence going of a couple got year. but not -- there's So the we've And be be got to new products to to to we've big of got up back be cadence, last we

Mark Smith

think And me. Okay. I last the one for

debt about year would saying Over cash allocation. share we do sheet, that that able us the expect kind free. as process flow guys walk sounds still a to of some your balance excess be it some you expect do to now, like Just you think from have period, be capital you're Maybe to repurchases? thought to around through

Mark Smith

as last I couple -- we right doing repurchased the not now, right we're we're when we $XX million not some and mean, balance if have debt-free when share in see Deana have Yes. the sheet. don't against repurchases opportunity, covered, we line months. $X we million still We've obviously, got a on -- out the of

-- of but free, be -- cautious going more getting out a the going say in and while So be approach. that market forward, the it's be will back opportunistic, continue of line we're to bit of kind I getting we'll obviously debt little but and we'll probably a be to to

be major position towards As to we'll a then largely little we start of tail into kind end bit spending will QX the all past move really generate. and move the kind of that of QX, a in done, of be and to

in just half point cash this If first to $XX million of always million, lowest the you is are cash the a X those least want alone and But our we generated. you of of usually. remember, minimum in quarters, communicated generation we've year at $XX kind I'll

nice we're for So track this beat again, into we're obviously, year, an target. a -- election year, on on year. that And nice going next a

at So the returning in I healthy looking balance position start answer short your be value we've a where is, sheet the to yes, we stockholders. question think got a to should to

Operator

Craig-Hallum Our next Capital question Dyer Group. from Steve with comes

Ryan Sigdahl

year. what puts Ryan be on were topic. last for Steve. and like I next quarter, Maybe staying the shift by Last it takes out? now are targeting year-end, guess, the debt-free on that sounds to QX you to

Deana McPherson

April, by we're year-end right? cautious. So being would Yes. be We said

right information We're at be to April, our well. you could it is out and sure sure We are be December. sure play our cautious. make share right that by it and still there, could authorization doing sheet, it make we're investors looking also to balance providing have by we're to done protect repurchases. that as that we being that year that we we're but And going now, planning We're make

Mark Smith

Yes.

there, think there's Ryan. range I some obviously in

guess, And I'm materially to time. so what be not It's get I some trying I changing, is mean, it will to.

of said year, we is fiscal was couple be going of before, not be months to will So April. April, our end it a that, if of the which within it's it

Ryan Sigdahl

more sounds of reallocation it it's potentially. like So a capital

in stock versus leaning You change of underlying business back generation bought some potentially a that the there right? and in cash business. Is the

Deana McPherson

Correct .

Mark Smith

Yes, it was assumption, very good a . yes.

Ryan Sigdahl

over Maybe margin. switching to gross

in QX fiscal Is absorption next you sustainable given the much operating So that guess, higher getting I year? the maybe production QX. how So are of leverage target -- factors sustainable sustainable? production from have year greatest is Or from to that other benefit helps the the next days, back and for you which an is that QX the versus into standpoint? in that

Mark Smith

answer year. that lot yes, next we the gets into of reason end the Short natural and of you of a remember, of sustainable inventory year, it's this the towards a we always little is And build is kind a to tail internally. got move came surge inventory as bit built

So production of year suppressed we while that inventory artificially kind down. brought rates our been have this

Next also from normal, anticipate year, in rates those to efficiency Tennessee. be and that do production the back -- new some will gains -- facility see production we

the looking also we're just include at little of also dual numbers tell costs. that beginning QX right now bit a I'll some So at you, continued the

got still has there's headwinds associated So XX% with. some even that

your absolutely. is to answer sustainable, short that's the So question

Operator

closing are to the floor at I'll further for Mark back questions Smith remarks. hand There no this time.

Mark Smith

to again forward interest . and quarter. we Have everyone, Smith and Thank and Christmas. everybody speaking all with safe happy Hope & you, New right. today and you, enjoys for next Wesson. a Merry thank All Year, look in you joining us your

Operator

disconnect. good today's conference. concludes may evening. parties Have a This you. Thank All

Smith & Wesson Brands (SWBI) 7 Dec 232024 Q2 Earnings call transcript