Smith & Wesson Brands (SWBI) 7 Mar 242024 Q3 Earnings call transcript

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

Third Quarter Fiscal 2024 Financial Results Conference Call. [Operator Instructions] This call is being recorded. At this time, I will turn the call over to Kevin Maxwell, Smith & Wesson's General Counsel, who will give us information about the call.

Thank you, and good afternoon.

Our comments today may contain forward-looking statements.

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

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

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

have statements. We update to no obligation forward-looking

We reference certain non-GAAP financial results.

available related in our move filings our is and other website. found costs to and EBITDAS. earnings each SEC to Tennessee financial and we press be Our reference the certain Also, diluted Reconciliations to release, financial non-GAAP in which today's headquarters of adjusted GAAP non-GAAP in EPS, EBITDAS costs. are measures results of to operations fully always on any can when EPS financial referencing measures our exclude to reference we is of

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

are Deana our call today's CFO. on and Mark us and CEO; President our Smith, Joining McPherson,

I With the over Mark. that, to will turn call

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

Our share QX. shipments innovative overall momentum quarter continuing market, best-in-class our strong in reflecting the sustained outpaced line could fire We another team robots top on for in portfolio. as in bottom and the and new delivered the both our the products, our

factors return $X.XX. our to bottom shipments quarter our initiatives, back dividend. Top $X.X our continued solid line, and the key cost we combined persistent against operational drove line in increasing Reflected doubled On were our X.X strong SD Tennessee last on activity. over stemming to to the shipments production from the pistol, of gun up By XX%. was up the and promotional were our ago market, almost long reception handguns. entry-level category, long X% launch mix year X% in measured versus than while including is out was with year, buy only second-generation flat, X%, discipline, whereas And less our execution stockholders, handgun the consistent by X% commitment just overall down shipments period, EPS value and of holiday in move, to as shares and with up and the revenue under better-than-expected largely million during guns NICS down rates paid

our for new the product top-selling our to be FPC, the sales up by led continues the which of of our which products, of power highlights This made quarter, channel in over many XX% partners. the

products and with retail actually indicates retail strong the quarter market factor pull-through our the remained hand shipments important belief & consumer levels quarter. we comparing our This in counter many at quarter. inventories the reinforces and Wesson times our levels that partners the XX% throughout inventory Notably, about NICS at down share for fluctuating decreasing gained by before, an in is unit to retailers Smith distributor and covered inventory healthy at we've As distributors. during

the in line also And expectations. during quarter with continued to and spite I mentioned ASPs our in trend of the factors earlier, healthy remained mix

improve facility manufacturing about profitability covered nearly we As long enter Deana in new some expectations to expected as getting duplicate ago, continuing margins execution last beat we strong quarter, by by able and of FY quarter the up in running were handgun as team led ASP production XX% a versus spite our absorption. abate with which to X% excellent X%. These 'XX. operational better-than-anticipated improving of by by and ramp about as This ASPs costs, will gun combined in year whereas ASPs, and

Looking forward, every category, now or increase we demand. in in at with almost our QX to internal continuing to target below are meet inventory production levels

such, our gross XX% model long-term of fully levels fourth As we to return margins improve and quarter expect with consistent further to XX%. to

remaining duplicate and costs out realize phased also be our to as 'XX state-of-the-art levels We FY anticipate benefits we these in final facility. sustained to fully the the efficiency are of into begin new

and that spend SHOT industry more minutes few a announce like late a event on. I'd to used Finally, significant to January attended in we Show this new product

granted new believe execute repeating Our patent the come. original firearms. XXXX in of contributor to has This & is based well on line. volcanic, a Smith the it first Smith named that and a beginning. vision we lever this out the to for successful platform lever one Wesson's view base rich the as our loyal other the consumer we of was And M&P & of on platform are XXXX why Wesson. positioned products led the part of a development rifle, action ago that to to owned for our DNA building potentially brand, We growth years since record their many has such gun product XXX action been heritage rifle lever We the XXXX. major as years

Smith and permission look of at broadly underserved today very that believe opportunities category, calibers, finishes, lever a white potential award-winning very a work space to team category. product action, significant new opportunity an expanding put and and new development that our heritage XXXX to us the intersect The extensions into into for lot & we give As authenticity excited in entry as area. our to brand this action broader purpose-built with and Wesson, view represents we're a lever new hunting

we with and our third 'XX. In very to summary, FY forward are looking pleased quarter a finish are to strong results

XXXX excited we continue our expect to market value sheet world-class importantly, strong election leading and the experience throughout brand, We balance deep firearms and stockholders. now new continue delivering of cycle healthy new operational, for to pipeline facility most to demand our with state-of-the-art the to are dedicated employees, products,

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

X.X% third Thanks, Mark. above for were Net our the sales of prior quarter. $X.X comparable year million $XXX.X or million quarter

retail. inventory of indicating the of at During our the products distribution strong quarter, terms actual channel from declined inventory, October in sell-through in and weeks units of

