Smith & Wesson Brands (SWBI) 22 Jun 232023 Q4 Earnings call transcript

Good day, everyone, and welcome to Smith & Wesson Brands, Inc. Fourth Quarter and Full Fiscal 2023 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.

afternoon. good and you Thank

Our comments forward-looking may contain statements. today

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

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

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

obligation We financial statements. no have reference forward-looking update results. to non-GAAP certain We

business related of Our and headquarters Tennessee, manufacturing of financial exclude non-GAAP Outdoor costs. related results our the Products fiscal the planned relocation operations our to Accessories expenses and and in to spin-off XXXX, other distribution COVID-XX certain costs &

Reconciliations financial measures SEC EBITDAS our can any is our Also, on in today's is EBITDAS. reference GAAP and we to we are which fully financial EPS, referencing diluted non-GAAP when EPS, in of found press filings be earnings website. measures available always reference release, to each of and to adjusted

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

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

Kevin. you, joining everyone, And thanks, Thank for us today.

a Mike our to move Smith entire moment and Board of who Wesson of company, month. CEO our & Smith our we want Before Wesson as I behalf the into XXXX. since unexpectedly XXXX, as contributions and this significant Golden, family, of from discussion President of Mike the and to XXXX our earlier on served to member the of passed take & to away Directors results, a acknowledge Board a

all, and generosity of The multiple our And his and our to cannot dedication guidance. had leadership understated. successful with impact he of long company remembered a style our and be most Mike management philosophy for much industry, the accomplishing career and industries. across fondly gentle so will very of employees, kindness, be and professional

his commitment appreciate the & We are Wesson. to deeply of Mike of memories grateful success our and for Smith

his family prayers and and thoughts Our with are friends.

the this inventory abated. lower to continued retail And Focused consumer. that as Combined of maintained at distributor driving are successful on points levels quarter data XXXX. significantly, with or our importantly, success leadership faced promotions in the fourth major second inventories headwinds retail business. every review to we've very a indicates half firearm sales fiscal our share and levels, inventory market counter position were at most Fiscal elevated we solid from with below with fiscal targeted year now Now the XXXX and the throughout half ended customer. the of with a channel we the down our consumer throughout in first

This long-term and our busy sight challenging is our never of year, all who to losing extremely team focus. an seasoned to navigated thanks

team operations leveraged model, still adjusting rates flexible while manufacturing impressive Our normalizing production our delivering profitability. to demand patterns match

marketing with and designing maintain our of to work our arose teams leadership. promotions impressive to leader. channel as take partners strong Smith share to market & development our an and presence innovation a consumers strategic to opportunities position launched they slate And new of sales have and year, Our products new advantage the maintain bolstered Wesson's product executing our as thanks the throughout team

not be to the track, lead such navigating a our move on team proud without IT, run day HR, moments, the all simply legal, cover but and of simultaneously I is day. of back-office not not the to without as tireless functions Tennessee, compliance be to whom, of least, in we business And Last of possible will finance, and support challenges associated could organization. a more none dedication fully this, this with could our which the humbled of few I'll while tremendous

Moving market and demand on a to to in FY All down a demand support basis 'XX. counter view at as single and Therefore, this continue within May the QX expect 'XX, on we modestly will ago. seasonality. was point demand throughout largely that trend digits to variability. same continue retail stable year-over-year a following our to the trends steady below now experienced that And results pattern year overall the during towards normal in of factors quarter, NICS remained consumer low conditions. we FY NICS compared continue NICS discussion normal fourth

last compare Taking channel expect year. favorably declines results the we covered, into account I inventory just that to our will

a somewhat remaining are the continues macroeconomic where both our inflation. In seeing to reflect overall points spending products, consumer by being We conditions strong. premium price is featured view, bifurcated and entry-level fully this with average squeezed retail market at still

a solid as strong headwinds, our results. to position by we Importantly, to despite be succeed continue evidenced in QX these

supply innovation. view to aligned product demand, competitive point this of introductions very on key promotion adjusting monitoring competitive differentiation. and a we addition in with pricing as ensure In is environment, production, new of We remain aspects and constantly to key focused

the M&P expect M&P Our for 'XX. the as Competitor retailers half our but Metal, FPC, the a the second to continue all us just for the launches well. upcoming new product of top-selling you releases, FY in robust cadence Equalizer can not FY and been With 'XX, of have products, X.X, us pipeline M&P the throughout this

update hand Deana, I the Before to Tennessee. call over just quick a to the on move

the continues As my completion. track I with nearing in construction comments, mentioned project earlier on

and hiring our well begun and workforce, and testing equipment operations have We underway. installation is training

mitigating to the are We in operations office also have noting and the distribution live to go potential that to of balance inventory disruptions. to with end historical move the with It's at plan on begin any compared remain planning upcoming expect our elevated worth Tennessee our employees front consistent with August the QX, sheet place by for fall. will the in levels,

