Smith & Wesson Brands, Inc. Reports Second Quarter Fiscal 2023 Financial Results
- Q2 Net Sales of $121.0 Million
- Q2 Gross Margin of 32.4%; Non-GAAP Gross Margin of 33.9%
- Q2 EPS of $0.21/Share; Q2 Adjusted EBITDAS Margin of 21.1%
SPRINGFIELD, Mass., Dec. 6, 2022 /PRNewswire/ -- Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI), a U.S.-based leader in firearm manufacturing and design, today announced financial results for the second quarter fiscal year 2023, ended October 31, 2022.
- Net sales were $121.0 million, a decrease of $109.4 million, or 47.5%, from the comparable quarter last year, but $7.3 million, or 6.4%, higher than the comparable quarter in fiscal 2020, which was the last pre-pandemic comparable second quarter.
- Gross margin was 32.4% compared with 44.3% in the comparable quarter last year and 28.4% in the comparable quarter in fiscal 2020. Excluding relocation costs, gross margin would have been 33.9%.
- 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. For a detailed reconciliation, see the schedules that follow in this release.
- Non-GAAP Adjusted EBITDAS was $25.6 million, or 21.1% of net sales, compared with $80.4 million, or 34.9% of net sales, for the comparable quarter last year, and $13.4 million, or 11.8% 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% 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."
The company will host a conference call and webcast on December 6, 2022 to discuss its second quarter fiscal 2023 financial and operational results. Speakers on the conference call will include Mark Smith, President and Chief Executive Officer, and Deana McPherson, Executive Vice President and Chief Financial Officer. The conference call may include forward-looking statements. The conference call and webcast will begin at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Those interested in listening to the conference call via telephone should click "here" to pre-register for the conference call and obtain your dial-in number and unique PIN number. The conference call audio webcast can also be accessed live on the company's website at www.smith-wesson.com, under the Investor Relations section.
In this press release, certain non-GAAP financial measures, including "non-GAAP net income," "Adjusted EBITDAS," and "free cash flow" are presented. From time-to-time, we consider and use these supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying performance trends. We believe it is useful for us and the reader to review, as applicable, both (1) GAAP measures that include (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) stock-based compensation expense, (v) COVID-19 expenses, (vi) transition costs, (vii) amortization of acquired intangible assets, (viii) spin related stock-based compensation, (ix) relocation expense, and (x) the tax effect of non-GAAP adjustments; and (2) the non-GAAP measures that exclude such information. We present these non-GAAP measures because we consider them an important supplemental measure of our performance. Our definition of these adjusted financial measures may differ from similarly named measures used by others. We believe these measures facilitate operating performance comparisons from period to period by eliminating potential differences caused by the existence and timing of certain expense items that would not otherwise be apparent on a GAAP basis. These non-GAAP measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for our GAAP measures. The principal limitations of these measures are that they do not reflect our actual expenses and may thus have the effect of inflating its financial measures on a GAAP basis.
Smith & Wesson Brands, Inc. (NASDAQ Global Select: SWBI) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality handgun, long gun, and suppressor products to the global consumer and professional markets under the iconic Smith & Wesson®, M&P®, and Gemtech® brands. The company also provides manufacturing services including forging, machining, and precision plastic injection molding services. For more information call (800) 331-0852 or visit www.smith-wesson.com.
Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and we intend that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements include, among others, (i) 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, (ii) 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 and (iii) we remain focused on managing the business for long-term profitability, market share performance, and capital returned to our stockholders. We caution that these statements are qualified by important risks, uncertainties, and other factors that could cause actual results to differ materially from those reflected by such forward-looking statements. Such factors include, among others, economic, social, political, legislative, and regulatory factors; the potential for increased regulation of firearms and firearm-related products; actions of social activists that could have an adverse effect on our business; the impact of lawsuits; the demand for our products; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; our competitive environment; the supply, availability, and costs of raw materials and components; our anticipated growth and growth opportunities; our strategies; our ability to maintain and enhance brand recognition and reputation; our ability to effectively manage and execute the planned relocation of our headquarters and certain of our operations to Tennessee; our ability to introduce new products; the success of new products; the potential for cancellation of orders from our backlog; and other risks detailed from time to time in our reports filed with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2022.
