Smith & Wesson reported earnings slid 70.3 percent in the second quarter, to $5.05 million, or 9 cents a share. Revenues slumped 22.1 percent.
Net sales for the second quarter were $108.4 million, a decrease of 22.1 percent from net sales of $139.3 million for the second quarter last year. The expected decrease was a result of lower consumer demand and competitors' excess inventory at distributor and retailer locations, which followed an earlier surge period when consumers purchased firearms in anticipation of possible additional restrictive regulations. Sales of long guns, primarily modern sporting rifles, were most heavily impacted, declining 50.3 percent compared with the comparable quarter last year, while handgun sales declined 15.0 percent -- a smaller decline because of continued strong sales of small concealed carry polymer pistols and revolvers.
Gross profit margin for the second quarter was 32.1 percent compared with gross profit margin of 41.6 percent for the second quarter last year. The decline was a result of lower sales volumes, particularly lower sales of higher margin products, and the resulting decrease in fixed-cost absorption as well as unfavorable spending relative to sales volumes.
Operating expenses for the second quarter were $24.0 million, or 22.1 percent of net sales, compared with operating expenses of $29.2 million, or 20.9 percent of net sales, for the second quarter last year. The decrease in operating expense dollars was primarily because of reduced expenses relating to incentive compensation and the new enterprise resource planning system implemented in the prior year.
Operating income for the second quarter was 10.0 percent of net sales compared with 20.7 percent of net sales for the second quarter last year.
Income from continuing operations for the second quarter was $5.1 million, or $0.09 per diluted share, compared with $17.1 million, or $0.28 per diluted share, for the second quarter last year.
Non-GAAP Adjusted EBITDAS from continuing operations for the second quarter was $18.8 million compared with $36.9 million for the second quarter last year.
A cash reduction for the second quarter of $19.1 million was driven primarily by operating cash outflow of $14.2 million and capital spending of $6.6 million.
James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, "Results for the second quarter met our expectations as we continued to navigate the consumer firearm market as it returns to a more normalized environment. We again expanded our line of M&Pfirearms by adding four new competition-ready pistol models with the launch of our M&P Performance CenterPorted series. These new models offer discerning customers new choices and premium features. Our broad product offerings remain popular with consumers and our internal data indicates that we remained the market leader in both the handgun and the modern sporting rifle categories. We think the strong consumer preference for our products helped lower Smith & Wesson inventory in our distribution channel by more than 18 percent in the second quarter. We are extremely pleased with that reduction and, in fact, believe that we have the lowest inventory in the channel of any major firearm manufacturer. Unfortunately, we expect that the excess channel inventory of other manufacturers' products will continue to reduce the open-to-buy for distributors and retailers for our next quarter."
Debney continued, "Despite the persistent short-term headwinds, our long-term strategy remains focused on growth, both organic and inorganic, within our core firearm business. After the close of the second quarter, we made two announcements in support of our strategy. First, we have partnered with General Dynamics Ordnance and Tactical Systems to pursue replacement of the U.S. Army's standard sidearm with our M&P polymer pistol. Second, we signed an agreement to acquire Battenfeld Technologies, Inc. (BTI), a leading provider of hunting and shooting accessories. This accretive acquisition represents an acceleration of our stated objective to expand our firearm accessories business. BTI is a profitable company with a history of strong organic growth and can serve as a broad platform for the expansion of our combined firearm accessories businesses. Given the solid management team and infrastructure in place at BTI, we believe a focused effort on organic and inorganic growth in the highly fragmented accessories market could deliver long-term double digit compounded annual growth in that segment."
Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice President and Chief Financial Officer, stated, "The strength and flexibility we have built into our balance sheet in the last two years has allowed us to make strategic and financial investments in our company, such as buying back $165 million of our common stock, spending $24 million to vertically integrate by acquiring the assets of our primary injection molding supplier, and now, in connection with the planned acquisition of BTI, investing $130.5 million to establish a broad platform for accretive growth in related firearm markets with high-margin products."
Financial Outlook
For the third quarter of fiscal 2015, excluding the impact of the BTI acquisition, the company expects net sales to be between $113.0 million and $118.0 million and GAAP earnings per diluted share from continuing operations of between $0.09 and $0.11. If the BTI transaction is finalized in mid-December as planned, earnings per diluted share for the fiscal third quarter would decrease by approximately $0.05 as the company would be required to fully amortize backlog in that short period and pay expenses related to the transaction.
For full fiscal 2015, excluding the impact of the BTI acquisition, the company expects net sales to be between $504.0 million and $508.0 million and GAAP earnings per diluted share from continuing operations of between $0.66 and $0.70. If the BTI transaction is finalized in mid-December as planned, net sales for the full year would increase by between $13.0 million and $16.0 million and earnings per diluted share would decrease by approximately $0.05.