to the to over financials. And with hand the that, cover Deana I'll call

quarter inventory the Thanks, million distribution consecutive inventory the our reduction. last fourth are million, from Mark. decline environment competitive which year. XX.X% year for in January, as $XXX.X prior expected to We or change sales below given the X channel our of in resulting Net were quarter, that quarters from continued in $XX.X was comparable pleased

reflects combination and volumes, labor of the the lower on that impact XX.X% quarter. the Gross and unfavorable and realized cost of and material sales volumes, quarter absorption promotional due run reduced in impact inflation year of production was costs XX% below fixed margin a the during the comparable programs prior of to were

other income Operating quarter reclassification from expenses due quarter fourth million expense. of prior a sublease $XX.X than of our the million lower for operating income to $X.X were comparable year to

increased to with Excluding year this costs, from higher expenses stemming factors, were adjustment, slightly operating due relocation the employee above mostly depreciation. prior along

We compensation launch lower costs prior also of the entirely and a from brand the almost was resulting higher in co-op by this lower had year, lower but consulting profit-related advertising. marketing expense, Anthem expenses, offset

million XXXX. in income was QX compared fourth was from the year per due $XX.X Net gross $X.XX while earnings sales quarter of GAAP net share comparable was $XX.X from per fiscal lower $X.XX and non-GAAP $X.XX million down share entirely of in down $X.XX to earnings prior in quarter of the margin. to

to cash flow. Turning

the generated dividends was We paid million ended net of and in and credit. million of $XX.X million capital $XX cash resulting cash from fourth $XX free million in and on quarter $XX in During $X.X in our borrowings million cash $XX million. spent quarter, line the we projects, operations in on

we in This of cash capital full resulting represented year, approximately free use $XX.X spent cash replenishment During $XX.X $XX million $XX.X million projects, of generated the in from for and to a our net the relocation. combined year. related operations million projects use on with inventory depleted capital in cash in million

distributing in timing the we products As And our quarter. Tennessee second relocation begin from of Mark expect is the on noted, target. to

project. $XX of million to investment will during an XXXX important $XX We related this fiscal additional incur to million

our $X.XX to made July our With increase record Board to has the to a be to XX. payment stockholders with quarterly phase, relocation of July nearing XX paid be XX% authorized the on it dividend, on final raising in

inventory to last at consumer fiscal decline top fiscal distribution line That being our given year. the fiscal that fiscal experienced in 'XX Looking anticipate in channel resemble forward to grow we we significant XXXX, that in the will 'XX. expect rate said, the demand a during we revenue higher

However, ASPs promotional to we X% given by XX% the expect in 'XX. of down the be to recent competitiveness environment, fiscal

in fiscal 'XX similar a fiscal 'XX expect in to proportion a higher revenue than inventory. 'XX, we seasonality, the channel first to due to quarter regard again, With to realized we follow QX of with pattern

pressured to inflation continue rates. and by promotions due rising expect costs higher be interest margins to to We and

related inventory in movement of the costs employee pressure. the addition, relocation opening facility In start-up and will additional and to margin include onetime continuing Tennessee resulting severance

also currently marketing inflation due likely general million costs, and primarily in costs, to higher million in transition transition increased and to and onetime compensation administrative cost costs. total sold, of a goods $XX profit expenses. will expenses We Operating be spread $XX related expect of to

approximately effective is expected rate tax our to be XX%. Finally,

our operator, With analysts? the open from please questions call can that, you to

Our Instructions] question with Street. [Operator Lake comes Mark first Smith from

guns. ask First helped wanted else recovery Good there off, the Was long see demand [indiscernible] drive this there? products to there. that to purely or new was a I just anything about the

you Mark, up. broke Sorry,

Mark, your increase guns, the question? long That's improvement the there? the --

I broke up sorry. Yes, beginning. the there at

is This product. That's by Mark. driven new a

continues was the period over fourth to successful successful, time you in in know, quarter -- X/X at-- as number. the be it's FPC and March -- that launched M&P of -- very it of we So very there and a our the

throughout especially we pricing look then pricing? the any any competitive update more the about want And as inventory throughout but hear Excellent. competition. Maybe really thoughts on environment, to and on your competitors at industry,

Yes. pricing been able our for us, mean I nicely pricing, hold actually. to our we've

you little think we expect see what I this and pleased to can with be going a So we're forward. with we that, covered quarter, on very as in ASPs the color them

definitely again, and gains is the as as of achieve on been a -- our lot price-sensitive on a bifurcation. there. marketplace and the consumer doing the higher well. end able doing In comments, prepared XX% end There's at that to overall, to of we've I kind of definitely, volume my XX% talked whole probably, to is well And kind there's less expect We well there. in lower that's about

able to been successful. be We've

have you good, already. right those run line beyond continue we better, did just on we product we've the best. summer, we're more of last now, we've summer. inventory channel the normal And won't believe to promote we both offerings we between product any said, As been a than That aggressively to that know, the experiencing of like gamut what our categories. And plenty in doing in got

kind For us, the the in very, calendar inventory That last there pockets specifically, the year as where the for pleased, channel of was channel out very comments, we few talked inventory with of promotion our of about is. in the us. beginning we in the ran in in correcting successful very we're

year. And sits this our summertime coming with very the into so fiscal pleased and where we're into inventory new

