Quarterly Sales +43%
Quarterly Net Income +312%
Six-Month Net Income +84%
Company Plans January Launch of New M&P .45 Caliber Polymer Pistol and Unveiling of New Shotguns at SHOT Show 2007
SPRINGFIELD, Mass., Dec. 7 /PRNewswire-FirstCall/ -- Smith & Wesson Holding Corporation (Nasdaq: SWHC - News), parent company of Smith & Wesson Corp., the legendary 154-year old company in the global business of safety, security, protection and sport, today announced financial results for the second fiscal quarter ended October 31, 2006.
Sales for the quarter ended October 31, 2006 of $50.8 million were 42.9% higher than revenue of $35.5 million for the comparable quarter last year. Firearms sales of $47.8 million for the second quarter of fiscal 2007 grew 43.9% over firearms sales of $33.2 million for the comparable quarter last year and reflected an 87.4% increase in Smith & Wesson pistol sales and a 44.5% increase in Walther pistol sales.
Net income for the quarter ended October 31, 2006 was $2.9 million, or $0.07 per diluted share, compared with $692,000, or $0.02 per diluted share, for the comparable quarter last year.
Smith & Wesson President and CEO, Michael F. Golden, said, "Our performance continues to reflect consistent execution on our strategic and financial objectives. We delivered record levels of profitable growth in our firearms business during the second quarter of fiscal 2007, while we took significant steps toward diversifying our company."
Sales for the six months ended October 31, 2006 of $98.4 million increased by $31.0 million, or 46.0%, over sales of $67.4 million for the comparable period last year. Firearms sales of $92.9 million for the six months ended October 31, 2006 grew by 48.6%.
Net income for the first six months of fiscal 2007 was $6.2 million, or $0.15 per diluted share, a $2.8 million, or 84.2% increase over net income of $3.4 million, or $0.09 per diluted share, for the six months ended October 31, 2005. Last year's results included a $3.1 million favorable environmental reserve reduction, $1.9 million net of tax impact, which contributed over one-half of the Company's net income for the six months ended October 31, 2005, or $0.05 per diluted share on an after-tax basis.
Sporting goods channel sales for the second quarter of fiscal 2007 increased by 52.4% over the comparable quarter last year and were supported by the fully direct sales force we established in mid-fiscal 2006 and by new products including the Military & Police (M&P) polymer pistols and tactical rifles. The M&P series of firearms continued to drive strong sales growth in the law enforcement channel in the second quarter of fiscal 2007. Law enforcement sales for the second quarter of fiscal 2007 increased by over 148% from the comparable period in fiscal 2006.
Pistol sales growth of 87.4% for the second quarter of fiscal 2007 were driven by several factors. Strong sales of the M&P pistol into law enforcement agencies continued in the second quarter, and to date, 135 law enforcement agencies have purchased, approved for purchase, or approved for on-duty carry, our M&P polymer pistols, a line we introduced less than one year ago. Pistol growth was also supported by continuing shipments of our SW9VE 9mm pistols to the U.S. Army for the Afghanistan military and police. We completed shipments on the latest Afghan order in this quarter. In addition, Walther pistol sales grew 44.5% over the comparable quarter of fiscal 2006, reflecting the ongoing benefit of our marketing efforts and direct sales force structure.
Golden added, "The combination of our increased sales volume, improved gross margins and controlled operating expenses led to strong profit performance for the second quarter of fiscal 2007. Year-over-year profitability increased by over 300%. Gross profit of $16.1 million for the quarter ended October 31, 2006 was 31.2% compared with gross profit of $10.5 million, or 29.3% for the comparable quarter last year. Gross margins reflected the impact of a planned, annual two-week factory closure, which occurs each August. While quarterly sales increased by almost 43% year-over-year, operating expenses increased by only 15.1%. As a percentage of net product sales and licensing, operating expenses decreased from 25.8% for the quarter ended October 31, 2005 to 20.8% for the quarter ended October 31, 2006."
"We recently achieved a major milestone in our diversification strategy. In November, we announced that we will introduce a line of innovative Smith & Wesson shotguns at our industry's SHOT Show in Orlando, Florida in January 2007. At approximately $1.1 billion, over 60% larger than our traditional revolver and pistol market, the long gun market represents a significant opportunity for growth and a space where the Smith & Wesson brand will be well received. Shotguns represent approximately $350 million of the total long gun market. By forming an agreement with a team of industry veterans that have constructed manufacturing facilities with the sole purpose of producing only Smith & Wesson designed shotguns, we are entering this market without incurring any capital expenditures. Having successfully entered the long gun market with the introduction of our M&P15 tactical rifle series in February 2006, our move into shotguns represents the second chapter in our long gun growth strategy. We continue to explore opportunities in the $506 million market segment for hunting rifles as well, which represents the third and largest segment of the long gun market where we have yet to offer products. We are excited about carrying the strength and reputation of the Smith & Wesson brand further into the long gun market."