Contact:
investorrelations@smith-wesson.com
(413) 747-3448
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(Unaudited) | ||||
As of: | ||||
October 31, 2022 | April 30, 2022 | |||
(In thousands, except par value and share data) | ||||
ASSETS | ||||
Current assets: | ||||
Cash and cash equivalents | $ 42,975 | $ 120,728 | ||
Accounts receivable, net of allowances for credit losses of $24 on | 44,384 | 62,695 | ||
Inventories | 196,474 | 136,660 | ||
Prepaid expenses and other current assets | 8,062 | 5,569 | ||
Income tax receivable | 10,988 | 1,945 | ||
Total current assets | 302,883 | 327,597 | ||
Property, plant, and equipment, net | 169,265 | 135,591 | ||
Intangibles, net | 3,688 | 3,608 | ||
Goodwill | 19,024 | 19,024 | ||
Deferred income taxes | 1,221 | 1,221 | ||
Other assets | 9,914 | 10,435 | ||
Total assets | 505,995 | 497,476 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
Current liabilities: | ||||
Accounts payable | $ 45,178 | $ 30,042 | ||
Accrued expenses and deferred revenue | 23,845 | 23,482 | ||
Accrued payroll and incentives | 17,042 | 17,371 | ||
Accrued income taxes | 161 | 2,673 | ||
Accrued profit sharing | 5,628 | 13,543 | ||
Accrued warranty | 1,708 | 1,838 | ||
Total current liabilities | 93,562 | 88,949 | ||
Finance lease payable, net of current portion | 37,013 | 37,628 | ||
Other non-current liabilities | 8,780 | 10,385 | ||
Total liabilities | 139,355 | 136,962 | ||
Commitments and contingencies | ||||
Stockholders' equity: | ||||
Preferred stock, $0.001 par value, 20,000,000 shares authorized, no shares issued | — | — | ||
Common stock, $0.001 par value, 100,000,000 shares authorized, 74,934,815 | 75 | 75 | ||
Additional paid-in capital | 280,420 | 278,101 | ||
Retained earnings | 508,447 | 504,640 | ||
Accumulated other comprehensive income | 73 | 73 | ||
Treasury stock, at cost (29,040,370 shares on October 31, 2022 and April 30, 2022) | (422,375) | (422,375) | ||
Total stockholders' equity | 366,640 | 360,514 | ||
Total liabilities and stockholders' equity | $ 505,995 | $ 497,476 | ||
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||||||
(Unaudited) | ||||||||
For the Three Months Ended October 31, | For the Six Months Ended October 31, | |||||||
2022 | 2021 | 2022 | 2021 | |||||
(In thousands, except per share data) | ||||||||
Net sales | $ 121,035 | $ 230,479 | $ 205,429 | $ 505,088 | ||||
Cost of sales | 81,773 | 128,484 | 134,696 | 273,151 | ||||
Gross profit | 39,262 | 101,995 | 70,733 | 231,937 | ||||
Operating expenses: | 34.4 % | 45.9 % | ||||||
Research and development | 1,869 | 1,744 | 3,542 | 3,552 | ||||
Selling, marketing, and distribution | 9,431 | 11,423 | 17,458 | 22,057 | ||||
General and administrative | 15,435 | 23,436 | 33,288 | 41,049 | ||||
Total operating expenses | 26,735 | 36,603 | 54,288 | 66,658 | ||||
Operating income | 12,527 | 65,392 | 16,445 | 165,279 | ||||
Other income/(expense), net: | ||||||||
Other income/(expense), net | 790 | 833 | 1,463 | 1,493 | ||||
Interest expense, net | (420) | (466) | (854) | (1,011) | ||||
Total other income/(expense), net | 370 | 367 | 609 | 482 | ||||
Income from operations before income taxes | 12,897 | 65,759 | 17,054 | 165,761 | ||||
Income tax expense | 3,249 | 14,824 | 4,094 | 37,944 | ||||
Net income | $ 9,648 | $ 50,935 | $ 12,960 | $ 127,817 | ||||
Net income per share: | ||||||||
Basic - net income | $ 0.21 | $ 1.06 | $ 0.28 | $ 2.65 | ||||
Diluted - net income | $ 0.21 | $ 1.05 | $ 0.28 | $ 2.63 | ||||
Weighted average number of common shares outstanding: | ||||||||
Basic | 45,815 | 48,147 | 45,777 | 48,270 | ||||
