Q4 2025 Smith & Wesson Brands Inc Earnings Call
Good day, everyone and welcome to the Smith, and Wesson Brands, Inc. Fourth quarter and full fiscal 2025 financial results Conference call. This call is being recorded at this time I would like to turn the call over to Kevin Maxwell Smith Smith, <unk> Wesson as general Counsel, who will.
Give us some information about today's call.
Good day, everyone and welcome to Smith, <unk> Wesson brands, Inc, fourth quarter and full fiscal 2025 financial results Conference call. This call is being recorded.
Thank you and good afternoon.
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.
At this time I would like to turn the call over to Kevin to Maxwell.
Smith <unk> Wesson as general Counsel, who will give us some information about today's call.
Thank you and good afternoon all.
These 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 opportunities and trends and industry conditions in general.
Our comments today may contain forward looking statements.
Our use of the words anticipate project estimate expect intend.
<unk> believe and other similar expressions are intended to identify forward looking statements.
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 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.
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.
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.
We referenced certain non-GAAP financial result.
Our non-GAAP financial results exclude relocation expense and other costs.
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.
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.
We referenced certain non-GAAP financial results are non-GAAP financial results exclude relocation expense and other costs.
Also when we reference EPS, we're always referencing fully diluted EPS and any reference to Ebitdas is to adjusted Ebitdas.
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.
Before I hand, the call over to our speakers I would like to remind you that when we discuss mix results, we are referring to adjusted net.
Also when we reference EPS, we're always referencing fully diluted EPS and any reference to Ebitdas is to adjusted EBITDA.
Metrics published by the National shooting Sports Foundation based on F. B I MX data.
Adjusted mix removes those background checks conducted for purposes other than firearms purchases.
Before I hand, the call over to our speakers I would like to remind you that when we discuss mix results. We are referring to adjusted mix a metric published by the National shooting Sports Foundation based on F. B I MX data.
Adjusted next is generally considered the best available proxy for consumer firearm demand at the retail counter.
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 to our shipments or market share in any given time period, we believe mostly due to inventory levels in channel.
Adjusted mix removes those background checks conducted for purposes other than firearms purchases.
Adjusted next is generally considered the best available proxy for consumer firearm demand at the retail counter.
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 to our shipments or market share in any given time period, we believe mostly due to inventory levels in channel.
Speaker Change: Joining us on today's call are Mark Smith, our president and CEO and Dana Macpherson our CFO.
Speaker Change: That I will turn the call over tomorrow.
Speaker Change: Thank you, Kevin and thanks, everyone for joining us today.
Speaker Change: Fourth quarter proved more difficult than we anticipated largely due to macroeconomic and industry trends.
Speaker Change: 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 to Mark.
Speaker Change: While the combination of lower sales and production volumes along with make factors pressured margin, we were able to partially offset the bottomline impact through disciplined cost management by leveraging our flexible manufacturing model.
Mark Smith: Thank you, Kevin and thanks, everyone for joining us today.
Mark Smith: Fourth quarter proved more difficult than we anticipated largely due to macroeconomic and industry trends.
Speaker Change: New products remain an area of strength accounting for 44% of sales in the fourth quarter and we will continue to lean into innovation as a point of competitive differentiation and to drive growth.
Mark Smith: While the combination of lower sales and production volumes along with mix factors pressured margins, we were able to partially offset the bottomline impact through disciplined cost management by leveraging our flexible manufacturing model.
Speaker Change: Looking at market share for the fourth quarter overall, adjusted next was down five 4% with monthly year over year declines improving sequentially throughout the period compared to an eight 4% decline in our shipments into the channel.
Mark Smith: New products remain an area of strength accounting for 44% of sales in the fourth quarter and we will continue to lean into innovation as a point of competitive differentiation and to drive growth.
Speaker Change: On a category basis similar to Q3, we believe we gained share in handguns as Nick was down three 4% versus a two 1% decline in our shipments into the sporting goods channel driven by the strong performance of our innovative new products.
Mark Smith: Looking at market share for the fourth quarter overall, adjusted <unk> was down five 4% with monthly year over year declines improving sequentially throughout the period compared to an eight 4% decline in our shipments into the channel.
Speaker Change: In long guns, Nix was down seven 1% in Q4, while our shipments into the sporting good channel declined 31, 7% due to difficult comparisons specifically softness in the MSR market and our lever action offering benefiting from last year's tailwind associated with its launch as a new product.
Mark Smith: On a category basis similar to Q3, we believe we gained share in handguns as Nick was down three 4% versus a two 1% decline in our shipments into the sporting goods channel driven by the strong performance of our innovative new products.
Mark Smith: In long guns, Nix was down seven 1% in Q4, while our shipments into the sporting good channel declined 31, 7% due to a difficult comparison, specifically softness in the MSR market and our lever action offering benefiting from last year's tailwind associated with its launch as a new product.
Speaker Change: Average selling prices trended lower on a year over year basis, but were slightly higher sequentially similar to what we experienced in Q3 or.
Speaker Change: Our overall Asps in Q4 were down four 5% versus a year ago and continued to reflect mixed dynamics with higher asps and long guns being offset by lower asps in handguns.
Mark Smith: Average selling prices trended lower on a year over year basis, but were slightly higher sequentially similar to what we experienced in Q3 or.
Speaker Change: In long guns are asps increased 11% driven by higher price models like our lever action rifles.
Mark Smith: Our overall Asps in Q4 were down four 5% versus a year ago and continued to reflect mixed dynamics with higher asps and long guns being offset by lower asps in handguns.
