Smith & Wesson Brands (SWBI) 2 Sep 212022 Q1 Earnings call transcript

Good day, everyone and welcome to Smith & Wesson Brands, Inc., First Quarter Fiscal 2022 Financial Results Conference Call. This call is being recorded. At this time I would like to turn the call over to Chris Scott, Acting General Counsel, who will give us some information about today’s call.

Thank you and good afternoon.

Our comments today may contain predictions, estimates and other forward-looking statements.

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

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

XX-Q, uncertainties to that about judgment cause Our or forward-looking from and at call. various our statements including Forms a our future they levels along risks are These risks our in and find those described and or be results, on statements with today’s actual the subject performance securities you achievements our could and on our current uncertainties which expressed our activity, smith-wesson.com, replay materially can website filings, by in detail of reports represent of implied today. XX-K are to X-K, different

activity, achievements to important update statements note statements. of expressly comments to obligation today any levels our call our results, have the a disclaim today. I performance on and by about materially actual could from any expressed implied and items Our we or those few differ forward-looking

we First, call. non-GAAP on results this certain referenced financial

earnings these found non-GAAP or of call, also in today’s whether stocks exclusions. COVID-XX acquisition-related release. are measures, Reconciliations compensation measures be Our today’s financial GAAP non-GAAP related amortization, they filings related financial each exclude of our costs, expenses, and discussed and effect can spin results one-time transition in to the to not tax securities on press financial

today’s referencing when reference on EPS. fully and EPS, earnings we release press Our found Also, always can we our diluted are website. securities be filings

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

call to otherwise hand I call today, indicated, unless Before the operations. continuing remind income items statement want over results any our to reference refers everyone that to this I speakers from to during

Mark President and to Joining today’s call Executive Mark. McPherson, Smith, turn Officer Financial Officer. us and With call on are Deana over that, Chief the I will Chief

for thanks and joining you, everyone Thank Chris, us.

The team quarter, year the to highest a flexible quarter. always, Continuing for as our thank results very from we as to the that so we ‘XX. great has I revenue we to last in fifth profitability, the This and FY strengthening new First a and developing gains. waiting sales we period the out-producing to marks short in order times, we preference capacity growth was first like share the Wesson gains when partnerships, nearly that drove the marketing during year-over-year. last inevitably & consumer the puts perspective and and the In XX% accomplishment, to that XXX% of term, during were simply the entire launching first not on over ready products, able with hold ensure take versus term connect back. quarter is from supply demand. programs year, breaking and marketing, momentum are in the in impressive that the market if terms into to working three hard breaking catches our model year record end when share two step increased of to for the results surge FY need been difficult really a plans increase both to compounded market the Smith team the up achieve competition experienced are with rate a with and strong more and due these Even But manufacturing with increased long record company start new lead months the ever the first for but our those our industry, channel for sales XX our harder, only products is comps share nearly consumer, at combined straight etc., ’XX, the the the months. gains for would tremendous the just of will

of have leadership our throughout Clear Market to of outperforming half have Leader earned into the industry title intend heard a again position and year the product, We the regardless and we delivery and conditions. that time hold market past our the future by we customers from and that of

firearm consumer our our drivers number our forward. investments to in loyal developing product with a keeping of our ensures brand and purchase consumers feedback significant the continue industry, the our in message, in new of portfolio ultimately understanding ahead ways for trends, that connecting marketing and intent, always resonates We industry and and one brand make remains unique with going loop targeting that and

and to to kiosks Not and time inform designed controlled, provide carry to We remotely consumer include allowing without safe are Smith videos. concepts about Wesson unique our of product, the request make approachable Smith up-to-date are as firearms proficiency user or newer & touch customize & and retail a next highlight very sale of inner Wesson is purchase handle at do follows previous and the handle launched a first entertain. consumer Wesson interact begun starting the by way video team these and as calls. the kiosks and ready content to in content recent from content & brand, a the Smith screen connect allows Here who major by popular the new information ownership the the They we've of across learn very for to on our a advanced on are to journey training firearms. that physically to interactive the a to with and shipping highlighted that products, a interactive Firearms phase store. point well tool These retail needed prominently disabled safely effective relevant program locations to provide retail using branding they The natural having just highlights. evolution few displays and the assistance of We've country. The as only GUNSMARTS it state-of-the-art associate. screens with

