Smith & Wesson Q1 2026 Earnings Call: Contradictions on Inventory, Pricing, and Product Strategy Amid Market Pressures

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 4, 2025

Financials Results

• Revenue: $85.1M, down 3.7% YOY
• EPS: $0.08 loss per diluted share; prior-year comparison not provided
• Gross Margin: 25.9%, down 150 bps YOY; ~120 bps negative impact from tariffs (primarily steel)

Guidance:

• Q2 sales expected to grow significantly sequentially from Q1 and be ~3%–5% below Q2 FY2025.
• Q2 gross margin expected roughly in line with Q1's 25.9%.
• Q2 operating expenses ~20% higher than Q1; about half driven by profit sharing; remainder from Academy opening costs, promotions, and sales/distribution tied to higher volume.
• Channel inventory healthy; not expected to impact Q2 positively or negatively.
• Effective tax rate expected to be ~33%.

Business Commentary:

* Sales and Market Performance: - Smith & Wesson Brands reported sales of $85.1 million for Q1 2026, with EBITDAS of $8 million. - Sales were driven by robust demand for new products and strong market share across various firearms categories.

• Innovation and Product Launch:
• New products accounted for 37.3% of sales in Q1, driven by a positive reception to the Shield Act introduced in late July.

• The success of new products and innovations is attributed to the company's award-winning engineering and design teams.

• Inventory Levels and Demand:

• Distributor inventory was down more than 13,000 units at the end of July and 17,000 units year-over-year.

• This decline indicates strong demand for Smith & Wesson's products at the retail counter and positions the company well for converting incremental demand into shipments during the busy firearm season.

• ASP Trends and Pricing Strategy:

• Average selling prices (ASP) trended lower by 6.1% sequentially, with handgun ASPs down 4% and long guns down 13% due to mix.

• The company maintained relatively healthy ASPs by being selective in participating in promotions, leveraging the strength of the brand and the core product portfolio.

• Macroeconomic Conditions and Outlook:

• Despite macroeconomic challenges, Smith & Wesson Brands anticipates maintaining or expanding market share in the foreseeable future.
• The company's focus on new product introductions and planned innovations will support market share growth, despite macroeconomic uncertainties.

Sentiment Analysis:

• Management cited “first quarter results came in better than expected” with strong handgun demand and new products, but net sales fell 3.7% YOY and the company posted a $3.4M net loss ($0.08 per share). They remain “cautious regarding the full fiscal year” and guided Q2 sales to be 3%–5% below prior-year Q2, with gross margin only in line with Q1’s 25.9% amid tariff headwinds.

Q&A:

• Question from Mark Smith (Lake Street Capital Markets): How do you feel about current handgun and long gun ASPs amid promotions, and do you expect pricing shifts this year?
  Response: ASPs held well despite promotions due to innovation and brand strength, and management expects to maintain them through the busy season.

• Question from Mark Smith (Lake Street Capital Markets): What opportunities exist to expand long gun offerings into segments where you currently have limited presence?
  Response: Lever-action success (Model 1854) is paving expansion into white-space; two additional calibers are imminent, with more to follow.

• Question from Mark Smith (Lake Street Capital Markets): Will regulatory changes spur demand for NFA items like suppressors and SBRs into January?
  Response: Yes; management sees pent-up suppressor demand benefiting the Gemtech brand, with early promo activity indicating a healthy market in January.

• Question from Matthew Raab (Craig-Hallum Capital Group): Legacy products appeared slightly up YOY; what drove performance and how will you manage inventory?
  Response: Brand strength drove share gains; inventory will be reduced by moderating production run rates over the year.

• Question from Matthew Raab (Craig-Hallum Capital Group): Should we expect increased promotions in the back half to reduce inventory, or a rational cadence similar to last year?
  Response: Promotions will remain measured; ASPs should hold, with no significant increase in promo intensity expected.