Smith & Wesson Brands (NASDAQ:SWBI) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

Smith & Wesson Brands, Inc. reported strong financial performance in Q1 FY27 with net sales up 32%, adjusted EBITDA up 86%, and EPS at $0.06 compared to a loss last year.

The company gained market share in both handguns and long guns, with shipments significantly outpacing the market, driven by demand for concealed carry products and new full-size M&P lines.

Channel inventories remained flat, signaling strong retail pull-through, while internal inventory adjustments prepared for seasonal demand increases.

Smith & Wesson's professional channel, including law enforcement and international shipments, showed high double-digit growth, supported by investments in the Smith & Wesson Training Academy.

Future guidance remains positive, with expected revenue growth of 5% to 7% for FY27, and anticipated Q2 sales to be approximately 10% higher than last year, supported by steady demand and strategic investments in operational infrastructure.

Full Transcript

OPERATOR

Good day, everyone, and welcome to Smith & Wesson Brands, Incorporated First Quarter Fiscal 2027 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 information about today's call. Thank you. You may begin.

Mark Smith, President & CEO

Thank you, Kevin, and thanks, everyone, for joining us today. As we expected, we are off to an excellent start to fiscal 2027 with strong first quarter performance. Continued solid demand for our products in both the consumer and professional channels in Q1 were a direct result of our purposeful focus on innovation, the strength of our industry partnerships, operational execution, and the power of the iconic Smith & Wesson brand. We delivered significant year-over-year increases in all key financial metrics, including 32% growth in net sales, 86% growth in adjusted EBITDA, and an increase in EPS to $0.06 from a loss of $0.08 last year.

The firearm market continues to be solid, with overall NICS up 7.7% over our first quarter last year, and with our shipments up nearly 20% in the same time period, we once again outperformed, demonstrating that strong consumer preference for our leading product portfolio is driving sustained share growth and continued positive momentum into FY27. From a product line perspective, we gained share in both handguns and long guns in the quarter. Our handgun unit shipments into the sporting goods channel increased nearly 17% while NICS was up only about 5%.

Importantly, and continuing the trend from FY26, channel inventories were flat during the same period, indicating strong pull-through and meaningful share gains at the retail counter. This was driven by strong demand for our semi-auto pistols across the board, including our market-leading concealed carry products and new products within our full-size M&P lines. Long guns also performed well in the quarter with our unit shipments into the sporting goods channel increasing almost 22%, well ahead of the 10% increase in NICS.

And within the long gun category, channel inventories of our products were actually down 5,000 units during the period, again indicating solid share gains at retail. Growth in long guns was led by the MSR category and weighted to May and June ahead of state-level regulatory changes. But we also saw strong growth in our 1854 lever-action rifles, with shipments doubling compared to last year, a great indicator of our increasing foothold in the hunting segment of the long gun market, where we have historically had limited exposure.

The breadth of our growth in Q1 was a further testament to our ability to react to market shifts through our flexible manufacturing model, consumer preference for our brand and innovative product line, and the strength of our relationship with industry partners. We had success not only across all of our product lines but also across our customer segments. Within the consumer channel, we saw strong double-digit gains in wholesale, big box, and buying groups.

In addition, we drove high double-digit growth in law enforcement and international shipments, a strong indication of professional endorsement of the product lines and our full capabilities to service these brave men and women not only with our firearms, but with our world-class Smith & Wesson Training Academy, which continues to be a competitive differentiator. Moving now to ASPs, we continued the trend of outperforming in unit shipments versus the broader market while simultaneously demonstrating resiliency in our pricing.

Sustained demand for our core products throughout the period limited our need for promotions in the quarter and, combined with new products accounting for 35% of our shipments, our ASPs continued to move higher even in the typically slower summer months. Handgun ASPs held steady sequentially versus Q4 and were up nearly 9% year over year, while long gun ASPs increased nearly 11% sequentially and over 18% year over year. Finally, a quick few notes on inventory.

