EPS of $-0.05 decreased by 168.8% from previous year
Gross margin of 30.6%
Net income of -2.11M
""Overall firearms demand during our first fiscal quarter was softer than we anticipated, but our results once again proved the resiliency of our flexible manufacturing model, which allows us to adapt quickly to any market conditions and still deliver on bottom-line profitability targets."" - Mark Smith
Smith & Wesson Brands Inc (SWBI) QQ1 2025 Results Analysis: Softer Demand, Yet Resilient Margin Dynamics and Strategic Capacity Upgrades
Executive Summary
Smith & Wesson Brands, Inc. (SWBI) reported its QQ1 2025 results amid softer overall firearms demand, with net sales of $88.3 million, down 22.7% year over year. The quarter featured a restrictive demand environment and increased promotional activity, contributing to a net loss of $2.11 million and negative EPS of $0.0465. Management highlighted the resiliency of the company’s flexible manufacturing model, which helped deliver EBITDAS near $10 million and supported profitability targets despite weaker top-line performance. Gross margin expanded versus the prior year, aided by higher fixed-cost absorption and lower relocation costs, though management notes that first-quarter margins typically run lower due to operating-day dynamics. Looking ahead, management reiterated a constructive full-year view: revenue is expected to grow mid- to high-single digits versus fiscal 2024, Q2 sales projected to be 5%–10% above Q2 2024, and gross margins anticipated to land in the low- to mid-30s for the year as operating-days normalize in the second half. The company also signaled ongoing product innovation (Bodyguard 2.0; 1854 lever action) and capacity expansions to support a stronger second half, along with an active capital-return program (new $50 million buyback authorization) and a path to a debt-free balance sheet by year-end. While near-term results reflect seasonality and promotional intensity, the combination of product momentum, capacity deployment, and disciplined capital allocation supports an improving trajectory into the fall and holiday season.
Key Performance Indicators
Revenue
88.33M
QoQ: -44.50% | YoY:-22.68%
Gross Profit
27.03M
30.60% margin
QoQ: -52.29% | YoY:-11.08%
Operating Income
-1.86M
QoQ: -107.36% | YoY:-142.81%
Net Income
-2.11M
QoQ: -108.07% | YoY:-167.54%
EPS
-0.05
QoQ: -108.16% | YoY:-168.79%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $88.334 million in QQ1 2025, down 22.7% YoY and 44.5% QoQ from the prior-year quarter. YoY revenue decline reflects softer demand and promotional intensity across the firearms market.
Gross profit: $27.033 million, with a gross margin of 30.6% (grossProfitRatio). YoY gross profit fell 11.1%, while QoQ gross profit declined 52.3% as seasonal factors affected first-quarter volume. Management notes gross margin improvement versus a year ago (80 bps YoY) driven by higher absorption and lower relocation costs; note that some disclosures in the press release describe margins in the low-30s for the full year.
Operating income: -$2.062 million, a YoY decline of 142.8% and QoQ decline of 107.4%, reflecting the revenue shortfall and ongoing investment in product development and promotions.
Net income / EPS: Net income of -$2.106 million and diluted EPS of -$0.0465. YoY net income and EPS deteriorated by approximately 167.5% and 168.8% respectively, with QoQ declines of about 108% in both metrics.
EBITDA / margin: EBITDA of $6.634 million (EBITDA margin ~7.5%).
Financial Highlights
Revenue and profitability overview:
- Revenue: $88.334 million in QQ1 2025, down 22.7% YoY and 44.5% QoQ from the prior-year quarter. YoY revenue decline reflects softer demand and promotional intensity across the firearms market.
- Gross profit: $27.033 million, with a gross margin of 30.6% (grossProfitRatio). YoY gross profit fell 11.1%, while QoQ gross profit declined 52.3% as seasonal factors affected first-quarter volume. Management notes gross margin improvement versus a year ago (80 bps YoY) driven by higher absorption and lower relocation costs; note that some disclosures in the press release describe margins in the low-30s for the full year.
- Operating income: -$2.062 million, a YoY decline of 142.8% and QoQ decline of 107.4%, reflecting the revenue shortfall and ongoing investment in product development and promotions.
- Net income / EPS: Net income of -$2.106 million and diluted EPS of -$0.0465. YoY net income and EPS deteriorated by approximately 167.5% and 168.8% respectively, with QoQ declines of about 108% in both metrics.
- EBITDA / margin: EBITDA of $6.634 million (EBITDA margin ~7.5%).