to are In instructional reach program addition to helping millions new of broadening community, with of new engaged seasoned brands. these firearm skills, the the the the our consumers videos of now gain keeping while firearms new the members consumer confidence include and still

media and owners will brand, iconic the decade for our with with scale into first XXX,XXX resonate brings. one X engagements XXX reflecting gold about Our first consumers have platforms, the all been forecast. viewed reach our to from making we life. The Smith coordinated advertising existing With product by following training to impressions, stay generated nearly million & of for and our August, market the all over million new Within an more the we over social up billboards shotgun launch wow! of of this extremely shotgun firearms next the and a and campaign full hours, to our walks XX more the to reaffirms new of XX be launches television videos This that and amongst launched on widely reentering outreach and empowering And ever. has In and entry partners the email successful entirely most the GUNSMARTS launch talked Wesson X M&PXX marketplace. nearly a XX with an product in radio consumers continuously hours as new and messaging ability cadence loyal national advertising had consumers. goal exciting from across pipeline, success our Wesson industry new brands potential our of we buzz potential months. are the tuned products and for times generated million year market after than to shotgun this steady highly about and received digital our standard & excited the of introduction, finally, and opened the category XX% healthy orders that the and hailed a media of the impressions couldn't Smith

the very the in quarter, measured the to demand begin a the although And the our competition country up all from available this to course seasonality some started stocking inventory we ability of normal So, becomes tangible which during the to channel start first the allowed able summer, outperforming hard for over for summer again remain first by see retail is our be our a firearms the to return of did strong, beginning continue partners the time to year. inventory at at work as level. opening results when

long hunting Smith year to the we a new a NICS community the for Wesson brands exactly. many in to started market products have the in participating period. the now in back firearms to in Thompson/Center & the adjusting only spite brand subsequent consumers wider to handguns, inventory choice. gain even period from ability be past of gains versus that and share NICS result, with number the continued in in for NICS the of show been to actually of outperforming selection not nearly held time and same that our in we quarter entered Comparison And in the come over limited As the market products category the matching this choose estimated results share of purchases, the the timeframe stock, sales Arms had channel unit after continue of guns, the who and our consumers build, during for

cover before financial wanted to statements. from to Now I thing our one Deana highlight the over hand to I call last financials,

launches, costs and margins, initiatives, created past any operating in them, studies, has in brand marketing market flexible in profitable with in team value and condition. effective delivered organization, long impressive holding our transaction nearly not new capital and our returning etc., growth, spin revenues, just category, results operating quarters term subsequent a rebranding a and years and our us but two-year consistent into of of the executed to positions just that, terms product a share Deana EBITDAS for not commitment is business nimble, I'll over flat, market since five efficient spent. has Our dollars The functions major all delivery The in combined record restructuring business for themselves entrants the actually over cover efficiency GUNSMARTS, including processes questions. straight growth, relative all research speak several consumer campaigns, and and driving sustained our of in XXX% we allocation strategy financial row, very of With while well the to our the to reducing to results the take call before turn returns. shareholders, which healthy compounded

of over year Thanks that quarter while quarter last was a first hand increase last Mark. of top had results inventory year exceptional, given year and the nearly our it increase increase inventory over was $XX.X of increase implemented considering sales quarter year, very beginning low. more on increase million for compounded The year to two this or at capacity in million, increase at prior XXX%. in first remarkable last $XXX.X enormous all prior was on in of the second that first in quarter. the the and of our a This year beginning XX.X% is due that possible the year's Revenue was year, the the is an

traffic of a levels, was time remains the get personal As Because at pandemic channel began very soften the are from when now that was to time Mark this production increased started, have products and year. margin the increase they demand quarter in quarter. some than above indicate impact is over lower fairly our months. outside high XXXX our increased our XX. on increased and impacted more available seasonally one XXXX recreation but in enjoy people summer and to were elevated XX when fear one of in was level. first as the still slightly consumer prior deliver than ability first a compensation-related sports increased inflation margin safety at volume impacts, for new Reports of checks to very within year machinery was began Gross during channel year two price of the the for noted, to foot to spending, summer it been due increases was Margins XX.X% since June some XX.X% in first basis and XXX headcount. by volume-related and This negatively the points in realized the costs with quarter, on purchases November associated prior in comparable depreciation above high