Diluted | 46,106 | 48,692 | 46,104 | 48,524 | ||||
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||
(Unaudited) | ||||
For the Six Months Ended | ||||
October 31, 2022 | October 31, 2021 | |||
(In thousands) | ||||
Cash flows from operating activities: | ||||
Net income | $ 12,960 | $ 127,817 | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||
Depreciation and amortization | 15,171 | 15,210 | ||
(Gain)/loss on sale/disposition of assets | (43) | 57 | ||
Provision for (recoveries)/losses on notes and accounts receivable | (13) | 781 | ||
Impairment of long-lived tangible assets | — | 86 | ||
Stock-based compensation expense | 2,605 | 2,366 | ||
Changes in operating assets and liabilities: | ||||
Accounts receivable | 18,324 | 22,435 | ||
Inventories | (59,814) | (41,800) | ||
Prepaid expenses and other current assets | (2,493) | 87 | ||
Income taxes | (11,555) | (243) | ||
Accounts payable | 5,889 | (8,514) | ||
Accrued payroll and incentives | (329) | (6,313) | ||
Accrued profit sharing | (7,915) | (6,668) | ||
Accrued expenses and deferred revenue | 307 | (1,205) | ||
Accrued warranty | (130) | (57) | ||
Other assets | 521 | 2,030 | ||
Other non-current liabilities | (1,650) | (705) | ||
Net cash (used in)/provided by operating activities | (28,165) | 105,364 | ||
Cash flows from investing activities: | ||||
Payments to acquire patents and software | (256) | (156) | ||
Proceeds from sale of property and equipment | 85 | 70 | ||
Payments to acquire property and equipment | (39,419) | (10,113) | ||
Net cash used in investing activities | (39,590) | (10,199) | ||
Cash flows from financing activities: | ||||
Payments on finance lease obligation | (559) | (531) | ||
Payments to acquire treasury stock | — | (40,000) | ||
Dividend distribution | (9,153) | (7,692) | ||
Proceeds from exercise of options to acquire common stock, including employee stock purchase plan | 753 | 831 | ||
Payment of employee withholding tax related to restricted stock units | (1,039) | (1,399) | ||
Net cash used in financing activities | (9,998) | (48,791) | ||
Net (decrease)/increase in cash and cash equivalents | (77,753) | 46,374 | ||
Cash and cash equivalents, beginning of period | 120,728 | 113,017 | ||
Cash and cash equivalents, end of period | $ 42,975 | $ 159,391 | ||
Supplemental disclosure of cash flow information | ||||
Cash paid for: | ||||
Interest | $ 1,089 | $ 1,116 | ||
Income taxes | $ 15,721 | $ 38,186 | ||
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES | ||||||||||||||||
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | |||||||||||||
$ | % of Sales | $ | % of Sales | $ | % of Sales | $ | % of Sales | |||||||||
GAAP gross profit | $ 39,262 | 32.4 % | $ 101,995 | 44.3 % | $ 70,733 | 34.4 % | $ 231,937 | 45.9 % | ||||||||
Relocation expenses | 1,735 | 1.4 % | 1,087 | 0.5 % | 2,978 | 1.4 % | 1,087 | 0.2 % | ||||||||
COVID-19 | — | — | 3 | 0.0 % | — | — | 31 | 0.0 % | ||||||||
Non-GAAP gross profit | $ 40,997 | 33.9 % | $ 103,085 | 44.7 % | $ 73,711 | 35.9 % | $ 233,055 | 46.1 % | ||||||||
GAAP operating expenses | $ 26,735 | 22.1 % | $ 36,603 | 15.9 % | $ 54,288 | 26.4 % | $ 66,658 | 13.2 % | ||||||||
Amortization of acquired intangible assets | — | — | (70) | 0.0 % | — | — | (142) | 0.0 % | ||||||||
Transition costs | — | — | 80 | 0.0 % | — | — | 80 | 0.0 % | ||||||||
COVID-19 | — | — | (52) | 0.0 % | — | — | (100) | 0.0 % | ||||||||
Spin related stock-based compensation | (25) | 0.0 % | 10 | 0.0 % | (54) | 0.0 % | (62) | 0.0 % | ||||||||
Relocation expenses | (1,354) | -1.1 % | (4,461) | -1.9 % | (2,330) | -1.1 % | (4,461) | -0.9 % | ||||||||
