Smith & Wesson Holding Corporation Announces Third Quarter Financial Results

Smith & Wesson Holding Corporation Announces Third Quarter Financial Results

Firearms Sales of $78.5 Million (+27.5%)

Handgun Sales $61.9 Million (+45%)

Net Income $2.4 Million – EPS of $0.05

SPRINGFIELD, Mass., March 12 /PRNewswire-FirstCall/ — Smith & Wesson Holding Corporation (Nasdaq: SWHC), parent company of Smith & Wesson Corp., the legendary 157-year old company in the global business of safety, security, protection and sport, today announced financial results for its third fiscal quarter ended January 31, 2009.

Net product sales for the three months ended January 31, 2009 were $83.2 million, a $17.1 million, or 25.9%, increase over net product sales for the three months ended January 31, 2008. Net income for the third fiscal quarter was $2.4 million, or $0.05 per fully diluted share, compared with a net loss of $1.8 million, or $0.04 per share, for the comparable quarter last year. Adjusted EBITDAS, a non-GAAP financial measure, was $9.2 million for the third quarter, compared with $3.7 million for the third quarter of fiscal 2008.

Total firearms sales for the third quarter were $78.5 million, an increase of $16.9 million, or 27.5%, over the third quarter of last year. Pistol sales increased 45.7% to $24.9 million, driven by continued consumer demand, law enforcement adoption of the M&P polymer pistol line, and strong consumer sales of the Sigma pistol line. Sales of M&P pistols increased 77.1% for the third quarter. M&P tactical rifle sales increased by 111% to $8.8 million for the third quarter as demand for this product remained strong in both the consumer and law enforcement channels. Total revolver sales were $22.3 million, an increase of $7.0 million, or 45.4%, versus the comparable quarter one year ago. Sales of non-firearm accessories, including handcuffs, totaled $4.7 million, a 4.0% increase over non-firearm accessory sales of $4.5 million for the third quarter last year. Hunting firearm sales of $6.7 million represented a decline of $5.8 million, or 46.4%, from the comparable quarter in the last fiscal year. Hunting products continued to be negatively impacted by a number of factors, including their position in the consumer discretionary marketplace and a distribution channel that is buying cautiously.

Michael F. Golden, President and Chief Executive Officer, said, “I am pleased to report these very positive results for our third fiscal quarter. Our handgun and tactical rifle products have consistently delivered favorable results throughout the past several quarters, and during the third quarter, we experienced significant increases in the consumer demand for these products. Despite continuing weakness in the overall economy, we focused on our strategy to grow our business in the consumer and the professional channels, and we launched some important new products. At the same time, we addressed recent, very strong demand, for our pistols, revolvers, and tactical rifles. In fact, sales of handguns and tactical rifles into our consumer channel for the third quarter grew 62% over the prior year. We delivered solid profits, and we made significant progress toward bolstering our balance sheet by reducing our inventories and effectively managing our accounts receivable, which resulted in a strengthening of our cash position.”

“Sales of M&P pistols continued to be strong throughout the third quarter. During the quarter, we received orders for our M&P pistols from a number of police agencies, including the Raleigh, North Carolina Police Department. To date, over 489 domestic law enforcement agencies have adopted or approved the M&P for duty use. The M&P pistol also continues to penetrate the international market. In the third quarter, we recorded orders for the M&P pistol from Puerto Rico and the M&P was added to the approved officer purchase list by the Lebanese government.”

Golden added, “Robust sales of our M&P15 tactical rifles also continued throughout the third quarter, benefitting from heightened demand at the consumer level. We expanded the M&P tactical rifle family with the introduction in January of the M&P15-22 semi-automatic sport rifle. The M&P15-22 has been designed along the same, popular lines as our entire M&P15 family of tactical rifles; yet, it is chambered in the much more economical .22 caliber ammunition. We believe this new product will appeal to consumers seeking an economical alternative in this very popular product category. We continue to win new business in the law enforcement market as well, both domestically and internationally, and in the third quarter we added law enforcement agencies in Miami, North Carolina, and Mexico to the growing list of police departments we serve. To date, over 213 domestic law enforcement agencies have approved or adopted the M&P15 rifle for duty use. Building upon the popularity of the M&P line with law enforcement, we also introduced at SHOT Show the M&P4, a fully automatic capable version of the M&P tactical rifle, designed exclusively for law enforcement and military applications.”

