Call it a crisis. Call it an opportunity. Whatever you choose
to call it, though, the fact is:
Smith & Wesson
stock is a whole lot cheaper today than what it cost on Tuesday.
It closed down nearly 14% at $11.31.
Every other story on Smith & Wesson on the Internet today
will tell you that the company "misfired" on earnings. But us?
We'll show you what a misfire looks like. Photo:
The reason, as you can probably guess was
. Early Wednesday morning, Smith & Wesson announced financial
results for its fiscal first quarter 2015 (which wrapped up July
31). Here's how the numbers looked:
- Sales dropped 23% year over year to $131.9 million, as
rifle customers evaporated.
- With worse economies of scale, gross profits took a dive as
well -- down 540 basis points to just 37.2%.
- Adding to the pain, operating costs spiked 320 basis points
to 17.7%, leaving operating profit margins of just 19.5%.
- And on the bottom line, profits at the company slid 35% to
just $0.26 per share.
That sounds bad. Is it as bad as it sounds?
Oh, dear no. It's much
than it sounds. Because according to Smith & Wesson
management, next quarter is going to be even more of a disaster
than this one was.
Peering into its crystal ball, S&W management predicted
that Q2 (that's the quarter we're in right now) sales will come
to no more than $110 million -- and maybe less than that.
Per-share profits, meanwhile, will range somewhere from $0.04 to
$0.08 per share.
Analysts, of course, had been expecting Smith & Wesson to
report something closer to $137 million in sales, and $0.28 per
diluted share for Q2. As such, S&W seems to think it will
miss those marks very badly this quarter -- and with the quarter
already nearly one-third completed, chances are management has a
good picture by now how the remaining two months will play
Looking farther out
Speaking of predictions, Smith & Wesson now projects that
full-year fiscal 2015 sales will not exceed $540 million, with
per-share profits of $0.94 at best. If they're right about that,
it will mean a sales decline of only 14% versus last year -- but
about a 36% decline in profits. Even so, that level of
profitability, relative to today's share price, would price Smith
& Wesson stock at only about 12 times full-year earnings --
not an expensive price, if you think the stock will soon pull out
of its slump.
But here's the thing: To hit its new target for the year,
Smith & Wesson will need to book about $300 million in sales
in the year's second half -- after generating only about $240
million in H1.
Is this doable? Sure it is. S&P Capital IQ data shows that
fiscal Q4 is often a strong quarter for Smith & Wesson,
so a strong finish to the year could yet pull Smith & Wesson
stock out of the fire. But then again, Q1 has usually been pretty
good for the gunmaker as well -- except that this time, it
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Will Smith & Wesson Holding Corp Keep Feeling
originally appeared on Fool.com.
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