Speaker Change: And guns are Asps declined six 3%, reflecting mix shift related to strong demand for our lower price products.
Speaker Change: Even in a tough market environment, we expect that our iconic brands should enable us to maintain strong asps as we move through fiscal 2026.
Mark Smith: In long guns are asps increased 11% driven by higher price models like our lever action rifles.
Mark Smith: And guns are Asps declined six 3%, reflecting mix shift related to strong demand for our lower priced products.
Speaker Change: Looking now at the overall firearms market, we continue to see consumers generally being cautious due to macroeconomic factors pressuring discretionary spending.
Mark Smith: Even in a tough market environment, we expect that our iconic brands should enable us to maintain strong asps as we move through fiscal 2026.
Speaker Change: While new product and lower price point offerings are still performing well overall conditions suggest headwinds will likely persist in the near term.
Mark Smith: Looking now at the overall firearms market, we continue to see consumers generally being cautious due to macroeconomic factors pressuring discretionary spending.
Speaker Change: Despite these challenges we remain well positioned to succeed in this environment.
Speaker Change: Demand for firearms appears to be normal for the summer based on feedback from our distributor and retail partners.
Speaker: While new product and lower price point offerings are still performing well overall conditions suggest headwinds will likely persist in the near term.
Speaker Change: Importantly, while channel inventory fluctuations, obviously affect our shorter term out the door shipments our channel checks and internal data indicate we have continued to maintain our market share leadership position at the retail counter.
Speaker Change: Despite these challenges we remain well positioned to succeed in this environment.
Speaker Change: Demand for firearms appears to be normal for the summer based on feedback from our distributor and retail partners.
Speaker Change: Promotional activity across the industry has been consistent with expectations and we've continued to use targeted efforts effectively to driving activity and manage inventory.
Speaker Change: Importantly, while channel inventory fluctuations, obviously affect our shorter term outdoor shipments our channel checks and internal data indicate we have continued to maintain our market share leadership position at the retail counter.
Speaker Change: Not surprisingly inventory levels in the channel are being managed conservatively and while distributor inventory was up about 5000 units during the quarter. This represented only about eight weeks of supply.
Speaker Change: Promotional activity across the industry has been consistent with expectations and we've continued to use targeted efforts effectively to driving activity and manage inventory.
Speaker Change: It's also worth noting that we are starting to see indications of smaller firearm manufacturers exiting the market.
Speaker Change: Not surprisingly inventory levels in the channel are being managed conservatively and while distributor inventory was up about 5000 units during the quarter. This represented only about eight weeks of supply.
Speaker Change: We view this as reflective of rational market behavior, and something we are accustomed to seeing in our industry during a down cycle.
Speaker Change: And we may benefit from this dynamic.
Speaker Change: It's also worth noting that we are starting to see indications of smaller by our manufacturers exiting the market.
Speaker Change: I'm happy to report that our balance sheet remains strong and we continue to be disciplined in managing our business and allocating capital to drive sustainable long term value for stockholders.
Speaker Change: We view this as reflective of rational market behavior, and something we are accustomed to seeing in our industry during a down cycle.
Speaker Change: We are comfortable with internal inventory levels, which are very clean and are proactively managing production schedules as needed.
Speaker Change: And we may benefit from this dynamic.
Speaker Change: I'm happy to report that our balance sheet remains strong and we continue to be disciplined in managing our business and allocating capital to drive sustainable long term value for stockholders.
Speaker Change: To that end, we are extending our normal summer shutdown by an extra week, which will help to better align inventory levels with demand as we enter the second quarter of fiscal 2026.
Operator: Good day everyone and welcome to Smith & Wesson Brands, Inc., 4th Quarter, and the Global Fiscal 2025 Financial Results Conference Call. This call is being recorded.
Speaker Change: We are comfortable with internal inventory levels, which are very clean and are proactively managing production schedules as needed.
Speaker Change: As always during a cyclical downturn, we will remain focused on additional cost control initiatives and driving sales through delivery against our robust new product pipeline with several exciting new products slated for introduction later in Q1 and throughout the remainder of the fiscal year.
Speaker Change: To that end, we are extending our normal summer shutdown by an extra week, which will help to better align inventory levels with demand as we enter the second quarter of fiscal 2026.
Operator: At this time, I would like to turn the call over to you. every day, every day.
Speaker Change: As a normal seasonal activity picks up in the fall as we approach the hunting season cash flows should build and hold steady through out through the balance of the fiscal year.
Speaker Change: As always during a cyclical downturn, we will remain focused on additional cost control initiatives and driving sales through delivery against our robust new product pipeline with several exciting new products slated for introduction later in Q1 and throughout the remainder of the fiscal year.
Speaker: Our comments today may contain forward-looking statements.
Speaker Change: We will continue to invest in innovation to help us to maintain our market share leadership position in.
Speaker Change: In addition, we will continue to prioritize debt reduction along with paying our quarterly dividend.
Speaker Change: As a normal seasonal activity picks up in the fall as we approach the hunting season cash flows should build and hold steady throughout through the balance of the fiscal year.
Speaker Change: We remain well positioned for long term success with a leading brand rich legacy and strong balance sheet.
Speaker Change: We will continue to invest in innovation to help us to maintain our market share leadership position in.
Speaker Change: Before I hand, the call over and as always I just want to thank our entire team of talented Smith and Wesson employees for their tireless dedication and putting their skills to work each and every day to make us successful.