"We continued to diversify our product portfolio in the second quarter by expanding our M&P polymer pistol series to include a compact version of our 9mm, the M&P9c. The M&P9c, launched in October, was designed primarily for law enforcement and military personnel as a highly concealable backup or off-duty sidearm, and a .40 caliber version of the compact M&P is planned for January 2007. Today, I am pleased to announce that we will further expand the M&P family with the addition of a .45 caliber version of our M&P, which will be unveiled at SHOT Show in January. During our development of the M&P family, it became evident that several domestic law enforcement agencies prefer a sidearm chambered in .45 caliber. The U.S. military has also strongly indicated that it would like to convert from its current 9mm to a .45 caliber pistol. Like the rest of the M&P family, the M&P45 has been engineered with enhanced ergonomics, ambidextrous controls and proven safety features. We look forward to offering law enforcement professionals, the U.S. government, and sporting goods customers a full portfolio of M&P polymer pistols," concluded Golden.
Outlook for Fiscal 2007
We continue to expect net product sales to increase to approximately $200 million for fiscal 2007, which would reflect an approximate 27% increase over fiscal 2006 sales. The introduction of our new Smith & Wesson shotgun line in January 2007 will have minimal revenue impact on the current fiscal year, which ends on April 30, 2007, as a result of the expected production ramp throughout fiscal 2007. Our sales expectations do not include the results of any potential future diversification initiatives, but do include growth in our existing consumer market, as well as continued sales penetration of the law enforcement, federal government, and international markets. Both the M&P pistol series and the M&P tactical rifle series are expected to be key drivers of the sales increase for fiscal 2007. The second quarter of fiscal 2007 marked the one-year anniversary of our conversion to a fully direct sales force, a shift which has delivered exceptional sales growth over the past four quarters. We expect our sales growth in the sporting goods channel to now stabilize at a healthy rate of 15% for the second half of fiscal 2007.
Net income for fiscal 2007 is still anticipated to be approximately $15.0 million, or $0.36 per diluted share. This would represent a 72% increase in net income over fiscal 2006. It should also be noted that last year included a $3.1 million favorable environmental reserve reduction, which accounted for a net of tax impact of $1.9 million, or $0.05 per diluted share, of fiscal 2006 net income. Excluding this adjustment, net income in fiscal 2007 is expected to increase by over 120%. This increase is expected to result from higher sales volume, gross margin improvement to 34%, and our ability to hold operating expenses constant as a percentage of sales and licensing. Net income for the second quarter of fiscal 2007 was in line with our expectations, including the scheduled August two-week factory closure. We anticipate that third quarter fiscal 2007 net income will mirror second quarter results, due to our annual, planned one-week holiday shutdown in December.
We expect capital expenditures in fiscal 2007 of approximately $14.3 million, funded entirely by cash flow from operations. This increase of $1.3 million from our previous estimate reflects our expected expansion in long guns.
We expect positive cash flow in fiscal 2007 of approximately $9.0 million to $11.0 million, representing a slight decrease from our previous estimates due to the expected increase in capital expenditures. At the end of the second quarter of fiscal 2007, we had $4.5 million in short-term borrowings, resulting largely from scheduled payments for insurance premiums, profit sharing, and capital expenditures. We expect positive cash flow in the balance of the fiscal year.
Outlook for Fiscal 2008
We expect sales for the fiscal year ending April 30, 2008 of approximately $250.0 million, a 25% increase over anticipated sales of approximately $200 million for fiscal 2007. This increase is expected to be driven by growth in our existing handgun business and by the ramp up of our long gun product line.
We expect net income for the fiscal year ending April 30, 2008 of approximately $22.0 million, or $0.52 per diluted share, which would reflect an increase of approximately 44% from our anticipated 2007 earnings per share. Gross margins are expected to be between 34% and 35% for fiscal 2008, while operating expenses as a percentage of sales and licensing are expected to hold at fiscal 2007 levels.
The Company will host a conference call today, December 7, 2006, to discuss its first half results and its outlook for fiscal 2007 and fiscal 2008. 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.