Q2 2024 Smith & Wesson Brands Inc Earnings Call
Speaker 1: good day everyone and welcome
Good day, everyone and welcome to Smith, <unk> Wesson brands, Inc. Second quarter fiscal 2024 financial results Conference call.
Speaker 1: second quarter fiscal 2020 -four financial results conference call this call is being recorded at this time i would like
This call is being recorded at this time I would like to turn the call over to Kevin Maxwell Smith, <unk> Wesson as General Counsel, who will give us some information about today's call.
Thank you and good afternoon.
Speaker 2: Our comments today may contain forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe, and other similar expressions are intended to identify forward-looking statements.
Our comments today may contain forward looking statements.
Our use of the words anticipate project estimate expect intend believe and other similar expressions are intended to identify forward looking statements.
Speaker 2: Forward-looking statements may also include statements on topics such as our product development, objectives, strategies, market share, demand, consumer preferences, inventory conditions for our products, growth opportunities and trends, and industry conditions in general.
Forward looking statements May also include statements on topics, such as our product development objectives strategies market share demand consumer preferences inventory conditions for our product growth.
Growth opportunities and trends and industry conditions in general.
Speaker 2: Forward-looking statements represent our current judgment about the future and are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today.
Forward looking statements represent our current judgment about the future and are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by our statements today.
Speaker 2: These risks and uncertainties are described in our SEC filings, which are available on our website, along with a replay of today's call. We have no obligation to update.
These risks and uncertainties are described in our SEC filings, which are available on our website along with a replay of today's call.
We have no obligation to update forward looking statements.
We referenced certain non-GAAP financial results.
Speaker 2: we reference certain non-GAAP financial results. Our non-GAAP financial results exclude costs related to the planned relocation of our headquarters and certain manufacturing and distribution operations to Tennessee, the spinoff of the outdoor products and accessories business in fiscal 2021 and other costs.
Our non-GAAP financial results exclude cost related to the planned relocation of our headquarters in certain manufacturing and distribution operations to Tennessee, the spin off of the outdoor products and accessories business in fiscal 2021 and other costs.
Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, each of which is available on our website.
Speaker 2: Reconciliations of GAAP financial measures to non-GAAP financial measures can be found in our SEC filings and in today's earnings press release, each of which is available on our website. Also, when we reference EPS, we are always referencing fully diluted EPS and any reference to EBITDAs is to adjusted EBITDAs.
Also when we referenced EPS, we are always referencing fully diluted EPS and any reference to EBITDA to adjusted EBITDA.
Before I hand, the call over to our speakers I would like to remind you that when we discuss nyx resolved we are referring to adjusted net a metric published by the National shooting Sports Foundation based on S. P. I next data <unk>.
Speaker 2: Before I hand the call over to our speakers, I would like to remind you that when we discuss NICS results, we are referring to Adjusted NICS, a metric published by the National Shooting Sports Foundation based on FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than firearms purchases.
Adjusted Nick removes those background checks conducted for purposes other than firearms purchases.
Speaker 2: Adjusted NICS is generally considered the best available proxy for consumer firearm demand at the retail counter.
Adjusted next is generally considered the best available proxy for consumer firearm demand at the retail counter.
Speaker 2: Because we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end consumers, NICS generally does not directly correlate for shipments or market share in any given time period. We believe mostly due to inventory levels in the channel.
Because we transfer firearms only to law enforcement agencies, and federally licensed distributors and retailers and not two and consumers next generally does not directly correlate our shipments or market share in any given time period, we believe mostly due to inventory levels in the channel.
Joining us on today's call are Mark Smith, our president and CEO and Dana Macpherson, our CFO with that I will turn the call over tomorrow.
Speaker 2: Joining us on today's call are Mark Smith, our President and CEO , and Dina McPherson, our CFO . With that, I will turn the call over to Mark.
Thank you Kevin.
Speaker 3: Thank you, Kevin, and thanks everyone for joining us today. We were very pleased with our second quarter results, which continue to reflect our innovative new product introductions and our consumers' enduring loyalty to the Smith & Wesson brand.
And thanks, everyone for joining us today.
We were very pleased with our second quarter results, which continued to reflect our innovative new product introductions and our consumers enduring loyalty to the Smith <unk> Wesson brand.
Top line revenue and unit shipments were both up just over 3% versus last year, while distributor inventories actually decreased slightly in the period by about 4000 units.
