Smith & Wesson Brands (SWBI) 7 Sep 232024 Q1 Earnings call transcript

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

First 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.

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

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

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

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

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

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

We are quarter very with pleased our first performance.

steady reputation brand's we strong top be channel big tailwinds consumer Smith iconic demand summer allow period for the inventory busy Wesson. Wesson line seasonally fall this slow both Combined at into of Channel & and shipments healthy retail. Innovation reflected with lean indicating remained the as retailer quality results. results delivering to and levels. continue preference brand us continue our anticipate throughout strong for Our of distributor our our drivers at & the Smith enter products will traditionally healthy to season, we consumers' of these for inventories pull-through

fiscal the by strength in activity With Our and effectively we anticipate core seasonal QX the new in robust of X.X XX% to the team market experience we factors with trends, a revenue for folding and year launches Carbine competitive latest product through ASPs. launching respective continued may volume balance seasonal later our M&P exceeding revenue for growth has late our products managing will overall now our year-over-year year. our reflect some due introductions. grow core as share launch a ASPs team was with of this expectations normal pipeline and little and on firearm fiscal innovation following profitably accounted demand competitive to to to promotions unit far, our XXXX. Diving so newest of X/X to moderation continue, and a continue significant additional remains strength line highly for NPD dominate several July balance driven quarter impacted and to categories products. in The steady environment. the our last development we products. the were XX that deeper positively ASPs fiscal of of their is by mag our and been continuing new Pistol in They demand coupled relative the see the the into first The M&P launches in NICS of higher almost promotional from demand

Turning conditions. to market

relatively and demand familiar see stable seasonality. to continue We

positioned our by consumers and are typically as were to XX% firearms was brand increasing the headwinds, our While following I a significantly first share. point quarter, on the and patterns. are innovation into low trends the gaining this strength year-over-year handguns while units is monthly demand note well basis reflecting hunting both of fall continue that up consistent pressured long our in for fiscal during marks we the NICS are again we down products believe macroeconomic be and our historical We guns. a which moderated quarter, about will trends NICS season. normal the during seasonal during normal pattern summer, move while that with

marks context, the time of a And to slower products stock are remained an and inventory up inventories busy fall our channel of higher inventories into XX% our down distributor the the steady during for period in And quarter, versus a the which retail over build season. year ago. shipments channel spite during for traditionally due this

strong number products momentum a Again, and across success programs. seeing the are the our of we targeted newest promotional of reflects this

We closely SKU to ensure with demand. is closely continue key and with retail to partners level work the channel aligned clean

despite balance to redundancy down potential by caused versus digits a our disruption ago mid-single spot, the Tennessee. sheet our to year a planned Finally, move any great mitigate is in inventory

was into planned. our the distribution we And August our finally, on July a quick half Tennessee of center from phases the and went relocation. facility live Inventory in update the Missouri distribution new throughout moved second operations with as in

Construction to now loyal building the culture headquarters the & the in over on the while transition grand to operations forward is project standards begin call and to values looking to underpin into and the highest will over working financials. overcoming I'll our that, past our each the operations along on consistently an the for future. With opening employees existing October calendar the years, success Deana weeks us its team the have all the the molding entire in the in maintaining and relocation. move, ensure this and dedicated of several the injection we're of not who X. I our is final the plastic and next Wesson, been Assembly of XXXX. to stages, A celebration on Smith want tirelessly continue with position putting of without even over simultaneously hand of impacts have stronger X the employees delivered challenge that dealing magnitude cover challenges, and personal to thank

Mark. Thanks,

quarter profitability again our disciplined slight level. Bottom sales million comparable quarter headwinds above $XXX.X flexible or quarter factors. volumes Net and strong lower line for a demonstrated first remains once distribution control April the were in showing over Our first XX.X% cost million temporary $XX.X inflationary offset with model. power of results as only from XX the seasonally channel the production increase of our inventory prior year

up quarter impairment to We XXXX than believe $X.XX XXXX. $X channel counter. ASPs with large for model the non-GAAP over than offsetting XX%. comparable impacted accounts $X.X paid we $XX.X cash million As our and Operating consumer recall, XXXX, Missouri onetime quarter. spite $XX distribution partially were reclassification year $XX.X the related in due the during inventory first in from share million, sales of annual of through we that million credit. legal of profit and anticipated adjustments. recognized our to above due as was to slow reduction fiscal at $XX.X decreases a other quarter. you quarter year, the quarter more our $X.XX seasonal dividends published pull $X.X With negatively financial at sublease we more and million, prior lower of began inventory million a quarter, in a the we share in declines year demand We is We lower lower match X/X free sharing, first in sales. million reflecting of of than Gross experienced equal was expense prior first quarter will of spending seasonal equipment fiscal GAAP expenses generated of decommission cash least absorption QX of of new inventory retail million borrowings year products products $X.X of of growth product negatively our $XX.X that lower the were this $XX cost operations to sequential million to income of as our the $XXX,XXX earnings and to $X.XX factors, margins comfortable our capital million of receivable. in making stronger per We believe lower ended last our we was of quarter of our manufacturing was products will sales. and due adjustments the to during Tennessee reserve costs seasonal throughout million with inventory line with and from operations. income the operating temporary, our $X.X these closely than Net in Cash XX.X% to period on the relocations. our up expenses at remain comparable earnings strong with income industry's million fiscal was for by mix per while net drop prior well production reflecting sold levels, as total nearly that margin impacted

