Smith & Wesson Holding Corporation Reports Third Quarter Fiscal 2014 Financial Results

SPRINGFIELD, Mass., March 4, 2014 /PRNewswire/ -- Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC), a leader in firearm manufacturing and design, today announced financial results for the third fiscal quarter ended January 31, 2014.

Third Quarter Fiscal 2014 Financial Highlights

• Net sales for the third quarter were $145.9 million, up 7.1% from the third quarter last year.  When excluding Walther products that were sold in the prior year pursuant to a distribution agreement that has since ended, net sales growth was 16.7%.  Handgun sales, which include sales of the company's popular M&P® pistols, grew 29.9% versus the year ago quarter. 
• Gross profit for the third quarter was $58.7 million, or 40.2% of net sales, compared with gross profit of $49.9 million, or 36.6% of net sales, for the comparable quarter last year.  Gross profit margin improved as a result of favorable product mix, absorption, and manufacturing efficiencies, as well as reduced promotions and the absence of lower-margin Walther product sales.
• Operating expenses for the third quarter were $27.5 million, or 18.9% of net sales, compared with operating expenses of $21.9 million, or 16.1% of net sales, for the third quarter last year. A significant portion of the operating expense increase related to the company's ERP implementation, which commenced in the second quarter.
• Operating income for the third quarter was 21.3% of net sales compared with 20.6% for the third quarter last year.
• Income from continuing operations for the third quarter was $20.1 million, or $0.35 per diluted share, compared with $17.5 million, or $0.26 per diluted share, for the third quarter last year. 
• Non-GAAP Adjusted EBITDAS from continuing operations for the third quarter increased to $37.5 million from $33.3 million for the third quarter last year.
• Operating cash generated for the third quarter was $29.6 million.  Cash used in investing activities of $21.9 million included capital spending of $10.2 million and equipment deposits of $11.7 million, yielding free cash flow of $7.6 million.  The company also used $15.3 million in cash from financing activities, primarily relating to its stock buyback program.

James Debney, Smith & Wesson Holding Corporation President and Chief Executive Officer, stated, "Our performance  for the third quarter of fiscal 2014 reflected the ongoing successful execution of our growth strategy.  We maintained our focus on increasing market share of our Smith & Wesson® M&P® polymer pistol family of products and thereby delivered handgun revenue growth of nearly 30%, a solid result when we consider that the year-ago quarter reflected a surge in consumer demand.  We continued to demonstrate our strong track record of new product development, launching several new products at SHOT Show® in January, particularly in the revolver category, all of which were well received and drew incremental orders from our customers.  Our financial results were highlighted by our delivery of double-digit growth in net income and the ongoing expansion of our gross margins, all while we continued to drive a number of initiatives designed to strengthen our business and return increased value to our stockholders.  We believe that our long-standing approach of growing our business through the addition of flexible capacity has positioned us well to adapt to our dynamic environment."

Jeffrey D. Buchanan, Smith & Wesson Holding Corporation Executive Vice President and Chief Financial Officer, stated, "During the third quarter, we repurchased 1.14 million shares of our common stock for $15 million.  Since December 2012, we have repurchased a total of 12.3 million shares of our common stock valued at $135 million, representing a total reduction in shares outstanding of nearly 19.0%.  With the successful completion of our stock buyback program, we continued to optimize our capital structure.  Overall, our balance sheet remains flexible and strong with no borrowings under our credit facility." 

Financial Outlook

The company estimates net sales for the fourth quarter of fiscal 2014 to be between $159.0 million and $164.0 million and GAAP earnings per diluted share from continuing operations of between $0.37 and $0.40. 

The company has raised its full year fiscal 2014 guidance. It now estimates net sales of between $615.0 million and $620.0 million and GAAP earnings per diluted share from continuing operations of between $1.39 and $1.42.

All guidance takes into account the expected impact of the implementation of the company's new ERP system throughout fiscal 2014. While implementation costs are projected to continue in the fourth quarter, those costs are expected to continue to diminish from second quarter levels, since the most challenging aspects of the project have been completed and the system has reached steady-state mode.

Conference Call and Webcast

The company will host a conference call and webcast today, March 4, 2014, to discuss its third quarter fiscal 2014 financial and operational results. Speakers on the conference call will include James Debney, President and Chief Executive Officer, and Jeffrey D. Buchanan, Executive Vice President and Chief Financial Officer. The conference call may include forward-looking statements. The conference call and webcast will begin at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). Those interested in listening to the call via telephone may call directly at (617) 213-8052 and reference conference code 22615200. No RSVP is necessary.  The conference call audio webcast can also be accessed live and for replay on the company's website at www.smith-wesson.com, under the Investor Relations section. The company will maintain an audio replay of this conference call on its website for a period of time after the call. No other audio replay will be available. 