the our year were year million costs million important while comparable However, costs $XX.X control higher, year manufacturing in than output that spin fixed costs due it than demonstrating to prior output. to this was X.X% in growing the quarter. first first quarter for quarter, only were note entirely quarter ability Operating flexible to expenses XX.X% our while year production the is prior higher quarter, first in the of production prior of $X.X lower related

operating profitability combined in income earnings million $X.XX million in margin customer ability synergy gross $XX.X spite to Excluding share increased related the increased prior in primarily and those and control led allowances in the in a with costs. of the spin, million, an combined count again, to increase to volume costs, per the a prior increase prior year from The areas, flat share year. compared over costs $X.X $XX.X in due strong resulted savings $X.XX over containment revenue to realized with expenses demonstrating the compensation reduction with year. our net of related of shipping were an expense This

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

we the free quarter. quarter, in $XXX.X in million spent resulting first spent and the of from operations cash generated We During million capital on $XXX million cash equipment, $XX $X.X million in $XXX in quarter repurchase $X.X common resulting the of with of shares bank company debt. dividends ending no to million one cash paid stock approximately X million and and in our million over the over

products shares. our the of an program, on repurchase announced call any rules tax-free of last have million to for Safe yet value Harbor able of Board that our until Because spins, the additional last June, our this authorization not outdoor and final XXXX. we share the August, regarding spin-off As $XX represents which of we we’re the Directors business execute August repurchased authorized timing

$X.XX opportunistic quarterly of payment a our intending strategy, this XX. we are So record on biting be XX, has per with our our to share program. dividend shareholders with for September and Board time to dividend authorized Consistent be to of September a payment made on

the have into forward fiscal can our past XXXX, firearm every Looking for four quarters we shipped second quarter we of produce.

We at door. and order inventory our to replenish coming channel consumer rebuild begin their and inventory, receive that in point now so where able of own our the a the to we're product can are customers ahead in

Our which to distributor this target inventory supply, been today is expected. as return X weeks level and of approximately a normalized of level has is more our

and in our second internal levels we good target, well our Remember, internal is and our the warehouse below expect so our inventory replenish in continue quarter. to inventory be a will still throughout thing. inventory are However, our channel levels that

our be We adjust demand works increasing on having expect demand our of hand equally where to to reduce supply as ability inventory work well our reducing helps times our periods to there part are without us which customers decreases able we to works absorb ability well continue This while to in and manufacturing our overhead. of is produce chain to our demand will with we flexible strategy, delivering when capacity capacity. continue outstrips in

our important structure. understand production margin cost is schedule to order our always, As in and

two to XX and XX have second two operating had over crosses Our will due quarter shutdown that our operating days quarters. our first week quarter days

increase our We And seen and open analysts. indicate related and to indications operator, our to can avoid you offset continue chain the With we've questions any finally, change, tax always, to interruptions. contingencies stress effective substitute related for monitor XX%. our rate that, as to chain At our is the of to pandemic. demand call supply continues our in nothing develop time, to concern, from but risk approximately a issues please team or supply to this

Instructions]. [Operator

Our of Capital. Street Smith first the Mark of from line question comes Lake

Your line is open.

addressed know rifles the and Hi as seeing a retailer, some you pure or on shifts it in you if guys are that as guys! of consumer be within call, consumer would demand kind First what question, foot even demand and that today more traffic Hunting but bit you're far you towards seeing any just you shift great? within seeing know you're demand,

strong. continues Mark! Hey to Sure. the be pretty demand Yes,

– know you year some know this demand pretty you I throughout historic I time and with levels just we're up summer. came the comps it’s mean saw mixed today the obviously lapping tough we think results last

think the chart our know we saw between usually you I results the that ever difference this year NICS frankly second summertime. and the the of stack last last is look previous continues so this when to by the of year normal is versus on seasonality strong. last ten year we you obviously year the at those this biggest this year record in see the demand except far be years, But the versus all year, years,