for to our facility quarter. received and in the in our manufacturing to began During Tennessee quarter, preparation of begin product receiving occupancy we second shipping new certificate in first customers our

spending borrowings online of that construction building. million part The the on We quarter, half. during our $XX headquarters line Therefore, capital increase fully will during half. it to credit million to of expect our we $XX our molding completed assembly plan to our second injection in this year will and to likely of relocation the fiscal on spend plastic of to repay and we continue second our the we our be operations the are majority bring complete and first

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

to weather demand a quarter, with forward be consumer and summer to pick expect similar to move toward we second fall year beginning as we normal our last seasonal up to slowness activities. Looking cooler

volume, saw last what expect in likely in therefore, increase our slight versus ASPs over that to shipped second we in will we a dollars of to quarter, drop anticipate and XX% we quarter. Although promotional units some drive year's X% first a use

slightly alleviate with up pressured be that QX. in QX QX continue increased higher and rates, due promotions in margin be new facility by our in half. costs in to our the we promotions to facility, due will also Tennessee XX% we We margins to second to versus interest costs, increased higher and X% QX inflation second the that costs festival, higher of sharing. grand expect will being of profit pressure will to expenses although opening compared quarter likely include costs margins in The increased result including anticipate Operating marketing to hiring increased the to start-up expect associated opening and our onetime

expected please our our call open to questions that effective approximately can be is With we from to rate Finally, operator, XX%. tax analysts. the

[Operator Instructions].

question line Street. Lake from of will first from come Mark the Smith Our

question for me. First

maybe and about had how ASP? kind of look all we is pistols each the be of impact can polymer may the versus as you at Just for shifting on revolvers at any And lines? demand NICS, that those talk

always and that for, high a steady, fact demand the Revolver that in given that, is category usually we're constraint. sure. we're category obviously, that's always in largely demand Yes, pretty just capacity

line that So on you're -- the really, typically summertime, products. in markets NICS the core there we're more of the change remember, slower seasonal seeing our

kind obviously of the there the some volume brand-new and introduced lower higher we products a line, got are end. You've core in towards that then more

and ASPs time total at a that the very volume took the accounted and slowest when ended looking door in with frame. period and some you products up -- out that's newer those ratio season, you're bigger well. of did something obviously, up that how It's of new products just the the the higher So that

X-month to And in bit on they're impact the so little obviously, frame. going ASPs a outsized an of time have

or you And Okay. think X.X we those I else the called that's that products, really Are new tiers think and Carbine. driving... primary the out as call out Folding the anything about the there to

Yes, launched July I remember, XX in we as the mag well.

some -- sure So, we launches have launch. when model I kind and we product those moment we've got where obviously, of conversations, that products the remember of we want -- new we think, done ship have a from, that, do to at of to the make previous ready we've the like if the and of -- available you those calls

channel So it in will be fill the a big beginning. right

an XX that definitely impact mag So as had well.

then Okay. Great. as what's about for kind think holiday comment move about as then to especially environment, walk of but in season. that, your maybe we then planning we And or promotional little of you important through And through the sounds bit price, made you're your willing a through it outlook and like we some competing on thoughts positive us as move fall season? a

strategic now Good luxury sure. the We've question. kind it. being pretty right Yes, of got about

So we're going to react as needed.

come into remarks, our are busy in in good as a of we season. spot really inventories I kind the As prepared mentioned the

out of good into summer nicely the of year in shipments our throughout and at kind spot and channel the retail. we really clearing inventories summer, pulled throughout last of hard So came on half so far a worked through second kind the

to and fed thanks into team So it. that promotional a products sales and activity all new the of lot

we move we're not we've it's looking sitting targeted point that inventory through. either we're season, at like got into and my the can pile and look it. in channel not be that try We pretty is into of forward -- to a as the strategic somewhere So or the about internally busy fall, now --

reactive, share we necessary, are to there definitely of going that if but certain keep categories, going of more to be market out participate, gain going strategic to we be that is in activity we the if in any threat. competitive terms to and So anything see happens trying to it's think a

of targeted mode. kind wait So definitely, and participating see then be a and we'll

gross Okay. kind to me, what if want take know margin but And the this confidence last you one XX% expectation? and gives in or for profit Deana, you I of don't the

Yes.