Speaker Change: In addition, we will continue to prioritize debt reduction along with paying our quarterly dividend.
Speaker Change: We remain well positioned for long term success with a leading brand rich legacy and strong balance sheet.
Speaker Change: With that I'll turn the call over to Diana to cover the financials.
Diana: Thanks Mark.
Speaker Change: Net sales for our fourth quarter and $148 million for $18 $4 million or 11, 6% below the prior year comparable quarter with new products, making up 43, 9% of total revenue for the quarter.
Speaker Change: Before I hand, the call over and as always I just want to thank our entire team of talented Smith and Wesson employees for their tireless dedication and putting their skills to work each and every day to make us successful.
Speaker Change: That I will turn the call over to Diana to cover the financials.
Speaker Change: We believe the fire and market conditions have been negatively impacted by persistent inflation high interest rates and uncertainty caused by tariff concerns.
Speaker Change: Thanks Mark.
Speaker Change: Net sales for our fourth quarter and $148 million for $18 $4 million or 11, 6% below the prior year comparable quarter with new products and making up 43, 9% of total revenue for the quarter.
Speaker Change: That being said the success of our new products has enabled us to maintain our leadership position in the categories of the firearms market in which we compete.
Speaker Change: We believe that fire and market conditions have been negatively impacted by persistent inflation high interest rates and uncertainty caused by tariff concerns.
Speaker Change: Gross margin of 28, 8% or six seven percentage points below the prior year comparable quarter, reflecting lower overall production volumes the impact of lower priced higher volume products, such as the bodyguard 380, NSC nine higher material content in certain of our newer longer long guns and increased promotional.
Speaker Change: That being said the success of our new products has enabled us to maintain our leadership position in the categories of the firearms market in which we compete.
Speaker Change: Gross margin of 28, 8% or six seven percentage points below the prior year comparable quarter, reflecting lower overall production volumes the impact of lower priced higher volume products, such as the bodyguard 380, NSC nine higher material content in certain of our newer longer long guns and increased promotional.
Speaker Change: Oceans, partially offset by lower spending and lower inventory reserves.
Speaker Change: Operating expenses of $27.4 million for fourth quarter were $2 $1 million lower than the prior year comparable quarter due to reduced profit related compensation cost, including profit sharing and lower insurance costs.
Speaker Change: Ocean.
Speaker Change: Partially offset by lower spending and lower inventory reserves.
Speaker Change: Really upset by accrued severance and relocation related to the retirement and replacement of our vice president of sales and increased marketing costs related to the timing of the industry shows and special promotions.
Speaker Change: Operating expenses of $27 $4 million for fourth quarter were $2 $1 million lower than the prior year comparable quarter due to reduced profit related compensation cost, including profit sharing and lower insurance costs, partially offset by accrued severance and relocation related to the retirement.
Speaker Change: Net income of $8 $6 million in the fourth quarter was $18 $7 million less than the prior year comparable quarter due in part to a $6 $5 million sale of intangible assets in the prior year.
Mark Smith: Smith, our vice President of sales and increased marketing costs related to the timing of the industry shows and special promotion.
Speaker Change: The remaining $12 $2 million reduction in net income was due to a combination of lower net sales and gross margin, partially offset by reduced profit related compensation costs.
Speaker Change: Net income of $8 $6 million in the fourth quarter was $18 $7 million less than the prior year comparable quarter.
Speaker Change: GAAP earnings per share of <unk> 19 cents was below the prior year comparable quarter of 59 cents.
Speaker Change: And part two of $6 5 million dollar sale of intangible assets in the prior year.
Speaker Change: The remaining $12 $2 million reduction in net income was due to a combination of lower net sales and gross margin, partially offset by reduced profit related compensation costs.
Speaker Change: non-GAAP earnings per share of 20.
Speaker Change: It was also down from the 48 cents in Q4 fiscal 2024.
Speaker: Turning to cash flows during the quarter, we generated $48 million in cash from operations and spent $7 $3 million on capital projects.
Speaker Change: GAAP earnings per share of <unk> 19 cents was below the prior year comparable quarter of 59.
Speaker Change: Our non-GAAP earnings per share of 'twenty was also down from 48.
Speaker Change: There's nothing in that free cash of $33 $5 million.
Speaker Change: In Q4 fiscal 2024.
Mark Smith: They paid $5.7 million in dividends repaid $30 million on our revolving line of credit and ended the quarter with $25 $2 million in cash and $80 million and borrowings on our line.
Speaker Change: Turning to cash flows during the quarter, we generated $48 million in cash from operations and spent $7 $3 million on capital projects.
Speaker Change: Resulting in net free cash of $33 $5 million.
Speaker Change: At the end of fiscal 2025, we had $92 $3 million of loan availability.
Speaker Change: Paid $5 $7 million in dividends repaid $30 million on our revolving line of credit and ended the quarter with $25 $2 million in cash and $80 million and borrowings on our line.
Speaker Change: During our full fiscal year, we used $7 $2 million in cash from operations and spent $21 $6 million on capital projects, resulting in that free cash used of $28 $8 million.
Speaker Change: At the end of fiscal 2025, we had $92 $3 million of loan availability.
Speaker Change: Our net cash usage was due primarily to a $29 $3 million increase in inventory due to the softening of the market during the first half of our fiscal year.
Speaker Change: During our full fiscal year, we used $7 $2 million in cash from operations and spent $21 $6 million on capital projects, resulting in that free cash used of $28 $8 million.