Speaker 3: Top-line revenue and unit shipments were both up just over 3% versus last year, while distributor inventories actually decreased slightly in the period, by about 4,000 units, during a time that traditionally sees channel inventory build in preparation for the busy holiday season.
A time the traditionally sees channel inventory build in preparation for the busy holiday season.
This robust sell through combined with our shipments outperforming mix in the quarter by over 7% underscores our belief that our strong performance was due to share gains at the retail counter.
Speaker 3: This robust sell-through, combined with our shipments outperforming Nick's in the quarter by over 7%, underscores our belief that our strong performance was due to share gains at the retail counter.
Our new product portfolio and reputation for quality continue to be key differentiators and we are proud to have been the recipient of the 2023 innovator of the year awards from two major industry partners.
Speaker 3: Our new product portfolio and reputation for quality continue to be key differentiators, and we are proud to have been the recipient of the 2023 Innovator of the Year awards from two major industry partners, Guns & Ammo Magazine and the NASGW, the trade association representing our distribution partners.
The name of magazine and the N a S G W.
[noise] Association, representing our distribution partners.
New products remain an important driver and accounted for 29% of our overall revenue mix in the quarter.
Speaker 3: New products remain an important driver and accounted for 29% of our overall revenue mix in the quarter.
Speaker 3: recently introduced products, including the M&P 5.7, the FPC, and the Response, have all been very well received by the market.
We introduced products, including the MMP 5.7 E. S. P C and the response have all been very well received by the market.
In the first half of the fiscal year, new products accounted for 31% of ourselves and we expect this momentum to continue.
Speaker 3: In the first half of the fiscal year, new products accounted for 31% of our sales, and we expect this momentum to continue. We have some very exciting launches planned for SHOT Show next month, which I look forward to discussing in more detail very soon.
We have some very exciting launches planned for shot show next month, which I look forward to discussing in more detail very soon.
Accordingly, Asp's remained strong in Q2 as we continue to maintain a healthy balance between new products and core products up slightly versus last year and down mid single digits sequentially.
Speaker 3: Accordingly, ASPs remain strong in Q2 as we continue to maintain a healthy balance between new products and core products, up slightly versus last year and down mid-single digits sequentially.
Speaker 3: All of this is consistent with what we shared with you on the Q1 call, where we noted that the return to normal seasonal trends and associated fall promotional activity would result in some moderation in our overall ASPs throughout fiscal 2024, but our strong product portfolio would offset most of those headwinds.
All of this is consistent with what we shared with you on the Q1 call. We noted that the return to normal seasonal trends and associated fall promotional activity would result in some moderation in our overall asp's throughout fiscal 'twenty 'twenty, four but our strong product portfolio would offset most of those headwinds.
Speaker 3: Looking forward, as evidenced by strong mixed results in the last 60 days, the overall market has rebounded nicely from the summer slowdown and is following normal seasonal demand patterns.
Looking forward as evidenced by strong mix results in the last 60 days. The overall market has rebounded nicely from the summer slowdown and is following normal seasonal demand patterns.
Speaker 3: Promotional activity in the industry is expected to continue. But while we will be participating with targeted promotions with return to strong overall demand, we are confident that our pricing strategy, product mix and award winning innovation will continue to keep our ASPs healthy throughout the second half.
Promotional activity in the industry is expected to continue but while we will be participating with targeted promotions with returned to strong overall demand. We are confident that our pricing strategy product mix and award winning innovation will continue to keep our asp's healthy throughout the second half.
We are also very pleased with our core profitability metrics although.
Speaker 3: We are also very pleased with our core profitability metrics. Although it is important to note that a couple of discrete one-time items negatively impacted our GAAP earnings in the quarter by more than $3 million and our adjusted EBITDAs by more than $4 million, which Dina will cover in more detail in a moment.
Although it is important to note that a couple of discrete onetime items negatively impacted our GAAP earnings in the quarter by more than $3 million and our adjusted EBITDA by more than $4 million, which deanna will cover in more detail in a moment.
Speaker 3: Absent these one-time items, our margins in the quarter were well within our expectation and should further improve in the second half as we move past the temporary impacts of unfavorable absorption from lower production rates as we reduced internal inventories throughout the first half of the year and some dual costs associated with the current move to Tennessee.
