Just The Interesting Bits: Smith & Wesson Q2 Earning Call

Smith & Wesson’s Q2 earning call provides insight market as it returns to normal levels after the great gun scare of 2012/13. I read the transcript so you do not have to and have posted select quotes below. In short, AR-15 inventory has been replenished. NCIS background checks are down 14% since this time last year, but still up 19% compared to November 2011. There were 1.3 million NCIS background checks this November.

From the transcript …

While inventory still remain low for our M&P SHIELD, our M&P15 Sport rifles, our SDVE polymer pistols, our BODYGUARD 380 and all of our revolvers, we think that channel inventory levels have largely been replenished, especially in the most — Modern Sporting Rifle categories.

Thank you, Jeff. As I’ve stated earlier, overall growth in firearm sales was positive in the quarter and as Smith & Wesson handguns delivered strong growth of more than 27% year-over-year, primarily due to sales of our M&P polymer pistols.

Within our long gun category, a 10% year-over-year decline was driven by constrained bolt-action rifle sales, resulting from a recall we initiated 6 months ago and a reduction in sales of our rimfire modern sporting rifles.

Turning now to NICS background checks. For November, adjusted NICS results came out last week, and not surprisingly, they marked a decline. That decline was 14% on a year-over-year basis. Last year’s NICS numbers were extraordinarily high so we expected negative year-over-year comps, and we expect those negative comps will continue until April or May of next year. Despite the decline, we believe there is good news in the numbers. … First, adjusted NICS background checks in November of this year were over 1.3 million … Second, the long-term NICS trend remains positive, as evidenced by November adjusted NICS growth of approximately 19% versus November 2 years ago

We estimate that our third quarter revenue will be between $140 million and $145 million. It is important to note that last year’s Q3 sales of Walther products were $12.7 million. Thus, at the midpoint and excluding Walther, we are estimating growth of 15% over Q3 of the prior year, even though we anticipate that year-over-year NICS checks will be significantly down from last year’s peak levels.

(Question) But there’s been some chatter about the Defense Department having a sidearm upgrade ….

(Answer) It’s certainly an opportunity. I mean, it’s not a huge number of units. It’s about — approximately 500,000 units. But we’re very interested. Of course, we would want to serve the U.S. military and be the provider of that sidearm. That would be a fantastic endorsement of our M&P polymer pistol and a wonderful marketing opportunity for us going forward.


(Question) And you mentioned the softening in Modern Sporting Rifles. How much of that is basically fundamental softening of demand and how much of that is inability to get ammo?

(Answer) Certainly, when it comes to the rimfires, I would say it’s a bit of both. We can’t quite put our finger on it, obviously. But certainly there, the lack of .22 rimfire ammo is a factor for sure. Now we obviously have no realtime horizon when that situation may improve on the ammo front. But to be perfectly honest, it was fully expected that we would see some softening of sales in Modern Sporting Rifles overall. Following the period that we’ve just been through, we saw exactly the same thing in ’08, ’09 when that period of very strong demand weakened. Modern sporting rifles were probably some of the softest products around.


Steve Johnson

Founder and Dictator-In-Chief of TFB. A passionate gun owner, a shooting enthusiast and totally tacti-uncool. Favorite first date location: any gun range. Steve can be contacted here.


  • M.M.D.C.

    “But certainly there, the lack of .22 rimfire ammo is a factor for sure. Now we obviously have no realtime horizon when that situation may improve on the ammo front.”

    I would be very interested in hearing what those in the ammunition industry have to say about ammo supplies. Are manufacturers increasing production? If not, why not? Fear of future legislation? Raw materials supplies? Is increasing demand outpacing their ability to increase production? Is there any end in sight? Etc.

    • Cymond

      I read several months ago that production for several major companies was basically at maximum. The only way to expand production is to expand the facility such as renting a new building, buying new machines, etc. Many companies are naturally hesitant to invest major funds just to expand for a temporary spike in demand.

      For example, modern sporting rifles were in short supply this spring/summer and many people demanded that companies increase their production. Now the demand for modern sporting rifles has fallen. If S&W had bought new equipment to manufacture MSRs, they would really be regretting it now.

      • M.M.D.C.

        The question then becomes is the demand temporary? Even if the demand for the guns has fallen, the guns do need to be fed. From what we’re seeing the ammo supply is chronically short (where I am ammo has been in short supply for years) which would indicate long term increased demand.

        Not to kick off a discussion about politics, but I think the industry is worried about increased regulation and understandably so. Why would they invest in equipment and workforce if they’re going to get hit with crippling regulations?

    • Steve (TFB Editor)

      I don’t know the reason, nobody is telling me. But I do know that some ammunition manufacturers alternate production between different types of ammo. So for example they might have staff doing 5.56mm for the next 2 months, following by .308 for the next month, followed by a month on rimfire (I am just making this up, I don’t know how frequently they change production).

      If they were making a lot more money / a lot of demand for 5.56mm, they may have scheduled extended production, which solved the supply but now .22 inventory is running low.

  • Greensoup

    The demand at this point has to be considered temporary, just based on gun sales. The AR market was super hot 9 months ago and is now super dead with prices dropping steadily. Doesn’t bode well for the ammo market. Its got to be artificially inflated, go to the range are there 2-3X the people there shooting than there were last year? Doubtful. If anything there are probably less. Yet ammo production is at full capacity and can still sell out at inflated prices. If the ammo isn’t being shot it’s being horded, and that can only go on so long.

  • Phil Hsueh

    So, NCIS is doing background checks for gun purchases now? Does that mean if I lie about something on my DROS or whatever I’ll get a personal visit from Gibbs or Denozo although I’d prefer Ziva but since she’s longer with them I’ll take Abby instead.:)

  • flyingburgers

    While I can easily see the softening of the AR market, I do wonder how much of S&W’s experience is based on their specific product versus the general market.