Speaker Change: Our board has authorized our normal quarterly dividend of 13th we paid to stockholders of record on July 7th the payment to be made on July 21st.
Speaker Change: The net cash usage was due primarily to a $29 $3 million increase in inventory due to the softening of the market during the first half of our fiscal year.
Speaker Change: Looking forward to fiscal 2026.
Speaker Change: We currently expect demand for firearms and Jessica plenty of 26 to be similar to what we saw in fiscal 2025 remaining subject to economic headwinds such as inflation and the impact of tariff related cost increases.
Speaker Change: Our board has authorized our normal quarterly dividend of 13th we paid to stockholders of record on July 7th with payment to be made on July 21st.
Speaker Change: Until such time as these initiatives begin to resolve further speculation on full year results will not be discussed.
Speaker Change: Looking forward to fiscal 2026.
Speaker Change: We currently expect demand for firearms in fiscal 'twenty 'twenty six to be similar to what we saw in fiscal 2025 remaining subject to economic headwinds such as inflation and the impact of tariff related cost increases.
Speaker Change: With near term demand remaining soft we believe our first quarter could be approximately 10% lower than last year as margins also lower due to promotions and increased costs due to tariffs on raw materials that are capacity constrained in the United States such as steel.
Speaker Change: Until such time as these issues begin to resolve further speculation on full year results will not be discussed.
Speaker Change: With regard to pricing in the Sps.
Speaker Change: With near term demand remaining soft we believe our first quarter could be approximately 10% lower than last year with margins also lower due to promotions and increased costs.
Speaker Change: We expect our first quarter to be sequentially lower in the 5% to 10% range.
Speaker Change: Particularly impacting long guns due to mix, but handguns on the lower end due to promotions.
Speaker Change: Tariffs on raw materials that are capacity constrained in the United States such as steel.
Speaker Change: We expect margins will remain under pressure due to low volume and cost increases, resulting in the loss of a few percentage points from last year.
Speaker Change: With regard to pricing in the Sps.
Speaker Change: We expect our first quarter to be sequentially lower than the 5% to 10% range.
Speaker Change: Operating expenses for the first quarter are expected to remain roughly flat to last year.
Speaker Change: Particularly impacting long guns to the mix the handguns on the lower end due to promotions.
Speaker Change: Finally, our effective tax rate is expected to be approximately 30%.
Speaker Change: We expect margins will remain under pressure due to low volume and cost increases, resulting in the loss of a few percentage points from last year.
Speaker Change: With that operator can we please open the call to questions from our analysts.
Speaker Change: Thank you we will now be conducted.
Speaker Change: Operating expenses for the first quarter are expected to remain roughly flat to last year.
Speaker Change: Okay.
Speaker Change: If you would like to ask a question. Please press star one on your telephone Keith.
Speaker Change: Finally, our effective tax rate is expected to be approximately 30%.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may start to remove yourself from the queue.
Speaker Change: With that operator can we please open the call to questions from our analysts.
Speaker Change: Participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.
Speaker Change: Thank you we will now be conducting a question and answer session.
Speaker Change: One moment, please while we poll for questions.
Speaker Change: 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.
Speaker Change: You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up the handset before pressing the star keys.
Mark Smith: Our first question comes from the line of Mark Smith with Lake Street capital.
Speaker Change: Please proceed with your question.
Speaker Change: Hey, guys a handful of questions for me.
Speaker Change: One moment, please while we poll for question.
Speaker Change: First off just.
Speaker Change: Dig in more on the industry Mark you called out.
Mark Smith: Our first question comes from the line of Mark Smith with Lake Street capital.
Speaker Change: Then looking at some of the smaller competitors and it looks like or going away here.
Speaker Change: Please proceed with your question.
Speaker Change: Curious how much of a near term headwind. This presents as maybe we see some inventory.
Speaker Change: Hey, guys a handful of questions from me.
Speaker Change: First off just.
Speaker Change: Dig in more on the industry Mark you called out.
Speaker Change: Those out at low prices and then maybe longer term opportunities from this.
Speaker Change: Then looking at summit.
Speaker Change: Smaller competitors and it looks like ours are going away here.
Speaker Change: Yes.
Speaker Change: I think you know some of these smaller players are going out.
Speaker Change: Curious how much of a year.
Speaker Change: Term headwind this presents as maybe we see some inventory that goes out at low prices and then maybe longer term opportunities from this.
Speaker Change: I don't see them. They were smaller players you know I don't see them a market you know.
Speaker Change: You know influx of of liquidation inventory into the channel that's going to have any really meaningful impact on us or any of the larger players that you know.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: I think you know some of these smaller players are going out.
Speaker Change: That had been around so I think you know we view that more as you know frankly for us as you know.
Speaker Change: I don't see them. They were smaller players you know I don't see a market and you know.
Speaker Change: You know you well know we've been around 170 years. We've you know we're very used to the cyclical environment of the industry and you know for US we view it as you know kind of a tailwind obviously that's market share. That's that's available and you know where the market share leader that's market share for us to take so you know I don't I don't think you'd think about it as you know there's going to be a flood of.
Speaker Change: You know influx of of liquidation inventory into the channel that's going to have any really meaningful impact on us or any of the larger players that you know.
Speaker Change: That had been around.
Speaker Change: So I think you know we view that more as you know frankly for us as you know.
Speaker Change: Well now we've been around for 70 years, we've you know.
Speaker Change: We're very used to the cyclical environment of the industry and you know for US we view it as kind of a tailwind obviously that's market share. That's that's available and you know where the market share leader that's market share for us to take so you know I don't.