As increase. It expected, increased than ASPs from labor, offset anticipated the relocation product the impact with of was lower last promotions be due to Tennessee due inefficiencies better is price recorded volume, partially X.X% by The spend combined at and new higher Missouri the introductions. that QX due while on rating the January lower the Gross margin longer of level, associated in above decline sales and and new from facility the noted comparable to with was of costs on as facility declined in quarter the is operating some to year we facility and XX.X% entirely margin increasing material handguns to no was long both of year. X that QX start-up Ashimi inflationary the which the Tennessee last facility, the X.X% and guns and at this should factors products, expenses. due in levels ASPs lower-priced to P&L operating than geography while are

ramping fully cost In facility automation we associated efficiencies. begun addition, and up have will as not the been have not with some operating our of the operations Tennessee that improve realized savings are with

Connecticut Massachusetts and the also have with location. to our realize associated XPL the We facility yet offsite closing savings

primarily operations was than in to year Operating third were $XX.X the due depreciation legal million quarter ] expenses higher costs. by for increase million, and an [ on new $XX.X our of generated $XXX,XXX prior comparable for due facility better the $XX.X quarter, third the relatively inventory to Cash quarter quarter, million. spending receivables capital was declined With of relocation, year, in primarily $X.X related quarter. to remaining our while flat by $XX.X generated than we cash which of to during last million $X.X free last million most the million, net

We repurchase shares $XX under authorization. our to continue million opportunistically

$XX.XX, line at an cash million dividends shares quarter XX,XXX price We of and credit. borrowings a $XXX,XXX. our approximately average million on in repurchased paid total we in in with $XX.X $X.X of the and of for ended million quarter, $XX the During

our line, continue this quarter $XX position end, have line expect end a and repaid fully the to of we on in to before to year. calendar million already repay the to Subsequent be we

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

our to forward fourth Looking quarter.

Mark it healthy, channel about is particularly year when been for last products earlier, As was compared noted higher. has good our units demand inventory and when to XX,XXX

terms be to due the highest typical, in we grew declining. with year, last of industry, in quarter channel expect revenue. QX our is fourth quarter fiscal sales From As QX seasonality to XX.X% the to the in inventory our

at to units Therefore, low levels QX, QX we to both of stable. the channel to and expect current rate terms grow During expect our last than slightly dollars. a sequentially year higher inventory current sales we at demand remain and be in

long note sequentially and handguns and products to ASPs we guns. do and mix to expect new Please due that slightly increase

the in As days days, low from our noted as means rebound we third exit with expect that the phase facility operating in margin to Tennessee for the startup percentage we margins of production the fourth to quarter enter XXs. XX increasing to quarter levels the increasing quarter begins last This to fourth and expect quarter, operations. days XX

in X% be in QX, amount. likely an profit higher driving will expenses sharing Operating the with X% increase higher to than

paid As profit. our wages the our a sharing is higher to our quarters. sharing quarter, of profit other employees lower XX% of represents each be in fourth any the operating of total profitability will profit reminder, quarter than or Because highest XX% year

Our tax rate is to effective XX%. approximately expected be

not we we less the investment $XX calendar year, million to expect have on year, commentary, least debt-free at flow. capital generate to down. the cash expect by a continue providing winding million spending capital prior is than this to $XX Finally, sooner. with million for balance operating significant Consistent of normal are $XX end approximately of cash if With sheet spend relocation, annually left the requirements to and excess project per

continues debt-free reminder, allocation and invest be return a our capital to plan our cash in to our stockholders. business, As remain

the to let call operator, please With questions that, me open analysts. our from

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

Tennessee wins facility on talked questions. This I I if productization you for could is efficiencies. want Jason what some know capability start standpoint? you the you transition. about appreciate into our or bit And But any since taking a Mark. early the encountered with little go move? then you've just from challenges to a are you seeing I

we the for operations -- as assembly operation are innovation From molding. facility more sporting logistics as pistols Sure. the is covered plastic our and houses well houses before, injection and and side, Tennessee our as rifles

the So of Massachusetts out nation design the continue. the will and and facility, work that is based still Springfield,

in So move. any disruption Tennessee shouldn't from to that, any of be terms the there

news some far kind of and remarks, of of a prepared now of to well, we're the going positive I the that it's led think I the As ahead in as only the schedule, itself, margin bit as line. kind little move on very covered

couple into FY we're though, months first kind staff, better through et get cetera. only of should some down said, we're still that very the and start the the inefficiencies second the of there facility, And and start-up of up going starting pleased 'XX. QX we of going -- So a from greenfield transitions here some half we're and settle as new but with to of and

kind calendar, So and through of our that of be costs, duplicate costs but QX that get kind linger our of do the -- -- 'XX, pretty sorry, de FY 'XX. probably we costs are have as of into end will some they'll minimis will lingering we minor some

about And I ASPs, beyond mentioned think at in be That's looking trending them expect QX. those here then you helpful. we you How to up QX? it. sequentially Got know should