Absent these onetime items, our margins in the quarter were well within our expectations and should further improve in the second half as we move past the temporary impacts of unfavorable absorption from lower production rates as we reduced internal inventories throughout the first half of the year and some dual costs associated with the current moved to Tennessee.
Speaker 3: The major components of the Tennessee move are either complete or scheduled to be complete within the next few weeks, and with demand increasing and inventories at healthy levels, we are currently in the process of ramping up federal production lines in order to meet orders.
The major components of the Tennessee move are either complete or scheduled to be complete within the next few weeks and with demand increasing and inventories at healthy levels. We are currently in the process of ramping up several production lines in order to meet orders.
Therefore, while we anticipate these headwinds will continue through Q3, they likely will have abated as we enter Q4.
Speaker 3: Therefore, while we anticipate these headwinds will continue through Q3, they likely will have abated as we enter Q4.
Turning now to our capital allocation strategy. We are pleased to announce that we made purchases under the recently authorized stock buyback program during our second quarter and the board once again authorized payment of our quarterly dividend underscoring our commitment to maximizing stockholder value through a balanced approach.
Speaker 3: Turning now to our capital allocation strategy, we are pleased to announce that we made purchases under the recently authorized stock buyback program during our second quarter, and the board once again authorized payment of our quarterly dividend, underscoring our commitment to maximizing stockholder value through a balanced approach.
Speaker 3: The strong balance sheet and significant reduction in CapEx on the horizon as we wind down the major investment in our new facility in Tennessee, we expect to be in a very strong position to drive returns for our stockholders throughout the second half and FY25. I'll close with an update on the Tennessee relocation.
Our strong balance sheet and significant reduction in capex on the horizon as we wind down the major investment in our new facility in Tennessee, we expect to be in a very strong position to drive returns for our stockholders throughout the second half and FY 'twenty five.
I'll close with an update on the Tennessee relocation.
Which continues to progress as planned.
Speaker 3: The initial shipments from the facility commenced in August and manufacturing activity has begun and is in the process of ramping.
The initial shipments from the facility commenced in August and manufacturing activity has begun and is in the process of ramping.
Speaker 3: It is still early stages for the assembly and plastic injection molding, which will continue through the balance of our fiscal 2024, but we already have 300 employees working at the site and our grand opening celebration and fall festival was a huge success with over 5000 attendees and great media coverage.
It is still early stages for the assembly and plastic injection molding, which will continue through the balance of our fiscal 2024.
But we already have 300 employees working at the site and our Grand opening celebration in fall Festival was a huge success with over 5000 attendees and great media coverage.
Speaker 3: We also raised $170,000 for local charities at the event.
We also raised $170000 for the local for local charities at the event.
Speaker 3: I want to again thank our entire team of loyal, dedicated employees for their tireless efforts to ensure we consistently deliver on our commitment to excellence, upholding the legacy of the Smith & Wesson brand and driving value for our stockholders.
I want to again, thank our entire team of loyal and dedicated employees for their tireless efforts to ensure we consistently deliver on our commitment to excellent upholding the legacy of the Smith, <unk> Wesson brand and driving value for our stockholders.
Speaker 3: With that, I'm going to call over to Dina to cover the financials.
Ill turn the call over to Diana to cover the financials.
Thanks Mark.
Speaker 4: Net sales for our second quarter of $125 million or $3.9 million or 3.2% above the prior year comparable quarter.
Sales for our second quarter of $125 million with $3 $9 million or three 2% above the prior year comparable quarter.
Speaker 4: Inventory in the distribution channel remained steady for the weeks of inventory declining as sell-through has increased in line with our increased shipping levels.
Inventory in the distribution channel remained steady for the weeks of inventory declining as sell through has increased in line with our increased shipping level.
Speaker 4: After a temporary spike in ASPs during our first quarter due to the favorable impact of new products, ASPs have returned to fiscal 2023 levels due to increased volume which resulted in new products having a smaller impact on ASPs than in our first fiscal quarter.
After a temporary spike in asks during the first quarter due to the favorable impact of new products.
Asp's have returned to fiscal 2023 levels due to increased volume, which resulted in new products, having a smaller impact on asps.
Then in our first fiscal quarter.
Speaker 4: Gross margin of 25.4% was negatively impacted by a $3.2 million legal settlement accrual. Excluding this one-time charge, gross margin would have been 28% or 1.4% better than our first quarter and 4.4% lower than the comparable quarter last year.