Speaker Change: Liquidated inventory coming in because again I mean, there's a lot of these guys are smaller and smaller players that you know frankly, probably didn't have the capital to make that investment and big chunk of inventory.
Speaker Change: Okay.
Speaker Change: Just how should we think about asp's in pricing if you can kind of frame that around the competitive market, what youre seeing from peers and.
Speaker Change: I don't think you'd think about it as you know there's going to be a flood of liquidated inventory coming in because again I mean, there's a lot of these guys are smaller smaller players that frankly, probably didn't have the capital to make that investment and a big chunk of inventory.
Speaker Change: Is there a do you feel like Theres, a need to take more maybe across the board cuts or discounts.
Speaker Change: Okay.
Speaker Change: And then just how should we think about asp's in pricing. If you can kind of frame that around the competitive market, what youre seeing from peers and.
Speaker Change: To maintain share given the current macro environment.
Speaker Change: Yes.
Speaker Change: We don't view.
Speaker Change: We very much believe that our brand is I kind of covered in the in the prepared remarks, our brand and we don't need to take pricing cuts you know I mean, we're still seeing some nice volume even on our core line I think as you all know we.
Speaker Change: Is there do you feel like Theres, a need to take more maybe across the board cuts or discounts.
Speaker Change: To maintain share given the current macro environment.
Speaker Change: Yes.
Speaker Change: A lot of our success in this year from a unit share growth and market share.
Speaker Change: We don't view.
Speaker Change: We very much believe that our brand is I kind of covered in the in the prepared remarks, our brand and we don't need to take pricing cuts you know I mean, we're still seeing some nice volume even on our core line I think as you all know we.
Speaker Change: Taking market share has been due to new product and you know I think that's it.
Speaker Change: And in the entry level and the product with the bodyguard and being extremely successful.
Speaker Change: No.
Speaker Change: A lot of our success.
Speaker Change: We'll participate in that entry level pricing category through new product introductions, you know, we don't I don't think we have to.
Speaker Change: In this year from a unit share growth and market share.
Speaker Change: Taking market share has been due to new product and you know I think that's an entry level product with the bodyguard and being extremely successful.
Speaker Change: B looking at discounting on our core line now on our core line.
Speaker Change: As you know there's a there's a trend out there that there's more value provided through bundling et cetera. You can always is driving you know maybe you know maybe that that decision at the counter to what do we buy brand extra brand why and what it what else do I get with it.
Speaker Change: So we'll participate in that entry level pricing category through new product introductions, you know, we don't I don't think we have to.
Mark Smith: B looking at discounting on our core line now on our core line.
Speaker Change: As you know there's a there's a trend out there that there's more value provided through bundling et cetera. You can always is driving maybe you know maybe that decision at the counter to what do we buy brand extra brand why and what it what else do I get with it.
Speaker Change: And we're definitely participating in that and we will continue to you know to look for opportunities to increase the value that we're that we're providing to that consumer when they purchase most environment, whether it be through promotions. You know, we just ran a very successful promotion on a on an optic rebate and we'll be looking for other opportunities whether it's through promotions or just having a bundled in the box.
Speaker Change: And we're definitely participating in that and we will continue to you know to look for opportunities to increase the value that we're that we're providing to the consumer when they purchase most environment whether it be through promotions. You know, we just ran a very successful promotion on a on an optic rebate and we'll be looking for other opportunities whether it's through promotions or just having a bundled in the box.
Speaker Change: And that allows us marketed to maintain those asps.
Speaker Change: Okay.
Speaker Change: And then next question just kind of similar as we think about the demand being down are consumers kind of pulling back here with tariffs and inflationary pressure.
Speaker Change: Are you seeing this across the board or are you seeing it more so in lower price and gardens is there any anything to call out.
Speaker Change: And that allows us to market to maintain those asps.
Speaker Change: Okay.
Speaker Change: And then next question just kind of similar as we think about the demand being down are consumers kind of pulling back here with.
Speaker Change: And consumer behavior, and where you've seen maybe a certain consumer really pulled back more than others.
Speaker Change: Tariffs and inflationary pressure.
Speaker Change: Are you seeing this across the board or are you seeing it more so in lower price had gone is there any anything to call out just in consumer behavior, and where you've seen maybe a certain consumer really pulled back more than others.
Speaker Change: Yes, I think you know.
Speaker Change: Still seeing a little bit of that.
Speaker Change: I think it was actually use the kind of said that barbell, you know where the two areas of the market. There continue to perform well as the very high end and the and the entry level you know so I think you.
Speaker Change: As you can expect that consumer that is willing to pay you know at the high end of the value.
Speaker Change: Yes, I think you know we're still.
Speaker Change: Still seeing a little bit of that.
Speaker Change: I think it was actually use the kind of said that barbell.
Speaker Change: On the pricing hierarchy.
Speaker Change: The two areas of the market there continued to perform well as the very high end in the end.
Speaker Change: Probably less impacted.
Speaker Change: Or as you know saved up that money is going to spend it on a on a higher end firearm and so so there that purchases still happening and then you know, but definitely you know in that mid the mid to lower tier is definitely trending towards the lower tier. So again, that's something that we're been very successful with the bodyguard and we'll continue to look for some.
Speaker Change: The entry level, you know so I think you.
Speaker Change: As you can expect that consumer that's willing to pay the high end of the value.