like of lower accounting where reserve and our So what's adjustments, year. change capitalized the in a lot to on year production based last the were things driving -- half first variance we this

an cost first runs of that of but turns. its there's kind amortized -- half, inventory a gets factors like it It's accounting that amortization the course the thing, kind So of that first half. into over boring in

half, traditionally volume the second higher and higher production. So which is a

quarters unlike You we have remember, in have first the QX, where production, we holidays like in generally holidays. XX of days X no

those more during we're periods. So able to produce

And so we get the benefits of absorption.

higher of benefits the get also We volume.

higher expect the in half back than the we half. since be of terms much So first will margin

that Yes, normal while Mark, first it's been we've been if a And is since just always to environments. -- in these remember is one second margin half Q half. have higher you going -- half than always we're this of first

the question will next Steve from from of come Craig-Hallum. line Our Dyer

margin much Maybe in reserve Steve. in can just for both? quantify accounting amortization, or was that on on last how impact, that either bps gross Ryan point, dollars you or or

but points, impact. points couple a several percentage it's it not percentage it's we've that No, is disclosed, of but something

fixed -- fixed costs cost lot -- and absorption and manufacturing the a flat. and we fixed as margins. high both out point volume on -- tell the at in the cost you down to facility the I OpEx of facility, steady brings something company, manufacturing running can just any coming want on obviously, you when keep operation has very max line, manufacturing That's company, pretty we volume, really of other stayed gross the from and drive I And regardless very our that a regardless Ryan the through a market perspective, Yes like we're focus flat. in the full is the

big, a major some So it's there. driver. you color really It -- really I'm is giving

increased margins. increased So production,

X,XXX gross margins down year-over-year, I when look sales So, were up I bps. XX%, guess

or So have guess impacts like seemed necessarily? in been those last would QX year it not I

to their need a the when and we successful because bring in allow their go remember, when chain slowly. us No, down them until built we volumes we later flexible to take that volumes back them that model search allow volume to happens, producing works their able year down. you last we makes That's they're our our The way supply to so back QX, increase what inventory. continue slowly well is to

producing. So internally. we were were inventory growing still We

produced more producing we year. last this So QX in we QX in were significantly units year than

not revenue. function of a it's production. So a of function It's

the we're inventory We're no we And still we that inventory. driving have longer so no by longer down, a suppliers. suppliers longer and surge who are year demand, past having no are outproducing building

hasn't of fixed the same Mark like from year So units said, significantly that as one level it going increased comes overhead. production absorption the just to next. down and curtails, of the across fixed and It's inventory less overhead,

-- we long-range -- the market them be. view. it's we know it, slow as in the the a back it It's inventory kind finance with slowly about Like dynamics can align be get to up. come think we internal it down market, you where of as very inventories to you want take We to jerk we we'll don't kind volatile. a Just, need is speed range, got of longer

Yes.

about in need XX production XX ] If more (sic) so like production, we our in And the to in days more QX. with QX, growing in a trying quarterly you think days, the -- days game X not XX make to in production higher, more play margins QX, [ we're XX QX, we're inventory. day volume. XX

for business We long for are term. managing the shareholder managing returns. the We're

down time, you into turn fixed And it your so down, it. there don't with over inventory that are levels change. all able turn because more overheads out production really times because to do margins your you're where go And you cash,

cut our by able this the This that So a do cut down now third. We're inventory is goal. this goal here. the a back and quarter-to-quarter investors to really we're by not work beyond thing long-term it to back is doing right going

customer comping the slow you've a couple of same it prior last over it's seasonal underlying Guess or in are feels I a but consumer, those the Switching a guess turn slow, recently. there's months. deceleration still periods is you decel summer the been up? here conversations partners back a seeing things of lull end demand. it, you Helpful. still just like seen the guys metrics seasonally of cetera, that confidence kind to Yes. over bit into this NICS, we're and years, distributors, gives are and here to end anything in that et going I temporary with retail the get

I bit a XX-year a back what and of X ago. kind to get or maybe think of chart alarmed at it stack encourage And on little of X and go a see just see Ryan, zoom less going back to is it's that, oh, little you'll kind look you'll where Yes. out you'll you, NICS. I okay, that was and years

we're I think at the right wasn't during it's surge pandemic And sustainable. all height normal. XXXX, knew the of we back now. of where come kind XXXX to that We

I see -- kind right last at trends So of this top encourage following -- it's and fall. you firearms to then how you'll a go have and look it slowdown stack the very XX, looked along summer years, see the you almost year XX predictable into and and back of the on over very,

that the pick So fall. to that's a mean, yourself, do continue you yes, I'm up bit channel them to will if find pick throughout checks, out I it in sure -- up and and little it's now, starting you'll

[Operator right. All Instructions].

conference back to closing for to remarks. like the Smith turn I'd Mark Now

the to I and Thank enjoy everyone, in seeing forward rest opening as you grand evening. of everybody on many celebration we for look you, the can us X, right. as today. All October of joining our operator. Thanks,

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

disconnect. a now may have day. You great Everyone,