Gross margin was 25, 4% was negatively impacted by a $3 $2 million legal settlement accrual.
Putting this one time charge gross margin would've been 28% or one 4% better than our first quarter and four 4% lower than the comparable quarter last year.
Speaker 4: The decline from last year, which we continue to believe is temporary, was due almost entirely to a combination of unfavorable fixed cost absorption as a result of lower production levels, inflationary factors, and inventory reserve adjustments.
The decline from last year, which we continue to believe is temporary.
Due almost entirely to a combination of unfavorable fixed cost absorption as a result of lower production levels.
Inflationary factors and inventory reserve adjustment.
Speaker 4: Due to the persistence of these factors, we now expect margins to recover to more normalized levels later in fiscal 2024 than previously anticipated.
Due to the persistence of these factors, we now expect margins to recover to more normalized levels later in fiscal 2024 than previously anticipated.
Speaker 4: Operating expenses of $28 million for our second quarter were $1.3 million higher than the prior year comparable quarter, primarily due to the one-time costs associated with our grand opening event at our new Tennessee facility, combined with an increase in compensation-related expenses partially offset by lower profit-sharing accrual and a reclassification of sublease income from other income to operating expense.
Operating expenses of $28 million for our second quarter were one $3 million higher than the prior year comparable quarter, primarily to due to the onetime costs associated with our Grand opening event at our new Tennessee facility combined with an increase in compensation related expenses, partially offset by lower profit sharing.
Al.
And the reclassification of sublease income from other income the operating expense.
Cash used in operations for the second quarter was $2 $9 million.
Speaker 4: Cash used in operations for the second quarter was $2.9 million.
Speaker 4: $32.4 million better than last year.
$32 $4 million better than last year.
Speaker 4: This reflects a $7 million reduction in inventory during the current quarter versus a $14 million increase in the prior year quarter, partially offset by a seasonal increase in accounts receivable.
This reflects a $7 million reduction in inventory during the current quarter versus a $14 million increase in the prior year quarter, partially offset by a seasonal increase in accounts receivable.
Speaker 4: With capital spending of $34.9 million, most of which was related to our relocation, we used $37.9 million in net free cash during the quarter.
With capital spending of $34 $9 million, most of which was related to our relocation.
Is $37 $9 million and net free cash during the quarter.
Speaker 4: In September , our board authorized the repurchase of up to $50 million of our common stock. Accordingly, during the quarter, we repurchased nearly 646,000 shares at an average price of $12.70, utilizing $8.2 million of this authorization.
In September our board authorized the repurchase of up to $50 million of our common stock.
Accordingly during the quarter, we repurchased nearly 646000 shares at an average price of $12.70 utilizing $8 $2 million of this authorization we.
Speaker 4: We paid $5.5 million in dividends and ended the quarter with $44.2 million in cash and $65 million in borrowings on our line of credit.
We paid $5 $5 million in dividends and ended the quarter with $44 $2 million in cash and $65 million in borrowings on our line of credit.
Speaker 4: We continue to expect to be in a position to repay our line of credit by the time our relocation is complete.
We continue to expect to be in a position to repay our line of credit by the time, our relocation is complete.
Finally, our board has authorized our 12 cent quarterly dividend paid to stockholders of record on December 21st with payment to be made on January four.
Speaker 4: Finally, our board has authorized our $0.12 quarterly dividend to be paid to stockholders of record on December 21st, with payment to be made on January 4th.
Looking forward to our third quarter as.
Speaker 4: Looking forward to our third quarter, as Mark noted earlier, demand has been good and channel inventory of our products is healthy, particularly when compared to last year when it was much more elevated.
As Mark noted earlier demand has been good and channel inventory of our products is healthy, particularly when compared to last year. When it was much more elevated.
From Q2 to Q3 last year sales grew six 6% with inventory in the channel declining.
Speaker 4: From Q2 to Q3 last year, sales grew 6.6% with inventory in the channel declining.
Speaker 4: During our current Q3, we expect channel inventory to remain at low levels and demand to be more robust, and therefore, sales to grow at a higher rate than last year in terms of both units and dollars.
So our current Q3, we expect channel inventory to remain at low levels and demand to be more robust.
And therefore sales to grow at a higher rate than last year in terms of both units and dollar.
Speaker 4: Please note that we do expect ASPs to drop by approximately 5% from Q2 levels given an increase in promotions and a shift in handgun mix to lower-priced products.