Speaker Change: On the pricing hierarchy is probably less impacted or as you know saved up that money is going to spend it on a on a higher end firearm and so whether that purchases still happening and then you know, but definitely you know in that mid the mid to lower tier is definitely trending towards the lower tier so again.
Speaker Change: Some new products coming up here in the next quarter and throughout the rest of fiscal 'twenty six it'll take advantage of that.
Speaker Change: Okay.
Speaker Change: The last one for me and I can jump back in the queue is just as we think about an extra week of shutdown in the summer.
Speaker Change: And that's something that we're we've been very successful with the bodyguard and we'll continue to look for some some new products coming up here in the next quarter and throughout the rest of fiscal 'twenty six that'll take advantage of that.
Speaker Change: Is that all hitting in the July quarter, and if so I assume that you know.
Speaker Change: That fits into some of the guidance or come to some of the numbers that you talked about around the July quarter.
Speaker Change: Okay.
Speaker Change: Last one for me and I can jump back in the queue is just.
Speaker Change: We can go out an extra week of shutdown in the summer.
Speaker Change: No that'll actually be an extension of the shutdown I think as you know we are shut down as you know our normally scheduled shut down over the last week of July and the first week of August which is one week in Q1 and one week in Q2 will actually be extending our second week in Q2, so it'll be a second weekend in the second quarter and.
Speaker Change: Is that all hitting in the July quarter, and if so I assume.
Speaker Change: That that fits into some of the guidance or kind of some of the numbers that you're talking about around the July quarter.
Speaker Change: No that'll actually be an extension of the shutdown I think as you know we are shut down as you know our normally scheduled shutdown at the last week of July and the first week of August which is one week in Q1, and one week in Q2 will actually be extending our second week in Q2, so it'll be a second weekend in the second quarter and just point out that this.
Speaker Change: And just point out that this is something that we've done before it's something that you know it was kind of in the playbook for you know when we go through cycles downturn.
Speaker Change: So just help us to more appropriately align inventories as we come into Q2.
Speaker Change: Okay. That's helpful. Thank you.
Speaker: With regard to pricing and ASP, we expect our first quarter to be sequentially lower in the 5-10% range, with margins all falling over due to mix.
Speaker Change: Yes.
Speaker Change: As you know something that we've done before it's something that you know it was kind of in the playbook for you know when we go through a cycle downturn.
Speaker Change: Thank you.
Speaker Change: Again as a reminder, if anyone has any questions you May press star one on your telephone keypad to join the queue.
Speaker Change: So just help us to more appropriately align inventories as we come into Q2.
Speaker: The handguns on the lower end due to tariffs on raw materials that are capacity constrained in the United States will remain under pressure due to low volume and cost decreases resulting in the loss of a few percentage points from last year.
Speaker Change: Okay. That's helpful. Thank you.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Steve Dyer with Craig Hallum. Please proceed with your question.
Speaker Change: Thank you.
Speaker: Operating expenses for the first quarter are expected to remain roughly the same to last year.
Speaker Change: Again as a reminder, if anyone has any questions. He mainframe star one on your tariff.
Matthew Rob: Hey, Thanks, This is Matthew Rob on for Steve.
Speaker: Finally, our effective tax rate is expected to be approximately 30%. Due to that low volume and cost decreases resulting in the loss of a few percentage points from last year.
Speaker Change: Phone keypad and joined the queue.
Speaker Change: Just wanted to touch on tariffs for a minute you know it was.
Speaker Change: You guys talked about it in the call a little bit earlier, just walk through the exposure there, particularly for steel as you called out and then any other commodities.
Speaker Change: Our next question comes from the line of Steve Dyer with Craig Hallum. Please proceed with your question.
Speaker: Operating expenses for the first quarter are expected to remain roughly flat to last year. Finally, our effective tax rate is expected to be approximately 30%.
Speaker Change: Commodities that that may be impactful and if you're able to quantify the impact to gross margin that'd be great as well. Thanks.
Speaker Change: Hey, Thanks, This is Matthew Rob on for Steve.
Speaker Change: Just wanted to touch on tariffs for a minute.
Operator: With that, operator, can we please open the call to questions from our analysts? Thank you.
Matthew Rob: Sure Hey, Matthew.
Speaker Change: You guys talked about it on the call a little bit earlier, just walk through the exposure there, particularly for steel as you called out and then any other <unk>.
Speaker Change: Yes, I mean, the tariffs obviously, it's a pretty volatile.
Operator: We will now be conducting a question and answer session.
Speaker Change: Volatile environment right now and you know not a whole lot of.
Operator: If you would like to ask a question, please press star 1 on your telephone keypad.
Speaker Change: Commodities that may be impactful and if you're able to quantify the impact to gross margin that would be great as well. Thanks.
Speaker Change: Although uncertainty on how that's all going to end up Flushing out so we've dialed in and everything that we know into the into the numbers and into some of the some of the commentary and color that Dana gave all that styled into that so that's as much as you know we're going to provide at this point.
Mark Smith: Our first question comes from the line of Mark Smith. Maybe you have a better... and just point out that this is, you know, something that we've done before, it's something that, you know, is kind of in the playbook for, you know, when we go physical downtime.
Matt: Sure Hey, Matt.
Speaker Change: Yes, the tariffs, obviously, it's a pretty volatile.
Speaker Change: Environment right now and you know not a whole lot of.
Speaker Change: I mean, they the impact for us is going to be perhaps.
Speaker Change: Although we'll have certainty on that.
Speaker Change: How thats all going to end up Flushing out.
