SWBI Q1 Deep Dive: New Product Strength Offset by Industry Headwinds and Margin Pressure

June 19, 2025 at 09:10 AM EDT

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American firearms manufacturer Smith & Wesson (NASDAQ: SWBI) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 11.6% year on year to $140.8 million. Its non-GAAP profit of $0.20 per share was 13% below analysts’ consensus estimates.

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Smith & Wesson (SWBI) Q1 CY2025 Highlights:

Revenue: $140.8 million vs analyst estimates of $152.4 million (11.6% year-on-year decline, 7.6% miss)
Adjusted EPS: $0.20 vs analyst expectations of $0.23 (13% miss)
Adjusted EBITDA: $24.14 million vs analyst estimates of $26.19 million (17.2% margin, 7.8% miss)
Operating Margin: 9.3%, down from 16% in the same quarter last year
Market Capitalization: $478.7 million

StockStory’s Take

Smith & Wesson’s first quarter results were met with a negative market reaction, reflecting the company’s miss against Wall Street’s revenue and profit expectations. Management attributed the performance to macroeconomic challenges and a softer overall firearms market, which led to lower production volumes and pressured margins. CEO Mark Smith noted, “Fourth quarter proved more difficult than we anticipated, largely due to macroeconomic and industry trends.” The company’s flexible manufacturing model and disciplined cost management helped partially offset the bottom line impact, but the quarter’s results were ultimately shaped by reduced consumer demand and changes in product mix.

Looking ahead, Smith & Wesson’s outlook centers on managing persistent headwinds such as inflation, tariffs, and subdued consumer spending. Management indicated that demand levels are likely to remain similar to last year, with continued pressure on margins due to promotions and increased input costs, particularly for steel. CFO Deana McPherson stated that “further speculation on full year results will not be discussed” given ongoing economic uncertainty. The company is focusing on inventory management, cost controls, and the launch of new products to support its market position in a challenging environment.

Key Insights from Management’s Remarks

Management highlighted the impact of weaker industry demand, cost pressures, and product mix changes on the quarter’s results, while underscoring the role of new product introductions in sustaining market share.

New products supported sales: New product launches accounted for 44% of quarterly sales, helping to offset declines in other areas. Management believes continued innovation is crucial for maintaining competitive differentiation and capturing demand, particularly in the entry-level handgun segment.
Product mix and pricing dynamics: Average selling prices (ASPs) were down 4.5% year over year, with lower-priced handguns seeing strong demand. Conversely, higher ASPs in long guns were driven by more expensive lever action rifle models, but volumes declined due to tough comparisons and market softness.
Margin compression factors: Gross margin fell as a result of lower production volumes, higher material costs, and increased promotional activity. The impact of new tariffs on raw materials, especially steel, was cited as a growing concern for future margin performance.
Inventory and cost management: Channel inventory levels were managed conservatively, with only a modest increase in distributor inventory. Smith & Wesson extended its normal summer production shutdown by a week to better align inventory with demand, reflecting a disciplined approach to inventory and working capital.
Competitive landscape changes: Management noted that some smaller firearm manufacturers are exiting the market, viewing this as a potential opportunity to gain share. CEO Mark Smith said, “We view that more as...market share for us to take,” emphasizing the company’s established position and experience navigating industry cycles.

Drivers of Future Performance

Smith & Wesson expects future performance to be shaped by continued consumer caution, inflation, and tariff pressures, with cost controls and new product launches as key areas of focus.

Macroeconomic and industry headwinds: Management anticipates that persistent inflation, higher interest rates, and tariff-related cost increases will continue to weigh on consumer demand and input costs. These factors are expected to keep margins under pressure and limit near-term growth.
Product innovation pipeline: The company plans to introduce several new products in the coming quarters, particularly in the entry-level handgun category, aiming to capture demand segments that remain resilient. Management views innovation as essential to maintaining market share leadership.
Inventory and cash flow discipline: Smith & Wesson is targeting significant inventory reductions throughout the year, which should improve cash flow and support ongoing debt repayment. The company’s strategy includes adjusting production schedules and prioritizing operational efficiency to adapt to uncertain demand.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will be watching (1) the pace and impact of new product launches, especially in the entry-level handgun category, (2) progress on reducing inventory and improving cash flow as the company manages production schedules, and (3) the evolution of cost pressures tied to tariffs and raw materials, particularly steel. Changes in the competitive landscape and Smith & Wesson’s ability to preserve or expand market share will also be key areas of focus.

Smith & Wesson currently trades at $9.56, down from $10.89 just before the earnings. Is there an opportunity in the stock?The answer lies in our full research report (it’s free).

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