Please note that we do expect asps to drop by approximately 5% from Q2 level, given an increase in promotions and a shift in handgun mix to lower priced products.
While demand for our products is expected to be healthy we do expect margins to continue to be pressured in the short term.
Speaker 4: While demand for our products is expected to be healthy, we do expect margins to continue to be pressured in the short term.
Lower production volume as we continue to manage inventory levels the impact of our holiday shutdown on production days and targeted promotions will result in third quarter gross margins on a reported basis being roughly flat sequentially.
Speaker 4: Lower production volume as we continue to manage inventory levels, the impact of our holiday shutdown on production days, and targeted promotions will result in third quarter gross margins on a reported basis being roughly flat sequentially.
We expect margin percentage to rebound into the low thirties, and the fourth quarter due to an increase in production.
Speaker 4: We expect margin percentage to rebound into the low 30s in the fourth quarter due to an increase in production.
Operating expenses will likely be in the same range in Q3 as we experienced in Q2 with expenses related to the shot show in January being offset by a grand opening event in Q2.
Speaker 4: Operating expenses will likely be in the same range in Q3 as we experienced in Q2, with expenses related to the SHOT Show in January being offset by a grand opening event in Q2.
Our effective tax rate is expected to be between 24 and 25%.
Speaker 4: Our effective tax rate is expected to be between 24 and 25 percent.
Speaker 4: Finally, with only about $25 to $30 million left to spend on the relocation, capital investment for this project is expected to conclude within the next several months.
Finally, with only about $25 million to $30 million left to spend on the relocation capital investment for this project is expected to conclude within the next several months.
Speaker 4: With cash generation targets above $75 million annually and normal capital spending requirements of approximately $25 million, we expect to have a debt-free balance sheet by this time next year and be in a strong cash position. As a reminder, our capital allocation plan continues to be invest in our business, remain debt-free, and return cash to our stockholders.
With cash generation targets about $75 million annually and normal capital spending requirements of approximately $25 million.
We expect to have a debt free balance sheet by this time next year and be in a strong cash position.
As a reminder, our capital allocation plan continues to be invest in our business, we remain debt free and returning cash to our stockholders.
Speaker 1: With that, operator, can we please open the call for questions from our analysts? Thank you. And ladies and gentlemen, at this time we'll conduct our question and answer session.
With that operator can we please open the call questions from our analysts.
Thank you.
And ladies and gentlemen at this time, we will conduct a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we.
For questions.
Speaker 1: And our first question comes from Mark Smith with Lake Street Capital.
And our first question comes from Mark Smith with Lake Street Capital. Please state your question.
Hi, guys.
Speaker 5: Hi guys, I guess first question, just looking for any additional insights, Mark, that you may have on the promotional environment today and, you know, continued outlook into ASP maybe excluding new items. Do you feel like it's going to have to push lower in the promotional environment? Do you feel like everybody's kind of staying relatively sane out there today?
I guess first question just looking for any additional insights mark that you might have on the promotional environment today.
And continued outlook into <unk>.
Maybe excluding new items do you feel like it's going to have to push lower in the promotional environment do you feel like everybody's kind of staying relatively sane out there today.
Yes, Mark I think it's.
There's definitely the promotional activity has definitely picked up.
Speaker 3: There's definitely the promotional activities definitely picked up, you know, you know, we're as we said in the prepared markets, you know, the demand is good for sure, you know, and it's picked up nicely from the summertime and, you know, it was encouraging to see and we expect that to kind of continue. If you look at Nick's, you know, the last.
Do you know where that is.
What we said in the prepared markets.
The demand is good for sure.
Picked up nicely from the summer time, and it was encouraging to see and we expect that to kind of continue if you look at Nick's last couple.
Speaker 3: Couple months in the last 60 days, October , November , that kind of increase we, you know, we don't see anything that's going to, you know, that's going to slow that down. So, you know, that's kind of what we're forecasting going forward. That said, you know, it's, it's, you know, still a competitive marketplace out there. So a lot of promotions. We do anticipate that that promotional environment will continue, but it's not crazy. It's not, you know, it's not going to go to, you know,
A couple of months in the last 60 days October November that kind of increase we you know we don't see anything thats kind of thats going to slow that down. So that's kind of what we're forecasting going forward that said.
It's.
It's still a competitive marketplace out there. So a lot of promotions, we do anticipate that that promotional environment will continue but it's not crazy. It's not it's not going to go to maybe go back five six years ago.