As I mentioned earlier, channel inventories were flat and, combined with our strong results, indicate we continue to see healthy pull-through of our products at the retail counter. At the end of Q1, our internal inventory was $181 million, down from $203 million a year ago and up from $156 million at the end of Q4. The sequential growth reflects our normal seasonal build as we prepare for the busy fall and winter seasons, as well as restocking of long gun inventories following a strong Q4.

Our disciplined sales and operations planning process, which aims to align production to forward demand across every product line, gives us confidence in our inventory position as we look to the balance of fiscal 2027. Looking forward, we believe we are well positioned to continue gaining momentum as we move into the traditionally stronger second half of the year. Our award-winning product line is in high demand with both our loyal consumers and law enforcement and professional customers, as indicated by our shipments consistently outpacing the market and our growth in professional sales.

We are making significant investments in our operational infrastructure to support our growth and drive further efficiencies, and we are well underway with installation of this new equipment in our machining center in Springfield, Massachusetts. Our balance sheet remains strong, and we continue to deploy capital efficiently to drive long-term growth and stockholder value, and with this momentum we expect our second quarter to significantly outperform last year on both the top and bottom lines, which Deana will cover in a few minutes.

In closing, this continues to be a story about brand strength paired with a purposeful long-term strategy. Our focus on innovation, marketing, strong partnerships, and operational excellence and, importantly, our team's relentless focus on execution across every function is what drives our outperformance. As always, I just want to note that none of this is possible without each and every member of our team across all functions and working together towards making Smith & Wesson the number one firearms brand.

I'm incredibly proud of all of them for their exceptional talent and dedication, always striving to exceed the expectations of our passionate and loyal customers. With that, I'll turn the call over to Deana to cover the financials.

Deana McPherson — EVP, Chief Financial Officer, and Treasurer

Thanks, Mark. Net sales for our first quarter were $112.6 million, $27.5 million, or 32.3%, above the prior year on strong polymer pistol, MSR, and lever-action shipments during the quarter. Inventory at distributors declined by 6.8% from the end of the prior quarter and 3.5% compared with the end of July 2025 in terms of actual units, indicating continued strong sell-through of our products at retail. Handgun ASPs remained sequentially flat versus Q4 but higher than Q1 2026 due to lower promotional spend during the current quarter and continued strong demand for our products.

Long gun ASPs increased sequentially and year over year due to a favorable mix. Gross margin of 28.7% was 2.8% above the prior year, primarily driven by $2.9 million of tariff refunds, which accounted for 260 basis points of increased margin during the quarter. Increased absorption on higher production was almost entirely offset by higher volume-related spending, supplier cost increases, and increased labor costs, both from increased headcount and increased wage rates.

Operating expenses of $28.1 million for our first quarter were $3 million higher than the prior year comparable quarter, with legal expenses, profit-related compensation costs, volume-related increases in selling expenses and freight, and higher advertising costs driving the increase. The higher revenue and associated margin, combined with a decrease in interest expense due to lower net debt, resulted in $2.6 million of net income, or $0.06 of EPS, compared with a $3.4 million net loss, or an $0.08 loss per share, last year.

Cash used in operations for the first quarter was $8.8 million compared with $8.1 million in the prior year due to higher net income being offset by a bigger increase in inventory and the payment of profit-related compensation. Because of increased demand during last quarter, internal inventory in certain product lines was depleted. In addition, we generally build inventory during the first half of the fiscal year in order to level load our operations in preparation for the busy fall and winter season.

We spent $11.9 million in capital projects this quarter compared with $4.3 million last year and continue to expect our capital spending for the year to be between $45 and $50 million. As a reminder, our capital spending this year is approximately $25 million higher than our historical run rate and due to investments we are making in our Springfield facility combined with advanced manufacturing initiatives at multiple locations. We paid $6 million in dividends and ended the quarter with $25.2 million in cash and investments and $40 million in borrowings on our line of credit.

Finally, our Board has authorized our $0.13 quarterly dividend to be paid to stockholders of record on September 17, with payment to be made on October 1. Looking forward to our second quarter, we continue to expect a normal seasonal environment and strong demand for our products, resulting in anticipated sales for Q2 of roughly 10% above last year. With channel inventory continuing to remain at healthy levels, we don't expect inventory to have an impact, positively or negatively, on our second quarter.

