0001193125-25-308093
SEC filingSmith & Wesson's Q2 fiscal 2026 revenue declined 3.9% to $124.7M, with net income falling 57.8% to $1.9M, driven by lower consumer demand and tariff headwinds.
For the three months ended October 31, 2025 (Q2 fiscal 2026), Smith & Wesson reported net sales of $124.7 million, a decrease of 3.9% compared to $129.7 million in the same quarter last year. The decline was driven by lower consumer demand across both handguns (-3.2% to $90.8M) and long guns (-1.8% to $24.7M), partially offset by higher shipments of newly introduced products, which accounted for 38.7% of total sales. Other products & services revenue fell 14.1% to $9.2M, primarily due to lower business-to-business sales.
Gross profit dropped 12.0% to $30.3 million, resulting in a gross margin of 24.3%, down 230 basis points from 26.6% in the prior-year quarter. The margin contraction was attributed to unfavorable fixed-cost absorption from lower production volumes, higher tariffs on imported materials and components (estimated 80 bps impact), and unfavorable inventory adjustments including standard cost revaluations, shrink, and excess inventory write-downs. These were partially offset by lower promotional costs and favorable completion of a federal firearms excise tax audit.
Operating income declined 45.4% to $4.1 million, with operating margin contracting to 3.3% from 5.8%. Selling, marketing, and distribution expenses increased 7.5% due to one-time costs for the Smith & Wesson Academy grand opening, while general and administrative expenses decreased 11.5% primarily due to lower legal expenses.
Net income fell 57.8% to $1.9 million ($0.04 per diluted share) from $4.5 million ($0.10 per diluted share). The effective tax rate was 36.2% in the quarter, up from 25.6% in the prior year, driven by decreased forecasted pretax income and changes in state apportionment.
As of October 31, 2025, the company had cash and cash equivalents of $22.4 million, down from $25.2 million at April 30, 2025. Total assets were $548.6 million, compared to $559.6 million at year-end. Inventories decreased by $6.7 million to $183.1 million, reflecting proactive inventory management. Accounts receivable declined to $45.8 million from $55.9 million.
Total liabilities were $185.4 million, down from $187.2 million at April 30, 2025. Current liabilities decreased to $53.9 million from $66.6 million, driven by lower accounts payable and accrued expenses. Notes and loans payable increased to $89.0 million from $79.1 million, primarily due to net borrowings of $10 million under the revolving credit facility. The company had $90.0 million outstanding on its $175.0 million revolving line of credit, bearing interest at a weighted average rate of 6.28%. Stockholders' equity decreased to $363.2 million from $372.5 million, impacted by dividend payments and the net loss.
For the six months ended October 31, 2025, cash provided by operating activities was $19.2 million, a significant improvement from a use of $38.2 million in the prior-year period. The improvement was driven by a $61.6 million reduction in working capital usage, particularly a $42.2 million reduction in inventory compared to a build-up in the prior year. Capital expenditures totaled $15.3 million, primarily related to the Smith & Wesson Academy. Free cash flow (operating cash flow minus capex) was $3.9 million. Financing activities used $2.1 million, including $11.7 million in dividend distributions and $10.0 million in net borrowings. No share repurchases were executed during the period.
Management attributed the sales decline to lower consumer demand and channel inventory destocking. They expressed confidence that new product introductions (38.7% of Q2 sales) would continue to drive growth. Inventory levels are expected to decline further in the remainder of FY26. The company expects capital expenditures of $25-$30 million for fiscal 2026. The enacted OBBBA legislation is not expected to materially impact financial statements. A material weakness in internal control over legal expense accruals was identified, with remediation efforts expected to continue throughout FY26.
The company operates as a single reportable segment: firearms. Handgun unit shipments into the sporting goods channel decreased 1.9% in Q2, while overall consumer handgun demand (as measured by NICS) increased 2.9%, indicating channel destocking. Long gun unit shipments decreased 5.1% in the sporting goods channel, while consumer demand decreased 8.3%. New products represented 38.1% of net sales for the six-month period. Stock-based compensation expense was $4.0 million for the six months. The company repurchased no shares in the current quarter but has a $50 million authorization active through September 2026. A quarterly dividend of $0.13 per share was declared, payable January 2, 2026.