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Smith & Wesson Brands Inc (SWBI) Reports Second Quarter Fiscal 2024 Results

  • SWBI reports increased revenue and unit shipments for Q2 fiscal 2024.

  • Gross margin faced temporary pressures due to fixed-cost absorption and inflationary factors.

  • Company repurchased shares and paid dividends, signaling confidence in financial stability.

  • Anticipated margin improvements expected in the fourth quarter.

On December 7, 2023, Smith & Wesson Brands Inc (NASDAQ:SWBI) released its 8-K filing, announcing the financial results for the second quarter of fiscal 2024, which ended on October 31, 2023. The company reported an increase in top-line revenue and unit shipments compared to the previous year, while channel inventories slightly decreased. This performance is attributed to new product introductions and consumer loyalty to the brand.

Financial Performance Overview

SWBI's net sales for the quarter were $124.9 million, up from $121.0 million in the same period last year. However, gross profit decreased to $31.8 million from $39.3 million, reflecting a gross margin of 25.4%, down from 32.4% year-over-year. This was primarily due to fixed-cost absorption, inflationary factors, and inventory reserve adjustments. Operating income also saw a decline, standing at $3.8 million compared to $12.5 million in the prior year.

Balance Sheet and Cash Flow Highlights

The company's balance sheet showed a strong position with total assets of $572.9 million, up from $541.3 million at the end of the previous fiscal year. Cash and cash equivalents stood at $44.2 million, down from $53.6 million. Inventories were reduced to $163.3 million from $177.1 million, reflecting efforts to manage working capital.

Net cash provided by operating activities for the six months ended October 31, 2023, was $37.8 million, a significant improvement from the net cash used in operating activities of $28.2 million in the same period last year. This change is mainly due to adjustments in operating assets and liabilities, including a notable reduction in inventories.

Shareholder Returns and Capital Allocation

SWBI's commitment to returning value to shareholders was evident through its share repurchase program and dividend payments. The company repurchased nearly 646,000 shares, utilizing $8.2 million of its $50 million authorization, and paid $5.5 million in dividends. A quarterly dividend of $0.12 per share has been authorized, payable on January 4, 2024, to stockholders of record on December 21, 2023.

Management Commentary

President and CEO Mark Smith expressed satisfaction with the quarter's results, highlighting the brand's market share gains and the anticipation of strong demand continuing into the second half of the fiscal year. CFO Deana McPherson noted the temporary margin pressures but expects these headwinds to abate in the fourth quarter. She also emphasized the company's strengthened working capital position and reduced production to align inventory levels with current demand.

Outlook and Strategic Focus

Looking ahead, SWBI expects to be in a strong position to drive returns for stockholders, with a significant reduction in capital expenditures as the investment in the new Tennessee facility winds down. The company's focus remains on innovation, operational efficiency, and disciplined capital allocation to navigate through the current economic environment.

In summary, Smith & Wesson Brands Inc (NASDAQ:SWBI) demonstrated resilience in its second quarter of fiscal 2024 amidst challenging market conditions. The company's strategic initiatives and financial discipline have positioned it to capitalize on future growth opportunities while continuing to deliver shareholder value.

Explore the complete 8-K earnings release (here) from Smith & Wesson Brands Inc for further details.

This article first appeared on GuruFocus.