last we're recently, always In off is picking know what does like and weeks, was follow even even that at versus the hearing we're of August. it it traffic is few terms just up of where days kicking in anecdotally the beginning and you seeing

the if you the stack you the normal firearms industry. kind is look entering into there busiest of and think NICS, the usually that chart and in seasonal we the fall our periods point period, winter you get we're know early So know at is, I into that of

and kind hunting start question off and of a this that of of cool time to some the I fall year. was weather and the and with industry kicks out kind the the of and we to usually start the as people – they lot of tends to time of year firearms getting of about see bring of think mix, doing enjoying there with think you your kind hunting, this know the it – along about the second outdoors rest part

the year that out see detail I I the leading you definitely is difference versus came look know, Handguns it the at years. you you is think from results today. think just if NICS previous and this way the can

product mix, at the And new Okay. as during solid look we it looks quarter. your

As we maybe months? more launch next over months launches XX over should calendar, product the look at we the prior of XX kind you expecting new be your than saw

Yes, I the think pipeline. comments, we last few because new launch up it look, said, yes, of have if I And kind as new backlog you I robust kind the it now. had any during will the prepared in I said, of think we talked doesn't addressed in we're product of kind surge a make for We but a quarters. us products, sense of to them building very

make we're just everything You and And we're strategic that. know because and you going shotgun out about saw smart to here. launch sold we be the and can

ready we've we You been that extremely now it. know of little say we and and plenty a for while little waiting have for do it that launched us we’ve a the that behind as wings for let's just frankly out availability with more, made successful, was to in one capacity had – that bit sense but here,

the your kind know this and about then shotgun how long look good didn't how you in far, your long and looked typical the includes so about MSR business shock include volume on guns, outside talking gone the do that But quarter, shotguns we And feel of just especially of as launch has for during guns platform? even the at launch. Okay. opportunity shotgun, that numbers, you

brand. we will, long be strategy. brand we is talked categories this market, divesting you Yeah, under the about Thompson/Center the to know the Arms when gun if that we've it and the talked back the And more coming you were about of first Smith with the – into in going and that shortgun Wesson traditional hunting

on execute to beginning that. immediately we're know You

I shotgun shortgun category think market, the for is that that area, great us.

back a and I much self-defense fits before, that it divested will our intend with shotgun, expansion we Thompson/Center starting said at bolt and category with into we we to the think action well off again on side when think be but will brand we we're more I as in as business, the getting very that Arms of well. we continue

just any on one, last updates And Thompson/Center? Okay.

We're going sale process. the still through

there guys. update yet? Thank you, to great! nothing So Alright,

Yup.

Thank you.

Stember next of question King. Our from Scott CL comes

Your line is open.

Good evening, guys.

Scott! Hey

Hey Scott!

weeks inventory threshold you were much you're are an it level, where back pretty saying they from customers that talking wanted eight Deana, a comfort Are And be seems like about, you to know as below you maybe the standpoint. need from about commentary really talk your far then also well? and you internal are, you about inventory to to what be. below just the how it your

Yes.

and So, channel still certainly looking are where areas to for customers yes the started pockets are more the of up. fill There rebound inventory.

many still definitely sending out we revolvers are We as as possibly can.

they So to we quite the I could a that up we think right inventory, internal we a there’s but over now. finished they're to more because place more. them We'd have able than that's our regard bit years have like have we goods With many and inventory ramp do lot were to had good wanted. the get reasonably our yes, a in and I areas where volume think more,

really bit the depend quarter how certainly ramp probably and up get back take time does further the starts little through want where on of to a to in. So kick be year able we’ll to much and to fall to to season into the that us be to we back second that,

in back still ability out so now a inventory what And holding right you'd based more to of we we're comfortable a our from that inventory be will lot. on much look it'll little very of ramp how bit if consumer, a not time. have history, quite see goes is Our you take bit us and of