Speaker 3: back five, six years ago, you know, really, really heavy promotion and a lot of dollars being spent there. We don't see that. It's kind of, we're kind of back into that normal cadence. So as Dina said, I think, you know, you know, we do anticipate a little bit of, you know, pressure on the, on the ASPs, but you know, it's, it's, it's going to be in the 5% range. It's not going to be that high.
Really really heavy promotion and read a lot of dollars being spent there we don't see that as kind of we're kind of back into that normal cadence. So.
As Dino said I think.
We do anticipate a little bit of.
Pressure on the on the Asps, but.
It's going to be in the 5% range is not going to be anything crazy.
Okay, and then you brought up the mix in China the demand environment.
Speaker 5: And then you brought up the NICs and kind of the demand environment. You know, as you guys look at the, you know, demand out there, you know, did you see that kind of uptick in October , early October around, you know, outbreak of conflict, you know, and then is as we've seen NICs remain higher here through November .
As you guys look at the demand out there did you see that kind of uptick in October early October around outbreak conflict.
And then as we've seen mix remained higher here through November.
Speaker 5: you know, do you feel like this is sustainable growth? Or, you know, was November maybe getting some tailwinds from events and all?
Do you feel like this is sustainable growth or.
Was November maybe getting some tailwind from <unk>.
Rents in October.
Speaker 3: Yeah, I mean, I think that it definitely turned a corner in October , you know, you gotta remember it usually turns a corner in October You know That's kind of when the season kicked off kicked off a little bit later than you know Then and maybe has been in some previous quote-unquote normal years But it's it's remained pretty steady and I'll tell you as we you know, as we kind of sit here today It's it's still steady now. So, you know, we're kind of into the busy Holiday season which is more traditionally and you know, if you look at Nick's the Knicks
Yeah, I mean, I think it definitely turned the corner in October.
You got to remember it usually turns a corner in October that's kind of when the season kicked off kicked off a little bit later than you know then and maybe has been in some previous quote unquote normal years.
But it's remained pretty steady and I'll tell you as we as we kind of sit here today, it's still steady now so we're kind of into the busy holiday season, which is traditionally in <unk>. You know if you look at next the next stack chart. As you know this is a busy time and it's in it.
Speaker 3: Stack chart is you know, this is our busy time and you know, and it's and it's it's holding up. So, you know, we don't see anything
It's holding up so we don't see anything.
Again, that's kind of you know that's going to materially change that and we're going into an election year next year, which usually turns for the firearms industry to be elevated demand just because a lot of the rhetoric around.
Speaker 3: Again, that's going to materially change that. And we're going into an election year next year, which usually tends for the firearms industry to be elevated demand due to a lot of the rhetoric around.
Around the industry and around the firearms.
Okay.
Speaker 5: And then new products mixed pretty solid here this quarter, but especially as we look at the long guns.
No new products mixed pretty solid here this quarter, but especially as we look at the long guns.
All right.
Speaker 5: It sounds like you've got some things coming up here, you know, next month as we move into shot show, maybe any insights you can give us into, you know, your comfort level with your pipeline around new products. Do you feel like, you know, maybe we'll be stacked a little heavier around shot show or, you know, we'll should we still see a pretty steady flow of new products throughout the year?
It sounds like you've got some things coming up here next month as we move into shot shell.
Maybe any insights you can give us into your comfort level with your pipeline around new products do you feel like.
Maybe we'll be stacked a little heavier around shot shell or should.
Should we still see a pretty steady.
Flow of new products throughout the year.
Yeah, I'll answer that in two ways. The long guns is definitely you know kind of the.
Speaker 3: Yeah, I'll answer that in two ways. Yeah, the long guns is definitely kind of the bigger increase in NICs. And we're participating very well in that. So the FPC, particularly, is doing extremely well for us. We believe we're taking a lot of share with that product. And we anticipate to continue that cadence of new product introductions. I mean, as I mentioned in the prepared remarks, I think we're good.
The bigger increase in Knicks.
And we are participating very well in that so that the FPC, particularly is doing extremely well for us. We believe we are taking a lot of share with that product and we anticipate to continue that cadence of new product introductions.
Mentioned in the prepared remarks, you know I think where we are.
Definitely the undisputed leader out there in innovation over the last two years and where we are.
