What Happened:
Shares of american firearms manufacturer Smith & Wesson (NASDAQ:SWBI) fell 13.7% in the morning session after the company reported first-quarter earnings and provided underwhelming guidance, with expectations for near-term demand to be softer than initially anticipated. Management expects sales to be more weighted towards the second half of the fiscal year. In terms of units and dollars, Q1'25 sales are expected to be down approximately 10% compared to the same period in the prior year, as growth in long guns partially offsets a decline in handguns.
On a more positive note, the company expected sales to rebound in Q2, near the November 2024 elections. The market was likely expecting stronger guidance, as the projections paled in comparison to the strong demand typically recorded in an election year.
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What is the market telling us:
Smith & Wesson's shares are not very volatile than the market average and over the last year have had only 5 moves greater than 5%. But moves this big are very rare even for Smith & Wesson and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 3 months ago, when the stock gained 29.6% on the news that the company reported fourth-quarter results that blew past analysts' operating margin and EPS expectations. Its revenue also outperformed Wall Street's estimates.
Management noted it "gained market share as our shipments outpaced the overall firearm market" and that it "expects the firearm market to experience healthy demand through the 2024 election cycle". For context, firearm sales typically rise in each election year as consumers fear potential policy changes and stockpile goods.
Smith & Wesson's Board also authorized a $0.12 per share quarterly dividend. This dividend represents a ~3.5% annual yield based on today's stock price. Zooming out, this was a fantastic quarter that should have shareholders cheering.
Smith & Wesson is up 8.3% since the beginning of the year, but at $14.48 per share it is still trading 19.7% below its 52-week high of $18.04 from March 2024. Investors who bought $1,000 worth of Smith & Wesson's shares 5 years ago would now be looking at an investment worth $1,617.
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