EPS of $-0.08 decreased by 113.5% from previous year
Gross margin of 25.9%
Net income of -3.41M
""First quarter results came in better than expected, with sales of $85.1 million and EBITDA of $8 million. Reflecting robust demand for our new products and continued strong market share for our broader portfolio in every firearms category in which we compete."" - Mark Peter Smith
Smith & Wesson Brands Inc (SWBI) QQ1 2026 Results: Innovation-Driven Growth Amid Margin Pressure in a Normalizing US Firearms Market
Executive Summary
Smith & Wesson Brands (SWBI) reported a modestly lower first quarter (QQ1 2026) with net sales of $85.1 million, down 3.7% versus the prior year period, and a negative bottom line. Management framed the quarter as a normal season in a cyclical, inventory-driven market, underscoring continued demand resilience in handgun categories and a selective, innovation-led pricing/marketing strategy. Core positives include a strong handgun growth trajectory, a substantial contribution from new products (37.3% of sales), and healthy distributor inventories that position the company for a robust second half. Tariffs and mix-driven headwinds pressured gross margins, while the company maintained disciplined capital allocation and signaled a continued emphasis on product innovation and brand initiatives (including Shield X and the reintroduction of the Smith & Wesson Academy). Near-term guidance remains cautious but constructive: Q2 is expected to be seasonally stronger but roughly 3–5% below Q2 FY2025, with gross margins expected to align with Q1 levels and capex targeted at $25–$30 million for the year. The balance sheet shows a leveraged profile with positive liquidity risk management, and management reiterated a commitment to invest in Tennessee facilities and Massachusetts upgrades while maintaining a strong financial position for shareholder returns.
Key Performance Indicators
Revenue
85.08M
QoQ: -26.58% | YoY:-46.54%
Gross Profit
22.07M
25.95% margin
QoQ: -21.01% | YoY:-61.04%
Operating Income
-3.00M
QoQ: -172.75% | YoY:-111.87%
Net Income
-3.41M
QoQ: -305.11% | YoY:-113.06%
EPS
-0.08
QoQ: -303.97% | YoY:-113.53%
Revenue Trend
Margin Analysis
Key Insights
Revenue (net sales): $85.1 million in QQ1 2026, down 3.7% versus the prior year comparable quarter. Management highlighted a promotional environment but noted the year-over-year decline was modest given seasonality and product mix; the CFO emphasized robust sell-through and healthy distributor inventory dynamics. Note: an external metrics table in the data suggests broader YoY declines (−46.54%) in one metric set, but the company’s own narration cites a modest YoY reduction of 3.7% for the quarter.
Gross margin: 25.9% (reported 25.91%), down from the prior year due to lower absorption from reduced production and a roughly 120 basis point tariff impact linked to steel costs. Partial offset from lower promotional activity and favorable tax audit outcomes. This implies margin compression driven by input costs and production absorption dynamics.
Operating income: −$3.0 million, with an operating margin of −3.5%. This reflects the revenue shortfall and higher relative fixed-cost absorption during the quarter.
EBITDA: Approximately $5.5 million (per the company data); the management call referenced EBITDA of $8 million in the quarter.
Net income and EPS: Net income of −$3.41 million with an EPS of −$0.077. The quarterly loss reflects the revenue shortfall, higher interest expense from increased borrowings, and ongoing operating constraints.
Financial Highlights
Revenue and profitability overview:
- Revenue (net sales): $85.1 million in QQ1 2026, down 3.7% versus the prior year comparable quarter. Management highlighted a promotional environment but noted the year-over-year decline was modest given seasonality and product mix; the CFO emphasized robust sell-through and healthy distributor inventory dynamics. Note: an external metrics table in the data suggests broader YoY declines (−46.54%) in one metric set, but the company’s own narration cites a modest YoY reduction of 3.7% for the quarter.
- Gross margin: 25.9% (reported 25.91%), down from the prior year due to lower absorption from reduced production and a roughly 120 basis point tariff impact linked to steel costs. Partial offset from lower promotional activity and favorable tax audit outcomes. This implies margin compression driven by input costs and production absorption dynamics.
- Operating income: −$3.0 million, with an operating margin of −3.5%. This reflects the revenue shortfall and higher relative fixed-cost absorption during the quarter.
- EBITDA: Approximately $5.5 million (per the company data); the management call referenced EBITDA of $8 million in the quarter.
- Net income and EPS: Net income of −$3.41 million with an EPS of −$0.077. The quarterly loss reflects the revenue shortfall, higher interest expense from increased borrowings, and ongoing operating constraints.
- Cash flow and liquidity: Net cash provided by operating activities was −$8.11 million; free cash flow was −$12.40 million. Cash at period-end was $17.96 million with total borrowings (line of credit) of about $95 million. Net debt stood at roughly $111.40 million after applying cash balances. The firm spent ~$4.29 million on capex and paid a $5.90 million dividend during the quarter. Management cited a net working capital decline of about $24 million as a contributor to negative operating cash flow.