Speaker 3: Definitely the undisputed leader out there in innovation over the last two years and we're you know We're anticipating to continue that cadence and keep that pressure up. So shot show will definitely have a couple big launches It's a great opportunity for us to you know to get everybody all in the same place and get a lot of coverage on our New products, so we got a couple big ones coming up then but you know, but that's not going to be it You know, we got more come, you know, there's me, you know cadence of new products coming out And you can kind of look back to the last year that cadence we expect that to be
We're anticipating to continue that cadence and keep that pressure up so shot show we will definitely have a couple of big launches, it's a great opportunity for us to.
Get everybody on the same place and get a lot of coverage on our new products. So we got a couple of big ones coming up then, but you know, but that's not gonna be it you know we got more coming you know theres going be a cadence of new products coming out.
Look back to last year that cadence, we expect that to be repeated again this year.
Okay. Thanks.
Speaker 5: And I think the last one for me just makes me think about.
I think the last one for me.
About.
The balance sheet it sounds like you're saying a year from now you guys would expect to be debt free.
Speaker 5: balance sheet and it sounds like you're saying that a year from now you guys would expect to be debt-free.
Speaker 5: Over that period, do you expect to have some excess cash flow to still be able to do some share repurchases? Maybe walk us through your thought process around Capital Alley.
Over that period do you expect to have some excess cash flows will be able to do some share repurchases may be walk us through kind of your thought process around capital allocation.
Speaker 3: Yeah, I mean, as Dina covered, you know, obviously, we're not, you know, if we see the right opportunity, we're not, you know, we're not against.
Yeah, I mean as Deanna covered.
Obviously, we're not.
If we see the right opportunity were not you know we're not against it.
Speaker 3: Doing some share repurchases when you know when we still have when we don't have a debt-free balance sheet We've got you know, we got 65 million out in the line right now and we repurchased 8 million in the
I'm doing some share repurchases when we still have a when we don't have a debt free balance sheet. We've got we've got $65 million on the line right now and we repurchased $8 million and are in the last couple of months, so, but I will say that going forward. While we're while we're kind of getting back out of line and getting to that free will probably be we'll continue to obviously be in the market and be opportunistic, but it is going.
Speaker 3: last couple of months. But I will say that going forward, while we're kind of getting back out of the line and getting to debt-free, we'll continue to obviously be in the market and be opportunistic, but it's going to be a little bit more of a cautious approach as we kind of move past the move
Be a little bit more of a cautious approach.
As we kind of move past the you know the move.
Speaker 3: And, you know, towards, you know, the tail end of Q3 and then a little bit into Q4, you know, with all of that major spending will largely be done and we'll be in a position to really kind of start to generate. If you remember, you know, we've always kind of communicated we want at least a minimum of $75 million in cash generated, but, you know, I'll just point you to, you know, the cash generation in the first half of this year alone is $37 million and those are our two lowest quarters usually. So, you know, this year obviously, you know, we're on track for.
Towards the tail end of Q3, and then a little bit into Q4.
All of those in that major spending will largely be done and we'll be in a position to really kind of start to generate if you remember.
We've always kind of communicated we want at least a minimum of $75 million in cash generated but I'll just point you to the cash generation in the first half of this year alone is $37 million and those are our two two lowest quarter is usually so this year. Obviously you know we're on track for a nice.
Speaker 3: uh... a nice beat on that target and you know and again next year for going into election year so you know i think short answer your question is yet we should be in a position where we've got a healthy
A nice beat on that target and you know and again next year, if we're going into an election year. So you know I think the short answer to your question is yes, we should be in a position where we've got a healthy balance sheet to start looking at returning share returning.
Speaker 3: to start looking at returning value to the stockholders. Excellent, thank you. Thanks Mark.
Got you to the stockholders.
Excellent. Thank you.
Thanks, Mark Thanks, Mark.
Our next question comes from Steve Dyer with Craig Hallum Capital Group. Please state your question.
Good afternoon, Ryan on for Steve.
Hey, Ryan how are you doing.
Speaker 2: Good, good. Maybe staying on that last topic, last quarter you were targeting to be debt free by year end, now sounds like Q2 next year. I guess, what are the puts and takes to shift that out?
Good good maybe staying on that last topic last quarter, you were targeting to be debt free by year end and now it sounds like Q2 next year I guess, what are the puts and takes to shift at all.
Yeah, you know, we said by year end would be April right. So we're being cautious we are planning.