Mark. is this Scott,

to “typical take of able or inventory a not calendar to able projections that start rebuild of going If we're you kind to ’XX Current not think our be those back to the of there. back in end going at go able the be of to kind just know but levels” our inventories, the we QX, look bit be inventory get warehouses. you of ‘XX little at into a to fall, levels we're will you say to put I

So tight today. as we're here still pretty even we sit

environment, across that are normal, program, inventories could it I back you just the are a to you GUNSMARTS very more now. work historical now below the promotional talk the environment low, Is is levels? channel still back where know doing normalized very, it guys but some to And Okay. about with or is it way

multiple environment definitely over We last We no promotions. is historical weeks just – checks the to and channel trade a areas Everybody below week there were it's offering promotional The anything, is hear and there at can rare I the country a way in who's still are selling. tell but different you extremely full that MSRP. even shows of levels. few is do times retailer

that is, went I difference pretty went typically the year to this heavy, said be we're go promotions. I “normal running it's be think we season as into reason you I well busy - we season, is we and think no mean, and into and earlier last going there's to I a typically everybody very going as think and between a be through good busy year our – expecting we are getting to know much as we and So seasonality” summer

I right all now. that's Thank Alright, have Got you. it.

Scott. thanks Alright,

Thanks Scott.

you. Thank

question Cowen. von comes Rumohr Cai of next Our from

open. Your is line

so thanks much. Yes,

of for where has the third G&A think is under quarter. How that million G&A couple be your $XX running should to quarters? next about going in the been So, I

I pushed think we've hard. pretty

that I think think going expect that, a of in efficiency fluctuate we will, to that office of everything spin you here the there? magnitude know restructuring transaction, and the driving did little into we after course, As in and do the that's I at talked business that's going last end that and it order you back forward. quarter, but continue efficiency right the guide terms will to guys Of it we bit through, and

jump below the mean, think that somewhere but is the could level. where way I to basically go near - are, be it going appreciably So up current it? essentially we it's obviously shouldn't from to not about some,

think going year, mean it's projects doing year forward. last the it that is doing, It and Yes, know everybody no that achieve you deliverables there impressive I I and over reason pretty with the is. to everybody last to what G&A $X.X billion increase is

us your particularly where think Maybe gross about give margin we color that And about be how couple the some impressive. was of might over should quarters? next

Yes.

normal if think to seasonal the and went you the if going is this again, – indication record far model is of you Analyst through look we're so be look, no to going – busiest next quarter, ever to end that the on at on last talked chart, stack second the the going year this not period, we again, we about I at Call back that summer demand a but continue.

So at model. above or end to top of the we're be going that

have mean, how should of mentioned shotgun? shotgun about of or shipping the you you shipments? right then XX% think XX% you're of in orders the you for And box. the first about Okay. did How expected weeks the should we I that the the or couple think shipping profile been we out ship

lot increases successful in produce a Yes, very product, capacity thought is, more a investigating there. strategic we the that's by it a Cai. obviously I with in because of great well product. does marketplace coming That that received currently be earlier are we're that of take we was gates. than question little project the we out were to We're going very, to capacity so that That of the it launch that, and mentioned

So now. increasing production we're right investigating that

point. fairly at is limited on this capacity Our it

seeing… So are we

then how June price And was your hike, big that?

Cai. X%

legal comment any one, have you challenge? last New do And great. Okay, on the Jersey

authority ongoing the don't we respect comment forward Cai, appropriate move there. feel matters, it I investigate subpoena court's that respect to mean decision has that that attorney legal we didn't We on so the really general didn't say, was much to on Obviously, suffice fully to that issues. too obviously from but and the going and we're

very much. Great! Thank you

Thanks Cai.

the call turn Instructions] Smith over for At remarks. like closing Sir? you. to Thank this to [Operator CEO, Mark time, I'd

Alright, thank as I yet to quarter. again, thanks Smith And Annual reminder, Meeting you. XX:XX on the our quarter. call stockholders. stay on Virtual Once was of team Eastern us. speaking & a will next the meeting, our Time. remember including to say safe. record information to Stockholder breaking everyone to September my another just holding that want all our at Look just The for members for fellow joining is Thanks all the that we be Wesson and details with out filings in XX provided With everybody sent communication that, forward noon

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

You may now disconnect.