I'd opinion So as a I you on channel than other think the fact inventory I'd kind some for of hard that. commenting competitors, as on more time kind be have far that, giving of

of some checks. leave kind you to to going I'm do to that So channel

The No, for last that's one fair. me.

of Tennessee timing You've budget? got on project of well. how the CapEx kind to been the is of here like Any thoughts the Just Any comments spend. to here move has it budget? amount fair moving sounds going kind to really on relative of a still

in environment, initial about previous given our you came into in we think we Yes. inflationary about definitely the -- if years started think calls, last talked the know, we project, over think done as we timeframe. We -- were and some estimates the about has you when that just this what X project the inflation ago I in

really that it to estimate, that $XXX going though, in we million in $XXX plateaued. much expect from So that was range still million -- where last very that has range. come to our We said into total. We don't the anticipate it's which

that project. So no on further inflation creep

from Craig-Hallum next comes [Operator Capital Instructions] Our question Steve with Group. Dyer

lines, fiscal 'XX. that think fiscal recall, million I I those million Along guided for slip It on like Is $XX looks right? you $XXX of like, $XX that CapEx to 'XX. or $XXX million if it had to million looks

-- That's is the the in flow statement. of way the anything you accounts in Yes. cash payable financials end paid report a that that didn't your get lot that that is sit of before that's GAAP year doesn't in

come on there's to bills payables. timing of the that And fall then of it is second just when our of and based So and timing of slipped into first in. the a chunk because going just just construction rest it quarter

go And then, statement? that CapEx guess, you. into payables would on Got why I

remove is of requires if what because to out way April the both, cash you payables capital, spending. out is paid your of you So out happens haven't it's have flow. and it's come got the them it capital a of by XX, you And to GAAP

it at of beginning the a chunk of the But payments, bills. we of year on door was the until didn't where So the timing it just based the received had out May. good go there end of

number. out And comes so that of it

Got you.

time memory guess of understand. the of I it's the that. make couple what on to to guys move? of So been the sort rationale and for move. refresh thing, trying you wondering to the at to payback which just million guys think expected, going into sounds I be hundred are more you it I the than our a this looks back you first what expensive, you to like, mean Can like as kind decided I'm And

Yes.

primary extremely be was that legislation about us and driver make So The products to discussion prohibit state business, beginning the going about of Massachusetts that was some produce of revenue. due move to from the would the some of was damaging two our essentially to questions. I in that being in guess our that's the being unfavorable able proposals up to that XX% of proposed XX%

impetus of was that to the the So on kind begin project.

facility that it's manufacturing we're the Missouri and at indefinitely payback of big continue goes, side, box. to we Steve, as the since out here out quite our As the as very operating, facility, plastic assembly 'XXs. been good distribution know, injection far of are I on the out operations as the open and and move we've in frankly, facility looking kind though of out And think, this with you operating been molding Massachusetts and now of to operations align a for us, specific going

at to want on lifetime once look it's improvements side. operational the You say a a opportunity in to efficiency

still the So range. at be those We in EPS we that anticipated to $X.XX time that case. the to be $X.XX of believe to

still makes business. pretty as term, from the you significant existential the and aside think the risk it's in the a long that to investment when payback, about So worthwhile

Yes. helpful. That's

will to more would do demand? and you like guys any sort ship or channel end to healthy. sounds you -- be towards where going you you flip you of of you last expect a expect I this expect guess, to Would Or relatively consumer like consistent, spot stay the is end restocking? 'XX, sort study feel it's at with it year demand of -- As sort fiscal

I think us. bit little there is restocking an opportunity a of for with

inventory distributors. before, we've supply As of the in at remarks, with X or is both we're below our we're our I below targeted levels major talked of as about -- said prepared some weeks

not average. an with us. we're little in operating restocking there's X mean, said, at That range we're I bit of X-week the for weeks. on a opportunity So

an So restock. those definitely some distributors will of have opportunity to

We are looking, though.

where couple to So in was in increase of earlier a fiscal new of going next what's And coming cadence retail gun weeks you the the just that from in we've That the our year about to question that the be type rest your tied some products of one counter. question, at and product. be yes, do a Mark's answer coming, category. product -- We we'll next product new long tell short, out it's of that new to are got continuing anticipate and the I'll happening came lot more from. continue throughout in that to cadence

-- So product in type or that of that category.

continue we And So to able gaining much with be to anticipate up obviously, is share. keep to very market. goal, the the market

we're but will to it yes, line, activity for make others. in that be than higher consumer us So working retail

like concludes Smith now the remarks. I'd Mark you. for back session. closing to This any Thank over to it turn Q&A

everyone, right. quarter. look thanks, forward Thank speaking today. for And to All We with next you, you joining us everybody.

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

now may disconnect. You