- Inventory and product mix: Distributor inventories declined by over 10% from the end of the prior quarter and by over 13% year over year, signaling strong sell-through and a favorable positioning for the traditional firearm season. Handgun ASPs declined modestly, while long-gun ASPs declined more meaningfully due to product mix and promotional activity.
- Strategic initiatives and innovation: New products accounted for 37.3% of sales in the quarter, with Shield X generating positive feedback since its late-July introduction. The company continues to emphasize a robust product pipeline and value-led marketing to defend leadership positions in core categories.
- Balance sheet and capitalization: Long-term debt around $127.4 million; total debt $129.36 million; equity remains robust at $364.4 million. Liquidity remains a concern given negative operating cash flow; the firm’s capital allocation priorities include investments in Tennessee manufacturing and Massachusetts upgrades, while preserving a strong balance sheet and returning value to shareholders.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
85.08M
-46.54%
-26.58%
Gross Profit
22.07M
-61.04%
-21.01%
Operating Income
-3.00M
-111.87%
-172.75%
Net Income
-3.41M
-113.06%
-305.11%
EPS
-0.08
-113.53%
-303.97%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
The following are themes and management commentary drawn from the earnings call:
- Strategy and innovation:
- 37.3% of first-quarter sales were from new products, highlighting the ongoing success of Smith & Wesson's innovation strategy. Shield X received positive initial reactions after its late July launch, reinforcing the company’s emphasis on product development to sustain leadership in key categories.
- The company reaffirmed ongoing commitment to innovation as a cornerstone of growth, with a strong product pipeline in lever-action platforms and other white-space opportunities.
- Market conditions and demand dynamics:
- Management described the market as “relatively normal” and cyclical, with seasonality continuing to shape quarterly results. They observed that underlying demand remains above pre-surge levels and that the brand’s leadership position remains intact across core categories.
- Despite a promotional environment, strong demand for core products and brand loyalty supported healthier ASPs than might be expected, particularly entering the traditional fall/winter peak season.
- Channel and inventory management:
- Distributor inventories were described as healthy, with a notable year-over-year and sequential decline in distributor inventory, indicating positive sell-through and readiness to support an uptick in shipments during the busy period.
- The company expects to convert incremental demand into shipments efficiently as seasonality intensifies, aided by clean inventory positioning.
- Operational and capital allocation plans:
- The Tennessee facility remains a priority, with continued modernization and value-add enhancements, and the Massachusetts site upgrades were highlighted as a focus area for optimization.
- A long-standing commitment to maintaining a strong balance sheet and returning value to shareholders was reaffirmed, with the board authorizing a $0.13 quarterly dividend to be paid in October.
- Guidance and expectations:
- The second quarter is expected to grow meaningfully versus the first quarter but to land roughly 3–5% below Q2 FY2025. Gross margin in Q2 is expected to be in line with Q1, given the extended August shutdown and steel-tariff effects.
- Operating expenses in Q2 are seen ~20% higher than Q1, driven by profit sharing, academy-related costs, and promotional activities tied to higher volume. The effective tax rate is projected around 33%.
"First quarter results came in better than expected, with sales of $85.1 million and EBITDA of $8 million. Reflecting robust demand for our new products and continued strong market share for our broader portfolio in every firearms category in which we compete."
— Mark Peter Smith
"Looking at inventory levels in the channel, distributor inventory is very healthy. With strong sell through of our products at retail and a good position for us as we look forward to the coming month."