- Cash flow and liquidity: Net cash provided by operating activities was -$30.815 million; free cash flow was -$35.538 million; cash at end of period $35.515 million; total debt $107.671 million and net debt $72.156 million. The company ended the quarter with borrowings on its line of credit of $70 million.
- Balance sheet strength: Total assets $571.268 million; total liabilities $193.282 million; total stockholders’ equity $377.986 million; inventory $189.814 million; current ratio 3.54; quick ratio 1.187.
- Leverage and capitalization: Long-term debt $105.387 million; short-term debt $2.284 million; debt-to-equity 0.285; debt-to-capitalization 0.222; interest coverage negative (as reported).
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
88.33M
-22.68%
-44.50%
Gross Profit
27.03M
-11.08%
-52.29%
Operating Income
-1.86M
-142.81%
-107.36%
Net Income
-2.11M
-167.54%
-108.07%
EPS
-0.05
-168.79%
-108.16%
Key Financial Ratios
currentRatio
3.54
grossProfitMargin
30.6%
operatingProfitMargin
-2.11%
netProfitMargin
-2.38%
returnOnAssets
-0.37%
returnOnEquity
-0.56%
debtEquityRatio
0.29
operatingCashFlowPerShare
$-0.68
freeCashFlowPerShare
$-0.78
dividendPayoutRatio
-279%
priceToBookRatio
1.98
priceEarningsRatio
-89.04
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from management discussions and quotes, grouped by theme:
- Market conditions and demand trajectory
- Mark Smith: 'Overall firearms demand during our first fiscal quarter was softer than we anticipated, but our results once again proved the resiliency of our flexible manufacturing model, which allows us to adapt quickly to any market conditions and still deliver on bottom-line profitability targets.' This underscores the robustness of the operating model amid cyclical softness.
- Mark Smith: 'While the usual summer seasonality was more pronounced this year, demand has already begun to rebound as we enter the busy fall season, and our outlook for the balance of fiscal 2025 has not changed.' The tone implies caution on Q1 but optimism for H2.
- Deana McPherson: 'Net sales for our first quarter of $88.3 million were $25.9 million or 22.7% below the prior year comparable quarter.' This reflects the revenue headwinds faced in Q1, consistent with management commentary on promotional intensity and consumer discretionary pressure.
- Product strategy and innovation
- Mark Smith: 'the Bodyguard 2.0 ... has been a huge success' and 'demand for our 1854 lever action rifle remains robust' indicating product momentum across both entry-level and higher-price-point segments.
- Mark Smith: 'new product portfolio continues to perform very well, accounting for over 41% of sales in the first quarter' signaling a diversified and growing product mix.
- Operational execution and capacity
- Mark Smith: 'significant capacity expansion throughout the remainder of the fiscal year' and Deana: 'we expect to end the year with inventory levels flat to last year, excluding new product launches' reflecting tight inventory management amid ramping production.
- Capital allocation and shareholder value
- Mark Smith: 'buybacks will remain a priority to drive long-term value for stockholders' and the Board-approved new $50 million buyback program; Deana: 'we expect to be debt-free by the end of the fiscal year' contingent on operating cash flow and capital opportunities.
- Financial performance and margins
- Deana McPherson: 'gross margin of 27.4% was 0.8% above the comparable quarter last year ... partially offset by higher promotional costs' and 'we continue to target margins in the low 30s for the full year.' This juxtaposes the reported margin data and the management’s annual margin target.
"Overall firearms demand during our first fiscal quarter was softer than we anticipated, but our results once again proved the resiliency of our flexible manufacturing model, which allows us to adapt quickly to any market conditions and still deliver on bottom-line profitability targets."
— Mark Smith
"We continue to target margins in the low 30s for the full year."
— Deana McPherson
Forward Guidance
Outlook and assessment:
- Revenue trajectory: Management reaffirmed a full-year target of revenue growth in the mid- to high-single digits versus fiscal 2024; Q2 is expected to be 5% to 10% above Q2 fiscal 2024, implying a meaningful step-up from Q1 after channel and seasonal effects normalize into the fall/winter period.
- Margin trajectory: Gross margins are anticipated to land in the low- to mid-30s for the full year; operating days in the second half are expected to support positive leverage, though the company concedes margins may not reach 30% in the near term due to the summer shutdown effects.
- Cash flow and balance sheet: Management projects operating cash flow of at least $75 million annually with normal capex around $25 million per year, enabling a path to a debt-free balance sheet by year-end if opportunities-to-invest or share repurchases remain limited. A revised $50 million buyback authorization reinforces capital-return optionality.
