Smith & Wesson Continues Street-Beat Streak With Q1 Results

Cowen’s Cai von Rumohr mentioned Smith & Wesson Holding Corp SWHC continued its beat and raise record with Q1.

Von Rumohr maintains an Outperform rating on the company with a price target of $34.

Q1 Beat

The company reported its GAAP EPS for Q1 at $0.57, ahead of the estimate and the consensus and driven by strong sales of $207 million, ahead of the midpoint of the guidance range by $12 million.

Firearms posted robust gains driven by continued share gains. Long guns grew 109 percent driven by promotions and MSR share gains, while hand guns continued to rise with sales rising 38 percent driven by concealed carry pistols.

Related Link: Consumer Demand Drives Q1 Upside Surprise For Smith & Wesson

Gross margins beat the estimate, coming in at 42.3 percent, due to robust firearms volume and lower discounting of TC accessories, which also led to higher accessories gross margin of 47.3 percent.

Free cash flow came in at $22 million, which was seasonally weak, reflecting seasonal inventory build and higher capex.

Guidance Realistic

Von Rumohr believes the Q2 guidance for EPS of $0.44-$0.48 on revenue of $220–$230 million is realistic, given the 27.9 percent adjusted NICS gain in July, more working days, signs of distributor inventories having declined in Q1 and contribution of $15-$17 million from the Trace acquisition.

“In addition, Outdoor Products' sales tend to peak in Q2 and has gross margins ~700bps above the firearms business. Furthermore, with Hillary leading Trump in the polls, a sharp falloff from recent surge levels seems unlikely,” the analyst mentioned.

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