Gross profit of $21.6 million for the third quarter was $5.0 million, or 29.9%, higher than gross profit for the comparable quarter last year. Gross margins increased to 25.8% from 25.0% for the comparable quarter last year. Gross margins were favorably impacted by full capacity production of handguns and tactical rifles, combined with reduced promotional expense in the quarter. Gains in gross margins were offset by continuing weakness in demand for hunting rifles, which caused lower production levels at the Rochester, New Hampshire facility and led to reductions in labor, underutilized capacity and reduced overhead absorption. In addition, gross margins were also negatively impacted by a $2.0 million charge for the recall of Walther pistols due to a possible problem recently detected with the hammer block system.

Golden added, “While our hunting business continues to suffer in the current economic environment, the market for hunting rifles in a healthy economy is a sizeable one. In addition, this portion of our business produces barrels for our tactical rifles, products that are clearly in very high demand right now. Finally, the barrel manufacturing expertise we possess via our hunting business defines us as a firearms manufacturer with a full portfolio of products and capabilities, an important distinction when seeking business from the federal government and military markets. For these reasons, we continued to selectively invest in our hunting business while focusing on reducing its cost structure. During the third quarter, we implemented a reduction in force and a work furlough at our Rochester, New Hampshire factory. At the same time, we launched the T/C Venture bolt-action hunting rifle at this year’s SHOT Show. The T/C Venture carries the respected Thompson brand, but at a lower price point, designed to allow us broader penetration of the hunting rifle market. We believe the Thompson/Center brand is uniquely positioned to profitably deliver a broader portfolio of high-quality hunting products at various price points, which will expand our addressable hunting market.”

Operating expenses for the third quarter increased by approximately $699,000, or 4.3%, over the third quarter last year.

The Company ended the current quarter with approximately $21.3 million of cash without accessing its revolving line of credit. In addition, the Company secured an amendment to its revolving line of credit with TD Bank, which expands the leverage ratio covenant from 3.0 to 3.5 for April 30, 2009 through fiscal 2010, and from 3.0 to 3.25 for fiscal 2011. The effect of this amendment is to provide the Company with incremental borrowing capacity at a future date should the Company elect to access it.

Conference Call

The Company will host a conference call today, March 12, 2009, to discuss its first quarter results and its outlook. The conference call may include forward-looking statements. The conference call will be Web cast and will begin at 5:00pm Eastern Time (2:00pm Pacific). The live audio broadcast and replay of the conference call can be accessed on the Company’s Web site 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 Adjusted EBITDAS

In this press release, a non-GAAP financial measure, known as “Adjusted EBITDAS” is presented. Adjusted EBITDAS excludes the effects of interest, income taxes, depreciation of tangible fixed assets, amortization of intangible assets, stock-based employee compensation expense and certain other non-cash transactions. From time to time, the Company may also elect to exclude certain significant non-recurring items in order to provide the reader with an improved understanding of underlying performance trends. See the attached “Reconciliation of GAAP Net Income to Adjusted EBITDAS” for a detailed explanation of the amounts excluded and included from net income to arrive at adjusted EBITDAS for the three-month and nine-month periods ended January 31, 2009 and 2008. 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. Our definition of these adjusted financial measures may differ from similarly named measures used by others.

SOURCE Smith & Wesson Holding Corporation
CONTACT:
Liz Sharp, VP Investor Relations
lsharp@smith-wesson.com
or
William F. Spengler, EVP, Chief Financial Officer
both of Smith & Wesson Holding Corp.
1-413-747-3304
Web Site: http://www.smith-wesson.com

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