Speaker 4: Yeah, you know, we said by year end would be April , right? So we're being cautious. We are planning.
To make to make sure that we're providing that information to you.
Speaker 4: to make sure that we're providing that information to you right now.
Now.
Speaker 4: It could be April , it could be December . We're being cautious and we have done share purchases. We're looking at that authorization is still out there and we're gonna play it by ear and make sure that we protect our balance sheet, but also make sure that we're doing right by our investors as well.
It could it could be April it could be December we're being cautious and you know what we have done share repurchases. We're looking at you know the authorization is still out there and you know what we're going to play it by ear and make sure that we protect our balance sheet, but also make sure that we're doing right by our investors as well.
Yes, I think there is.
Speaker 3: Yeah, I think, you know, there's obviously some range in there, Ryan, and so, you know,
Theres, obviously, some some a range in there Ryan and so you know what I mean.
Speaker 3: The it'll be some time it's not materially changing I guess is where I'm trying to get to you know so we said before it's going to be April which is the end of our fiscal year you know you know it's it'll be with.
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It'll be some time, it's not materially changing I guess is what I'm trying to get to you know so we said before it was going to be April which is the end of our fiscal year.
It will be within a couple of months of that if it is not April.
Speaker 2: So it sounds like it's more a reallocation of capital, potentially, you bought some stock back, potentially leaning in there versus a change in the underlying business and cash generation of the business, is that right? Correct. Yeah, it was a very good.
So it sounds like it's more a reallocation of capital potentially you bought some stock back potentially waiting in there versus a change in the underlying business and cash generation of the business is that right correct. Yeah. It was a very good assumption yes.
Speaker 6: Good, then just switching over to gross margin, so getting back to the low 30.
Maybe switching over to gross margin so getting back to the low 30% target for Q4 is that sustainable in the next fiscal year. Given Q4, you have the greatest production days, which helps you from a.
Speaker 6: target for Q4. Is that sustainable in the next fiscal year given Q4 you have the greatest production days which helps you from an operating leverage and absorption standpoint? So I guess is that sustainable?
Hi.
Operating leverage an absorption standpoint, so I guess is that sustainable or is that.
Speaker 3: much of the benefit in Q4 is from the higher production versus other factors that are maybe sustainable into next year? Short answer is yes, it's sustainable into next year. And the reason is that this year, you got to remember, we built a lot of inventory as we kind of came towards the move and the tail end of a surge always gets a little bit of natural inventory build internally. So our production rates have been kind of artificially suppressed this year while we brought that inventory down. Next year, that production.
How much of the benefit in Q4 as from the higher production data versus other factors that are maybe sustainable in <unk>.
Next year.
Short answer is yes, it's sustainable into next year and the reason is that this year you got to remember we built a lot of inventory as we as we kind of came on towards the move in any of the tail end of a surge always gets a little bit of natural inventory build internally. So our production rates have been kind of artificially suppressed this year, while we brought that inventory down next year that that production.
Speaker 3: Those production rates will be back to normal, and we do anticipate also some efficiency gains from the new facility in Tennessee. So I'll tell you the Q4 numbers that we're looking at right now also include just a little bit at the beginning also of some continued dual costs.
Those production rates will be back to normal and.
We do anticipate some also some efficiency gains from the new facility in Tennessee. So.
I'll tell you the Q4 numbers that we're looking at right. Now also include up just a little bit at the beginning also some continued dual costs. So you know so.
So.
Still even that 30% has got some got some headwinds associated with it. So the short answer to your question is that sustainable absolutely.
Speaker 7: still even that 30% has got some headwinds associated with. So the short answer to your question, is that sustainable? Absolutely. Great.
Yeah.
Great. Thanks, Mark Deanna Alright, Thank you Bruce.
Thanks Ryan.
Thank you.
There are no further questions at this time I'll hand, the floor back to Mark Smith for closing remarks.
Alright, Thank you and thank everyone for joining us today and your interest in Smith <unk> Wesson hope everybody enjoys a merry Christmas and a safe and happy new year, and we look forward to speaking with you all again next quarter.
Speaker 3: All right, thank you, and thank everyone for joining us today and your interest in Smith & Wesson. I hope everybody enjoys a Merry Christmas, have a safe and Happy New Year, and we look forward to speaking with you all again next quarter.
Thank you. This concludes today's conference all parties may disconnect have a good evening.