Smith & Wesson's Q1 2026: Contradictions Emerge on Pricing Strategy, Inventory Management, and Market Demand

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

Date of Call: None provided

Financials Results

• Revenue: $85.1M, down 3.7% YOY
• EPS: $-0.08 per diluted share (net loss); prior-year comparison not provided
• Gross Margin: 25.9%, 1.5 pts below prior year; ~120 bps negative impact from tariffs

Guidance:

• Q2 sales expected to grow significantly vs Q1 but be ~3%–5% below Q2 FY2025.
• Channel inventory expected to be neutral to Q2 results.
• Q2 gross margin expected to be in line with Q1 (25.9%).
• Q2 operating expenses expected to be ~20% higher than Q1; ~50% of increase from profit sharing; remainder from Academy grand opening, promotions, sales/distribution tied to higher volume.
• Effective tax rate expected to be ~33%.
• Company remains cautious on FY due to macro, but expects to maintain/expand market share with current and new products.

Business Commentary:

* Sales Performance: - Smith & Wesson Brands reported sales of $85.1 million for Q1 FY2026, which was $3.3 million or 3.7% below the prior year's comparable quarter. - The decline in sales was attributed to a decline in handgun and long gun shipments, as well as a decrease in average selling prices (ASPs) due to promotional activities.

• Handgun and Long Gun Performance:
• Smith & Wesson's handgun shipments increased by over 35% year-on-year, surpassing the decline in NICS background checks by 2.4%.

• Long gun shipments, however, were down by 28.1% year-over-year, with the decline attributed to fewer shipments in the shotgun and bolt-action rifle markets, where the company does not have a significant presence.

• Inventory and Demand:

• Distributor inventory decreased by over 10% from the end of the prior quarter and by over 13% year-over-year in terms of actual units.

• The strong sell-through of products at retail indicates a healthy demand for Smith & Wesson's firearms, positioning the company well for the busy fall and winter seasons.

• ASP Trends and Promotion Strategy:

• Average selling prices (ASPs) for handguns decreased by 4%, while long guns saw a decline of 13%.

• The company maintained relatively healthy ASPS throughout the summer by being selective in participating in promotional activities, leveraging its strong brand and innovation pipeline.

• Innovation and Market Position:

• New products accounted for 37.3% of sales in the first quarter, reflecting the company's focus on innovation as a key strategy.
• Smith & Wesson's leadership position in key categories and strong product reception, such as the Shield X, support the continued growth and market share expansion.

Sentiment Analysis:

• Management said results were “better than expected” with strong brand/innovation, but net sales fell 3.7% YOY and the quarter ended with a $0.08 loss per share. Guidance calls for Q2 sales to improve sequentially yet remain 3%–5% below Q2 FY25, and gross margin to remain at Q1 levels amid tariff and absorption headwinds. ASPs held despite promotions, and inventories are healthy.

Q&A:

• Question from Mark Smith (Lake Street Capital Markets): How do you feel about current handgun and long gun ASPs given competitive dynamics and consumer trends, and could pricing shift through the year?
  Response: ASPs held well through the slow summer due to innovation and brand strength; promotions were selective, and ASPs are expected to be maintained or improved into the busy season.

• Question from Mark Smith (Lake Street Capital Markets): What opportunities exist to expand long-gun offerings into segments where you’re less present?
  Response: Lever-action 1854 success opens white-space expansion; two additional calibers are coming soon, with further platform extensions to follow.

• Question from Mark Smith (Lake Street Capital Markets): With regulatory changes, could demand rise for NFA items like suppressors and SBRs?
  Response: Yes; significant pent-up suppressor demand is expected as the law change takes effect in January; GemTech is well-positioned and early promotions indicate strong interest.

• Question from Matthew Raab (Craig-Hallum Capital Group): Legacy products appeared slightly up YOY; what drove this and how will you manage remaining inventory?
  Response: Brand strength is driving share gains in legacy lines; inventory will be reduced by moderating production run rates—no expiration risk and balance sheet supports measured adjustments.

• Question from Matthew Raab (Craig-Hallum Capital Group): Will promotional activity accelerate in the back half to reduce inventory, or remain rational vs last year?
  Response: Promotions will remain selective without a significant increase; ASPs are expected to hold through the rest of the year.