Reconciliation of U.S. GAAP to Non-GAAP Financial Measures

In this press release, certain non-GAAP financial measures, including "Adjusted EBITDAS" and "free cash flow" are presented.  From time to time, the company considers and uses Adjusted EBITDAS and free cash flow as supplemental measures of operating performance in order to provide the reader with an improved understanding of underlying performance trends. Adjusted EBITDAS excludes the effects of interest expense, income taxes, depreciation of tangible fixed assets, amortization of intangible assets, stock-based compensation expense, plant consolidation costs, DOJ and SEC investigation costs, and certain other transactions.  See the attached "Reconciliation of GAAP Income from Operations to Adjusted EBITDAS" for a detailed explanation of the amounts excluded from and included in net income to arrive at Adjusted EBITDAS for the three month and nine month periods ended January 31, 2014 and 2013.  Free cash flow is defined as cash flow provided by operating activities less capital expenditures, which include purchases of property, equipment, patents, and software and deposits on fixed assets.

Adjusted or non-GAAP financial measures provide investors and the company with supplemental measures of operating performance and trends that facilitate comparisons between periods before, during, and after certain items that would not otherwise be apparent on a GAAP basis. Adjusted financial measures are not, and should not be viewed as, a substitute for GAAP results. The company's definition of these adjusted financial measures may differ from similarly named measures used by others.

About Smith & Wesson

Smith & Wesson Holding Corporation (NASDAQ Global Select: SWHC) is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality firearms, related products, and training to the global military, law enforcement, and consumer markets. The company's brands include Smith & Wesson®, M&P® and Thompson/Center Arms™. Smith & Wesson facilities are located in Massachusetts and Maine. For more information on Smith & Wesson, call (800) 331-0852 or log on to www.smith-wesson.com.

Safe Harbor Statement                    

Certain statements contained in this press release may be deemed to be forward-looking statements under federal securities laws, and we intend that such forward-looking statements be subject to the safe-harbor created thereby.  Such forward-looking statements include the company's belief that its performance for the third quarter of fiscal 2014 reflected the ongoing successful execution of its growth strategy; the company's belief that it maintained its focus on increasing market share of its M&P polymer pistol family of products and thereby delivered handgun revenue growth of nearly 30%, a solid result when the year-ago quarter reflected a surge in consumer demand; the company's belief that it continued to demonstrate its strong track record of new product development, launching several new products at SHOT Show in January, particularly in the revolver category, all of which were well received and drew incremental orders from its customers; the company's belief that it continued to drive a number of initiatives designed to strengthen its business and return increased value to its stockholders; the company's belief that its long-standing approach of growing its business through the addition of flexible capacity positioned it well to adapt to its dynamic environment; the company's belief that with the successful completion of its stock buyback program, it continued to optimize its capital structure; the company's belief that its balance sheet remains flexible and strong with no borrowings under its credit facility; the company's expectations for net sales and GAAP earnings per diluted share from continuing operations for the fourth quarter of fiscal 2014; the company's expectations for net sales and GAAP earnings per diluted share from continuing operations for fiscal 2014; and the company's belief that while implementation costs for the company's new ERP system are expected to continue in the fourth quarter, those costs are expected to continue to diminish from second quarter levels, since the most challenging aspects of the project have been completed and the system has reached steady-state mode. We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by such forward-looking statements.  Such factors include the demand for our products; the costs and ultimate conclusion of certain legal matters, including the DOJ and SEC matters; the state of the U.S. economy; general economic conditions and consumer spending patterns; the potential for increased regulation of firearms and firearm-related products; speculation surrounding fears of terrorism and crime; our growth opportunities; our anticipated growth; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; the position of our hunting products in the consumer discretionary marketplace and distribution channel; our penetration rates in new and existing markets; our strategies; our ability to introduce new products; the success of new products; our ability to expand our markets; the potential for cancellation of orders from our backlog; and other risks detailed from time to time in our reports filed with the SEC, including our Form 10-K Report for the fiscal year ended April 30, 2013.

Contact: Liz Sharp, VP Investor Relations
Smith & Wesson Holding Corporation
(413) 747-3304
[email protected]

SOURCE Smith & Wesson Holding Corporation