For the full year, we continue to expect that our fiscal 2027 revenue will grow approximately 5% to 7% over FY26. We expect Q2 gross margin to be 200 to 300 basis points higher than last year's Q2 on increased absorption, partially offset by increased volume-related spending and inflationary cost increases. Operating expenses in Q2 will likely be 10% to 15% higher than in Q1 due to volume-related customer and freight costs combined with continued investment in R&D and increased profit-related costs such as profit sharing.

Our effective tax rate is expected to be approximately 30%. With that, operator, can we please open the call to questions from our analysts?

OPERATOR

Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Mark Smith with Lake Street Capital Markets. Please proceed.

Alex Ewig, Analyst at Lake Street Capital Markets

Hey, this is Alex Ewig, asking questions for Mark Smith. Q1 net sales grew 32% versus the 15% to 20% you guys guided in June, but the full-year guidance you guys kind of left unchanged at 5% to 7% and Q2 is only 10% above last year. What drove this upside, and was it timing or pull-forward from Q2? And what does the implied back-half deceleration look like? Kind of projecting flat to down in the back half. And what does this kind of assume about demand?

Mark Smith, President & CEO

Yeah, thanks, Alex. So the growth this year, I'll just point you back to the full year. Yeah, I mean it's going to be a little bit more steady this year. I think last year, as you can see, it was, you know, a big Q4, and some of that was some of the state regulatory changes driving, you know, a pretty big Q4 for us, specifically on the MSRs. So, you know, this year, great start to the year with outperformance in Q1, and we just think this year it's going to be just a little steadier than it was last year.

But, you know, at the end of the day, we kind of think of that as good news. It's steady growth, it's sustained market share gains, and it's something that we can really build on that momentum as we go into the back half of the year. So, you know, just still up significantly versus last year — you know, 5% to 7% growth — pretty happy with that, and it's going to be a little smoother this year than it was last.

Alex Ewig, Analyst at Lake Street Capital Markets

And then ASP on both handguns and long guns outpaced our expectations. How much of this is mix versus price increases this year, and do you guys expect ASPs to kind of remain at these levels moving forward?

Mark Smith, President & CEO

Yeah, we've been pretty happy with the ASPs. I think in Q1, as Deana covered, on the long gun side, definitely mix — really happy with the performance of the 1854, which, as you know, is kind of the top end of the pricing hierarchy for us. So that was really good and continued proof that we're really gaining a nice foothold there in that hunting segment of the market where we historically kind of had a smaller presence. So a little bit of mix, but a lot of it also is really limited promotions.

We've had pretty solid demand for our core line as well. And so Q1 I think was a story of a little bit of mix, but a lot of no need to participate to a meaningful degree in promotions. And we do anticipate that those ASP levels will continue going forward.

Alex Ewig, Analyst at Lake Street Capital Markets

And then professional channel units jumped pretty sharp off of a relatively small base. What type of long-term opportunity do you guys see in that professional channel?

Mark Smith, President & CEO

Yeah, we're really pleased with the performance on the LE side. The investments in the Academy are really starting to pay dividends, and a lot of the efforts we've been putting in over the last 12 to 18 months really coming to fruition. That's a longer sales cycle there with the professional channel, and so I think you're starting to see some of the results and some of those efforts come to fruition. So really starting to gain momentum there. We're pretty pleased there.

We're continuing to invest in the Academy, a lot of traction there with the law enforcement professional user community, and we expect that to continue. We have a lot in the pipeline — nice pipeline as we look to the back half of the year.

Alex Ewig, Analyst at Lake Street Capital Markets

Great. Thank you. I'll turn it over.

Mark Smith, President & CEO

Thanks, Alex.

OPERATOR

There are no further questions at this time. I would like to turn the conference back over to Mark Smith for closing remarks.

Mark Smith, President & CEO

Thank you, operator. And thanks, everyone, for joining us today and your interest in the company and Smith & Wesson. We look forward to speaking with everybody again next quarter.

OPERATOR

Thank you. This will conclude today's conference. You may disconnect at this time, and thank you for your participation.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.