Yes, Jason. good question,

the years that's the into of to The is ours. So X been pipeline remains 'XX. focus over really and pipeline of is robust product product demonstrated new we've X covered, is a going FY kind last

we'll is anticipating gun mainly we're what now, ASPs, by right overall So be long increasing ASPs. definitely driven

products action 'XX, the we've So got other we're lever anticipating nicely flat handgun of Rifle guns throughout launch of kind should long largely with ASPs the but some FY coming. and new increase those

Okay. queue. jump Perfect. I'll one And then just for me, the into and last back

levels profile? comparable Is thinking this year's historically, Just election. that curious are it with about demand you how to your on thoughts

Yes. general, too to election we'll you firearms mean, think industry. is but comparable I years, to look, the color give mean, be historical demand the I healthy always on a I don't much able year period just in for

kind firearms the But of I see generally And we'll our expect of market think there. FY good overall, we NICS to for have first then year. after we election, a to goes from expect to be -- healthy. of couple it kind in remain 'XX, of including the the results it in our the 'XX, months calendar where

we're to it. We expect forward so to be looking --

from comes The next Craig from question Steve Dyer Hallum.

in the the by all the on all good different takes puts the on way, I Congratulations and business. execution. color, the appreciate

to us sort feel that to handguns, the level of and granularity give guns, maybe to is even the willing as long lot where gaining to momentum? help some you're obviously of You're of degree where you Can seeing you you're kind share. line a

that do Yes, that's firearms sure. mean management to I be kind obviously, Yes. last The on about this team focus was we within that's been as all focus measure And said, extremely the the It the nothing the of I out And new just our last performing a and the I share and last channel. gun product out fruit. in last really introduced since kind the as to frankly introduced you was of is of for as we about well a phasing as as it couple remarks introduced on product us share FPC we're time this we'll months. it's over new with was products core year for took main years now goal, in side, taking think really the retail our firearms. can action. see lever time on long -- products Well, XX driver we gains year. bearing a -- in

now So new replaced that will action phasing of with the out the quickly lever be but product, rifle.

a rifle. in is So that lever completely action space new don't a us of platform product get from and play to momentum It for continue white today. that lot we really

nothing product cannibalizing really So from our line.

we side, leadership butter, and to excited we're position So for the as it's the on area an an just bread growth feel about focusing really on it's that our there. opportunity need handgun continue in that future. and where And holding we

So side of the that's coming a new products lot in out handgun in fiscal 'XX.

said sense. assuming With you the that a to Yes, cetera? so that respect multiple makes leverage is of product, -- et sort platform it's calibers,

Yes, next your over extensions, cetera, maybe and we into the build that from and out wouldn't. rifle months, all XX, et a all calibers, out you a expect you'll of of coming that even lot to the entire that expect XX line XX, typical you'd action some of capablers lever see category really

a on of and of puts upswing. takes operating the margins costs, forward, along away. sort so other expense the on falling some I Cool. you line like a sales on can an what or about or know, should basis, maybe, don't absolute or cetera? operating of bit little expenses we mean, you of as next et either sort expect I growth year, about percentage with stuff new A it going and -- certainly are depreciation But with gross think And then how talk forth, sounds lot

to mean materially change Yes. our next don't I operating we expect expenses year.

understanding we right? We cost really you'll core in notice, in we in top means get As We base, with And flexible of mall this volatile if an So times environment and that stays the kind is fixed surge base fixed in COVID, change away. our our extreme environment, that's model what one many an didn't be hand our environment. that cost we've of is surge found that even during ourselves can profitable about when the we're a talked same. lead we're largely here of don't carried that line before, industry. the tenets steady

and this change to So comparable year, so doesn't will that our flat. be expect very year. -- be right? We'll And our fixed we next OpEx costs

last concerned pretty competitors and you're me, it. the Got then like in behaving pretty rational rationally it And anything about good are that on? channel I sounds pricing is you're feeling you productivity guess, one fairly for

rational. Yes. We word our as don't They've some very for can you been I we've done you've in mean if if -- that's There you promotions. -- challenge been hasn't we've you that any -- see, they obviously, promoting But changing. good of competitors. kind can see been a participating been by anticipate -- you've as it. panic checks, definitely

to think the won't good remain get moderate That really us will from the -- we is I said, continue, through it to probably 'XX, seen anymore calendar get demand but that. said, you've healthy promotional which won't think going less, won't that obviously I any I is going As 'XX either. probably activity -- get

we ladies for like the of Thank to have And reached and the remarks. question-and-answer I'd session. Mark Smith hand over closing the to gentlemen, call you, sir. end now

And you, quarter. joining interest for all and I company Smith to and thank with operator. next again your you the Thank we to forward speaking us everybody look just today & Wesson, in want and

call. Ladies you joining and us. that much Thank does today's for very gentlemen, conclude

your You lines. now may disconnect