Speaker Change: So we've dialed in and everything that we know into the into the numbers and into some of the some of the commentary and color that Dana gave all that's dialed into that so that's as much as we're going to provide at this point.
Speaker Change: Yes.
Speaker Change: Pronounce than it'll be for some of our competition just remind everybody that we are 100% American.
Speaker Change: Made in a lot of our.
Speaker Change: Source EMR supply chain is U S. Based now that said, we do still have some exposure from you know from a foreign source on some of our components and some of our raw materials. So.
Speaker Change: I mean, the impact for us is going to be.
Speaker Change: Less.
Speaker Change: Pronounce than it will be for some of our competition just remind everybody that we are 100% of American.
Speaker Change: The impact to us could be obviously is as everybody kind of comes back onshore obviously that drives up.
Speaker Change: Made in a lot of our.
Speaker Change: In our supply chain is U S. Based now that said, we do still have some exposure from from foreign source on some of our components and some of our raw materials. So the.
Speaker Change: Man to you know to the U S suppliers and you know.
Speaker Change: With high likelihood it will also drive up pricing on U S suppliers. So you know I.
Speaker Change: I guess.
Speaker Change: The impact to us could be obviously is as you know everybody kind of comes back onshore, obviously that drives up demand too to the U S suppliers and you know.
Speaker Change: We're closely monitoring it day to day and watching the developments as they come and we're continuing to you know.
Speaker Change: To look for opportunities to offset those passed them through as we can I mean, obviously, it's a tough in an environment such as this.
Speaker Change: High likelihood it will also drive up pricing on U S suppliers. So you know.
Speaker Change: But we do know that from a competitive landscape. There's several major competitors, who are going to be passing through some of those costs.
Speaker Change: I guess.
Speaker Change: We're closely monitoring it day to day and watching the developments as they come and we're continuing to see.
Speaker Change: We'll continue to monitor that and look for opportunity to pass through and then obviously, we're looking for cost control initiatives.
Speaker Change: We look for opportunities to offset those passed them through as we can I mean, obviously, it's a tough in an environment such as this.
Speaker Change: We have that state of the art facility here in Tennessee, that's up and running and very very pleased with and now we'll turn to you now, making some investments back into our other facilities in Massachusetts and Maine.
Speaker Change: But we do know that from a competitive landscape. There's several major competitors, who are going to be passing through some of those costs.
Speaker Change: We'll continue to monitor that and look for opportunity to pass through and then obviously, we're looking for cost control initiatives.
Speaker Change: Two to look for further cost efficiencies. There. So you know, we'll continue to moderate and do our best to offset but it's kind of a kind of as you know and everybody is facing right now it's kind of a volatile market just monitor it day by day.
Speaker Change: We have that state of the art facility here in Tennessee, that's up and running and very very pleased with and now I will turn to making some investments back into our other facilities in Massachusetts and Maine.
Speaker Change: Yep Yep Okay.
Speaker Change: Two to look for further cost efficiencies there so.
Speaker Change: And then secondly on inventory how should we think about the cadence of inventory reduction through the year. You know you mentioned that youre comfortable with inventory levels, where they're at is there any sort of targeted stocking level that you have in mind for year end.
Speaker Change: We will continue to moderate and do our best to offset but it's kind of a kind of as you know and everybody is facing right now it's kind of a volatile market just monitor it day by day.
Speaker Change: Yep Yep.
Speaker Change: Hey.
Speaker Change: Yeah, I think you can expect that we'll have as you know a significant inventory reduction throughout this year as you saw in the financials. There was actually an inventory build in and the fiscal year. We just closed this year.
Speaker Change: And then secondly on inventory how should we think about the cadence of inventory reduction through the year.
Matthew Rob: You mentioned that youre comfortable with inventory levels, where they're at is there any sort of targeted staffing level that you have in mind for year end.
Speaker Change: That being a significant inventory reduction and obviously that'll come with an AP reduction as well as you're looking at the balance sheet.
Speaker Change: Yes, I think you can expect that we'll have as you know.
Speaker Change: So the Q1, though is our usually you know as we go through the summer we talked about many times before we level load our plants. So you know Q1 being always the you know.
Speaker Change: Significant inventory reduction throughout this year.
Speaker Change: As you saw in the financials. It was actually an inventory build in the fiscal year. We just closed this year, we're expecting a significant inventory reduction and obviously that will come with an AP reduction as well as you're looking at the balance sheet.
Speaker Change: In a normal year being the softest quarter, there will be an inventory build in Q1.
Speaker Change: And then it'll come down throughout the balance of this fiscal year as we sell that off through the busy period and hunting season.
Speaker Change: So.
Speaker Change: Q1, though is our usually you know as we go through the summer we talked about many times before we level load our plants.
Speaker Change: Okay. That's great. Thanks, guys I appreciate it.
Speaker Change: So Q1 being always that you know.
Speaker Change: Yeah.
Speaker Change: In a normal year being the softest quarter, there will be an inventory build in Q1.
Speaker: Thank you.
Speaker Change: Again as a reminder, if anyone has any questions you May press star one to join the queue and ask a question.
Matthew Raab: And then it will come down throughout the balance of the fiscal year as we sell that off through the busy period and hunting season.
Speaker Change: Okay. That's great. Thanks, guys I appreciate it.
Matthew Raab: Yeah.
Mark Smith: Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Again as a reminder, if anyone has any questions you May press star one to join the queue and ask a question.
Mark Smith: Hey, guys just one quick follow up as we think about the balance sheet.