- Capex and capacity: With capacity coming online for the Bodyguard 2.0 and 1854 lever-action lines, the company expects the fall/winter season to benefit from higher-volume products and a multi-quarter ramp in production efficiency.
- Monitoring points for investors: (1) trajectory of NICS demand proxy and promotional intensity; (2) pace of new product introductions and sell-through; (3) progression toward debt-free status and quarterly progress on working capital (especially inventory normalization); (4) effectiveness of promotional campaigns and pricing adjustments in maintaining ASPs and mix.
Overall, the risk-reward appears tied to consumer demand normalization and the ability to translate product momentum into sustained gross margin expansion and free cash flow generation as the year progresses.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SWBI Focus
30.60%
-2.11%
-0.56%
-89.04%
RGR
21.50%
5.50%
2.13%
28.39%
POWW
31.60%
-31.30%
-2.03%
-6.87%
KTOS
24.90%
2.53%
0.10%
492.90%
VSEC
11.20%
10.70%
-1.08%
-47.17%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
SWBI faces near-term revenue headwinds amid a promotional and discretionary-spend environment, but the company remains positioned for a stronger H2 driven by new product launches, capacity upside, and an improving demand backdrop. Management’s guidance of mid- to high-single-digit full-year revenue growth, expectation of Q2 growth of 5%–10% above prior-year levels, and margin discipline into the low- to mid-30s imply a path to improved profitability as the year progresses. The balance sheet shows net debt of $72.2 million with a debt-free objective by year-end, supported by a ~+$75 million annual operating cash flow target and $25–$30 million of annual capex. The stock presents a higher multiple relative to peers (P/S ~8.5x) given growth initiatives, brand strength, and a disciplined capital-return program, but investors should monitor: (1) demand normalization and NICS-driven demand proxies, (2) execution of capacity expansions, (3) competitive/promotional dynamics, and (4) the evolution of gross margins through H2. Overall, the investment thesis hinges on successful product cadence, efficient capacity deployment, and the passive benefit of a debt-free balance sheet amid ongoing buyback activity.
Key Investment Factors
Growth Potential
SWBI leverages a diversified product portfolio (Bodyguard 2.0; 1854 lever action) and a scalable manufacturing model to drive growth through both higher-margin core products and high-demand new introductions. Capacity expansions and strong product pipeline (41% of sales from new products in Q1) support expectations for a stronger second half and mid-to-high single-digit annual revenue growth. The ongoing buyback program and the transition toward a debt-free balance sheet create downside protection while preserving flexibility for strategic investments when opportunities arise.
Profitability Risk
Key risks include ongoing macro headwinds reducing firearm discretionary spend, aggressive promotional activity compressing ASPs, regulatory and political risk affecting the firearms market, inventory buildup that could slow sell-through if demand deteriorates, and potential delays or cost overruns in capacity expansions. The company also reports negative earnings in Q1 and a negative EBITDA period signal that, while management targets margin expansion, there is a risk of continued near-term earnings volatility.
Financial Position
Strong liquidity in the near term with cash of $35.5 million versus total debt of $107.7 million yielding net debt of $72.2 million. The balance sheet supports buybacks and capex, with a plan to remain debt-free by year-end provided operating cash flow remains robust. Margins are expected to trend toward the low- to mid-30s for the full year as operating days improve and volume normalizes.
SWOT Analysis
Strengths
Strong brand equity and breadth of product portfolio (Bodyguard, 1854 lever action) supporting premium pricing power.
Flexible manufacturing model enabling rapid response to market conditions and maintenance of profitability targets.
Robust product pipeline with new introductions accounting for over 41% of sales in Q1.
Capacity expansion plans aligned with anticipated peak fall/winter demand.
Active capital allocation (buybacks) and a path toward debt-free status.
Weaknesses
Negative net income and cash flow in QQ1 2025, signaling near-term earnings volatility.
Significant YoY revenue decline driven by promotional environment and consumer discretionary pressure.
Inventory build in summer quarters contributing to working capital pressure.
Opportunities
Lever action platform (1854) and expanded long-gun category could drive mid-to-high single-digit revenue growth.
Capacity coming online in late Q2 supports stronger Q3/Q4 performance.
Potential international expansion or adjacent product adjacencies leveraging Smith & Wesson brand.
Continued buyback program supports shareholder value while preserving optionality for strategic investments.
Threats
Regulatory changes or heightened scrutiny affecting firearms demand and distribution channels.
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