Non-GAAP operating expenses | $ 25,356 | 20.9 % | $ 32,110 | 13.9 % | $ 51,904 | 25.3 % | $ 61,973 | 12.3 % | ||||||||
GAAP operating income | $ 12,527 | 10.3 % | $ 65,392 | 28.4 % | $ 16,445 | 8.0 % | $ 165,279 | 32.7 % | ||||||||
Amortization of acquired intangible assets | — | — | 70 | 0.0 % | — | — | 142 | 0.0 % | ||||||||
Transition costs | — | — | (80) | 0.0 % | — | — | (80) | 0.0 % | ||||||||
COVID-19 | — | — | 55 | 0.0 % | — | — | 131 | 0.0 % | ||||||||
Spin related stock-based compensation | 25 | 0.0 % | (10) | 0.0 % | 54 | 0.0 % | 62 | 0.0 % | ||||||||
Relocation expenses | 3,088 | 2.6 % | 5,548 | 2.4 % | 5,308 | 2.6 % | 5,548 | 1.1 % | ||||||||
Non-GAAP operating income | $ 15,640 | 12.9 % | $ 70,975 | 30.8 % | $ 21,807 | 10.6 % | $ 171,082 | 33.9 % | ||||||||
GAAP net income | $ 9,648 | 8.0 % | $ 50,935 | 22.1 % | $ 12,960 | 6.3 % | $ 127,817 | 25.3 % | ||||||||
Amortization of acquired intangible assets | — | — | 70 | 0.0 % | — | — | 142 | 0.0 % | ||||||||
Transition costs | — | — | (80) | 0.0 % | — | — | (80) | 0.0 % | ||||||||
COVID-19 | — | — | 55 | 0.0 % | — | — | 131 | 0.0 % | ||||||||
Spin related stock-based compensation | 25 | 0.0 % | (10) | 0.0 % | 54 | 0.0 % | 62 | 0.0 % | ||||||||
Relocation expenses | 3,088 | 2.6 % | 5,548 | 2.4 % | 5,308 | 2.6 % | 5,548 | 1.1 % | ||||||||
Tax effect of non-GAAP adjustments | (778) | -0.6 % | (1,258) | -0.5 % | (1,287) | -0.6 % | (1,328) | -0.3 % | ||||||||
Non-GAAP net income | $ 11,983 | 9.9 % | $ 55,260 | 24.0 % | $ 17,035 | 8.3 % | $ 132,292 | 26.2 % | ||||||||
GAAP net income per share - diluted | $ 0.21 | $ 1.05 | $ 0.28 | $ 2.63 | ||||||||||||
Amortization of acquired intangible assets | — | — | — | — | ||||||||||||
Transition costs | — | — | — | — | ||||||||||||
COVID-19 | — | — | — | — | ||||||||||||
Spin related stock-based compensation | — | — | — | — | ||||||||||||
Relocation expenses | 0.07 | 0.11 | 0.12 | 0.11 | ||||||||||||
Tax effect of non-GAAP adjustments | (0.02) | (0.03) | (0.03) | (0.03) | ||||||||||||
Non-GAAP net income per share - diluted | $ 0.26 | $ 1.13 | $ 0.37 | $ 2.73 | (a) | |||||||||||
(a) Non-GAAP net income per share does not foot due to rounding. | ||||||||||||||||
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES | ||||||||
RECONCILIATION OF GAAP INCOME FROM OPERATIONS TO NON-GAAP ADJUSTED EBITDAS | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | |||||
GAAP net income | $ 9,648 | $ 50,935 | $ 12,960 | $ 127,817 | ||||
Interest expense | 566 | 516 | 1,135 | 1,101 | ||||
Income tax expense | 3,249 | 14,824 | 4,094 | 37,944 | ||||
Depreciation and amortization | 7,599 | 7,724 | 15,126 | 15,166 | ||||
Stock-based compensation expense | 1,428 | 914 | 2,605 | 2,366 | ||||
COVID-19 | — | 55 | — | 131 | ||||
Transition costs | — | (80) | — | (80) | ||||
Relocation expense | 3,088 | 5,548 | 5,308 | 5,548 | ||||
Non-GAAP Adjusted EBITDAS | $ 25,578 | $ 80,436 | $ 41,228 | $ 189,993 | ||||
21.1 % | 34.9 % | 20.1 % | 37.6 % | |||||
SMITH & WESSON BRANDS, INC. AND SUBSIDIARIES | ||||||||
RECONCILIATION OF OPERATING CASH FLOW FROM OPERATIONS TO FREE CASH FLOW | ||||||||
For the Three Months Ended | For the Six Months Ended | |||||||
October 31, 2022 | October 31, 2021 | October 31, 2022 | October 31, 2021 | |||||
Net cash (used in)/provided by operating activities | $ (35,310) | $ (3,723) | $ (28,165) | $ 105,364 | ||||
Net cash used in investing activities | (28,004) | (4,431) | (39,590) | (10,199) | ||||
Free cash flow | $ (63,314) | $ (8,154) | $ (67,755) | $ 95,165 | ||||
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SOURCE Smith & Wesson Brands, Inc.