Speaker Change: In the past you guys have talked about kind of debt repayments are working through this year. I know you are not really giving guidance for the year, but any thoughts around.
Speaker Change: Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.
Speaker Change: The balance sheet and ability to pay down debt through this year.
Speaker Change: Hey, guys just one quick follow up as we think about the balance sheet.
Speaker Change: Yeah, we will give a little color there I think you can expect.
Speaker Change: You guys have talked about kind of debt repayment all working through this year.
Speaker: Very healthy cash generation in this year as I just mentioned you know we're gonna be in inventory reduction mode throughout the year. So that'll be a nice conversion back to cash and then you should expect also.
Speaker Change: You are not really giving guidance for the year, but any thoughts around.
Speaker Change: Kind of the balance sheet and ability to pay down debt through this year.
Speaker Change: Yes, we will give a little color there I think you can expect.
Speaker Change: The significant reduction in the debt balance will be using that that that cash to pay back down that debt and obviously reduce that debt service cost.
Speaker Change: Very healthy cash generation in this year as I, just mentioned, we're going to be and in inventory reduction mode.
Speaker Change: Okay. Thank you.
Speaker: Throughout the year, so that'll be a nice conversion back to cash and then you should expect also.
Speaker: Thank you.
Speaker Change: A significant reduction in the debt balance will be using that debt.
Speaker Change: Yeah.
Speaker Change: And with one more reminder, for compression pressing star one will join you into the queue.
Speaker Change: That cash to pay back down the debt, obviously reduce that debt service cost.
Speaker: Okay. Thank you.
Mark Smith: And we have reached the end of the question and answer session. Therefore, I'll now turn the call back over to Mark.
Speaker Change: Thank you.
Speaker Change: Smith for closing remarks.
Speaker Change: And with one more reminder, Christian pressing star one will join you into the queue.
Speaker: Thank you operator, and thanks, everyone for joining us today and your interest in Smith <unk> Wesson, we look forward to speaking with everybody again next quarter.
Speaker Change: And we have reached the end of the question and answer session I'll now turn the call back over to <unk>.
Speaker Change: Thank you and ladies and gentlemen. This does conclude today's conference you may disconnect. Your lines at this time, we thank you for your participation and have a great day.
Mark Smith: Mark Smith for closing remarks.
Speaker Change: Thank you operator, and thanks, everyone for joining us today and your interest in Smith <unk> Wesson, we look forward to speaking with everybody again next quarter.
Operator: Okay.
Operator: [music].
Speaker Change: Thank you and ladies and gentlemen. This does conclude today's conference you may disconnect. Your lines at this time, we thank you for your participation and have a great day.
Operator: Okay.
Speaker Change: [music].
Speaker Change: [music].
Operator: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Operator: Yeah.
Speaker Change: Yeah.
Matthew Raab: That's helpful. Thank you.
Speaker: Power & Energy. Thank you.
Speaker: Dire. We got an outliner.
Matthew Raab: This is Matthew Raab on for Steve. Just wanted to touch on tariffs for a minute. You guys talked about it on the call a little bit earlier.
Matthew Raab: Just walk through the exposure there, particularly for steel, as you called out, and then any other commodities that may be impactful.
Matthew Raab: If you're able to quantify the impact or gross margins.
Matthew Raab: Just wanted to touch on tariffs for a minute. You guys talked about it on the call earlier. The tariffs, obviously, it's a pretty volatile environment right now, and not a whole lot of certainty on how that's all going to end up fleshing out. So we've dialed in everything that we know into the numbers. The tariffs, obviously, it's a pretty volatile environment right now. At this point, not a whole lot of certainty on how that's going to end up fleshing out. So we've dialed in everything that we know into the numbers.
Speaker: Just want to remind everybody that we are 100% American and gave all that style of aid. A lot of our margins, we're going to provide at this point. The supply chain is going to be at a base, and we're not going to do that.
Speaker: We're going to move from workforce.
Speaker: In a normal year, being the softest quarter, there will be an interest build in Q1, and then it will come down throughout the balance of the fiscal year as we sell that off through the busy period.
Speaker: Oh great, that's great.
Speaker: Thank you guys, appreciate it.
Mark Smith: Our next question comes from the line of Mark Smith. Again, as a reminder, if anyone has any... Hey guys, just one quick follow-up as we think about the balance sheet. In the past, you guys have talked about debt repayment working through this year.
Mark Smith: I know you're not going to be giving guidance for the year, but any thoughts around the balance sheet and inability to pay down debt? Hey guys, just one quick follow-up as we think about the balance sheet.
Speaker: We will give a little color there. I think you can expect very healthy cash generation in this year, as I just mentioned. We're going to be in an inventory reduction mode throughout the year, so that'll be a nice conversion back to cash.
Speaker: And then you should expect also... Yeah, we will give a little color there. I think you can expect very healthy cash generation in this year, as I just mentioned. We're going to be in an inventory reduction mode throughout the year, so that'll be a nice conversion back to cash.
Speaker: And then you should expect also a significant reduction in the debt balance. We'll be using that cash to pay back down that debt and obviously reduce that debt service cost.
Speaker: Thank you. Thank you, Operator, and thanks, everyone, for joining us today and your interest in Smith & Wesson. We look forward to speaking with everybody again next quarter.
Operator: Thank you, and ladies and gentlemen, this does conclude today's conference. Thanks everyone for joining us today and your interest in Smith & Wesson. We look forward to speaking with everybody again next quarter.