— Mark Peter Smith
Forward Guidance
Near-term outlook reflects a mixed signal: top-line modestly improved seasonality versus QQ1, but margins pressured by tariff-related cost absorption and product mix. Management projects Q2 revenue to be approximately 3–5% below Q2 FY2025, with gross margins expected to be roughly flat to QQ1. Key upside drivers include a stronger second-half season, ongoing adoption of Shield X and other new products, and continued strength in the lever-action category as the company expands its white-space offerings. The company’s strategic investments in its Tennessee production footprint and Massachusetts upgrades could yield productivity gains and higher absorption as volumes recover. On the risk side, tariff-related cost pressures and macroeconomic headwinds could compress margins further, while a slower-than-expected sell-through or disruption in promotional effectiveness could impair near-term profitability. Investors should monitor: (1) ASP trajectory in the back half of FY2026, (2) progress on new product introductions and their mix impact, (3) inventory levels and sell-through velocity entering the holiday season, (4) the pace of debt reduction and liquidity improvement, and (5) regulatory developments affecting suppressors and related NFA items that could influence demand and product mix.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
SWBI Focus
25.95%
N/A
N/A
N/A
RGR
22.00%
6.24%
2.42%
21.10%
POWW
31.60%
-31.30%
-2.03%
-6.87%
KTOS
24.30%
2.18%
0.32%
254.34%
VSEC
10.50%
9.57%
-0.92%
-68.93%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Quantitatively, QQ1 2026 shows a modest revenue decline with margin pressure from tariffs and product mix, leading to a negative bottom-line result. Qualitatively, the company remains positioned for longer-term growth through a strong innovation pipeline, lever-action expansion, and the reactivation of the Academy, all of which could translate into higher share in core categories and incremental demand in high-growth segments (suppressors via Gemtech, new calibers). The near term is characterized by seasonality and promotional dynamics, with Q2 guidance implying a return toward mid-cycle volumes, albeit below the prior-year second quarter. The stock's performance will hinge on the pace of margin stabilization, the absorption of higher-cost inputs, execution of new product introductions, and the trajectory of government/regulatory changes that could influence demand. Investors should monitor: (1) ASP resilience as promotions abate or intensify, (2) yield from new products and lever-action expansion, (3) progress in reducing working capital and restoring positive free cash flow, and (4) the impact of tariffs and policy shifts on gross margin and cost structure. Given the current negative earnings trajectory and leverage, a cautious stance with clear optimization triggers (margin stabilization, cash flow normalization, and stronger accretion from innovations) is advisable; long-term upside remains tied to successful product introductions and regulatory tailwinds.
Key Investment Factors
Growth Potential
Committed to a robust innovation cadence (new products contributing ~37% of Q1 sales) and leveraging white-space opportunities (lever-action expansion) to broaden the product portfolio. The Shield X launch and ongoing Gemtech suppressor initiatives position SWBI to capture demand in high-growth segments as regulatory changes take effect. The reintroduction of the Smith & Wesson Academy underscores long-term demand creation in training and brand loyalty among law enforcement, military, and civilian segments. Expect moderate growth in the back half of FY2026 driven by new product introductions, improved assortments in handguns and MSR/lever-action platforms, and heightened marketing efficiency.
Profitability Risk
Short-term margin compression due to tariffs and mix; reliance on a cyclical firearms market with seasonality; elevated leverage and negative free cash flow pressuring liquidity; macroeconomic volatility impacting consumer demand and inventory management; regulatory and political risk surrounding firearms, suppressors, and related products; potential execution risk in aligning production absorption with demand during the second half of the year.
Financial Position
Balance sheet shows solid equity base ($364.4m) but notable leverage with total debt ~$129.36m and net debt around $111.4m. Cash at end of period was $17.96m, with $95m of borrowings on the line of credit. Negative near-term free cash flow (-$12.40m) and negative operating cash flow (-$8.11m) reflect ongoing working capital dynamics and operating gearing. Management’s strategy emphasizes capital allocation toward modernizing Tennessee and Massachusetts facilities, while maintaining liquidity and returning value to shareholders via dividends.
SWOT Analysis
Strengths
Brand leadership in core categories (handguns, lever-action) with loyal customer base and strong channel relationships.
Significant innovation pipeline; new products accounted for 37.3% of Q1 sales, including Shield X.
Strategic initiatives (e.g., Smith & Wesson Academy) to strengthen training, market access, and brand credibility.
Healthy distributor sell-through and inventory levels that position the company to capitalize on the busy season.
Weaknesses
Quarterly profitability challenged by tariffs and mix-driven margin compression; net loss and negative operating income in QQ1 2026.
Leverage and liquidity pressures: negative free cash flow, sizable debt, and reliance on a line of credit.
Vulnerability to regulatory and macroeconomic shifts in the firearms sector.
Opportunities
Expansion into white-space product lines (additional calibers and lever-action platforms).
Rising demand for NFA items (suppressors) ahead of regulatory changes, supported by Gemtech.
Academy training program as a differentiator and demand creator among enforcement and civilian segments.
Potential international expansion and marketing efficiency through targeted campaigns.
Threats
Tariff volatility and steel costs continuing to pressure margin absorption.
Regulatory risk and potential changes affecting firearms and suppressors demand (policy shifts, tax laws).
Competitive intensity in a cyclical market with price/promotional pressure.
Operating cash flow and liquidity risk if demand softens or inventory builds unexpectedly.
Smith & Wesson Brands, Inc. (SWBI) QQ3 2025 Earnings Analysis: Innovation-led Growth Amid Moderating Demand and Margin Pressure in Industrials/Defense...
Smith & Wesson Brands Inc (SWBI) QQ2 2025 Results: Innovation-Driven Share Gain Amid Inflationary Pressure in the Industrials/Aerospace-Defense Space...
Smith & Wesson Brands Inc (SWBI) QQ4 2024 Results — Revenue Up 9.9% Driven by New Products; Margin Expansion, Solid Cash Flow and Strategic Capacity...