Smith & Wesson Brands, Inc.: Form 10-Q for the period ended Oct 31, 2025

Overview

Please refer to the Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Annual Report and our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. This section sets forth key objectives and performance indicators used by us as well as key industry data tracked by us.

This section generally discusses year-to-year comparisons between the three and six months ended October 31, 2025 and 2024. A discussion of our results of operations, liquidity, and capital resources for the three and six months ended October 31, 2024 compared to October 31, 2023 is not included in this Quarterly Report on Form 10-Q and can be found in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2024, filed with the SEC on December 5, 2024. See also the discussion below related to an immaterial correction of an error.

Second Quarter Fiscal 2026 Highlights

Our operating results for the three months ended October 31, 2025 included the following:

• Net sales were $124.7 million, a decrease of $5.0 million, or 3.9%, from the comparable quarter last year.
• Gross margin was 24.3% compared with gross margin of 26.6% for the comparable quarter last year.
• Net income was $1.9 million, or $0.04 per diluted share, compared with $4.5 million, or $0.10 per diluted share, for the comparable quarter last year.

Our operating results for the six months ended October 31, 2025 included the following:

• Net sales were $209.7 million, a decrease of $8.3 million, or 3.8%, from the comparable period last year.
• Gross margin was 25.0% compared with gross margin of 26.9% for the comparable period last year.
• Net loss was $1.5 million, or $0.03 per diluted share, compared with net income of $2.7 million, or $0.06 per diluted share, for the comparable period last year.

Immaterial Correction of an Error

During the fourth quarter of fiscal 2025, we identified an immaterial error related to our accrual for certain legal expenses, resulting in an overstatement of general and administrative expenses in the interim and annual periods for the fiscal year ended April 30, 2024 and during the interim periods for the fiscal year ended April 30, 2025. In accordance with SAB No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the quantitative and qualitative considerations of the error and determined that the related impact was not material to the results of operations, financial position, or cash flows for any historical annual or interim period. Prior year amounts have been adjusted to correct the immaterial error, which overstated general and administrative expenses by $565,000 and $901,000 and understated income tax expense by $153,000 and $238,000 for the three and six months ended October 31, 2024, respectively. Related changes to net income, corresponding line items within cash provided by operating activities, and related disclosures within the notes accompanying these financial statements reflect the immaterial correction.

Results of Operations

Net Sales and Gross Profit – For the Three Months Ended October 31, 2025

The following table sets forth certain information regarding net sales and gross profit for the three months ended October 31, 2025 and 2024 (dollars in thousands):

20

The following table sets forth certain information regarding firearm units shipped by trade channel for the three months ended October 31, 2025 and 2024 (units in thousands):

Sales of our handguns decreased $3.0 million, or 3.2%, from the comparable quarter last year, primarily as a result of lower consumer demand, partially offset by increased shipments of newly introduced products (defined as any new SKU not shipped in the comparable period last year). Shipments of new products represented 42.8% of handgun sales in the quarter. Handgun unit shipments into the sporting goods channel decreased by 1.9% from the comparable quarter last year while overall demand for handguns increased by 2.9% (as indicated by adjusted background checks reported in the National Instant Criminal Background Check System, or NICS) due to a reduction in inventory in the channel.

Sales of our long guns decreased $453,000, or 1.8%, from the comparable quarter last year, primarily as a result of lower consumer demand, partially offset by increased shipments of newly introduced products. Shipments of new products represented 38.1% of long gun sales in the period. Long gun unit shipments into the sporting goods channel decreased by 5.1% from the comparable quarter last year while overall demand for long guns decreased by 8.3% (as indicated by NICS).

Other products and services revenue decreased $1.5 million, or 14.1%, from the comparable quarter last year, primarily because of lower business-to-business sales, partially offset by e-commerce sales, which began in the third quarter of fiscal 2025.

Newly introduced products represented 38.7% of net sales for the three months ended October 31, 2025 and included four new pistols, four new long guns, and many new product line extensions.

Gross margin for the three months ended October 31, 2025 was 24.3% compared with 26.6% for the comparable quarter last year, primarily driven by unfavorable fixed-cost absorption from lower production volumes, higher tariffs on imported materials and components, and unfavorable inventory adjustments (including standard cost revaluations, shrink, and excess inventory write downs), partially offset by lower promotional costs and lower federal firearms excise taxes as a result of the favorable completion of a recent audit. We estimate higher tariffs negatively impacted gross margin by approximately 80 basis points when compared to the comparable quarter last year.

Net Sales and Gross Profit – For the Six Months Ended October 31, 2025

The following table sets forth certain information regarding net sales and gross profit for the six months ended October 31, 2025 and 2024 (dollars in thousands):

The following table sets forth certain information regarding firearm units shipped by trade channel for the six months ended October 31, 2025 and 2024 (units in thousands):

Sales of our handguns increased $8.6 million, or 5.9%, over the comparable period last year, primarily as a result of increased shipments of newly introduced products, partially offset by lower consumer demand for certain product categories, and a shift in product mix to lower priced models. Shipments of new products represented 40.7% of handgun sales in the period. Handgun unit shipments into the sporting goods channel increased by 10.8% over the comparable period last year while overall consumer handgun demand was largely flat (as indicated by NICS).

Sales of our long guns decreased $11.6 million, or 23.2%, from the comparable period last year, primarily as a result of lower consumer demand during the period and the timing of new product launches in the comparable period last year. Shipments of new products represented 43.4% of long gun sales in the period. Long gun unit shipments into the sporting goods channel decreased by 15.5% from the comparable period last year while overall consumer demand for long guns decreased by 8.1% (as indicated by NICS). We believe the difference in our unit demand compared to NICS results was driven by stronger relative performance in categories in which we do not participate fully, specifically hunting.

Other products and services revenue decreased $5.3 million, or 25.2%, from the comparable period last year, primarily because of lower business-to-business, parts, and suppressor sales; partially offset by e-commerce sales, which began in the third quarter of fiscal 2025.

Newly introduced products represented 38.1% of net sales for the six months ended October 31, 2025.

Gross margin for the six months ended October 31, 2025 was 25.0% compared with 26.9% for the comparable period last year, primarily driven by unfavorable fixed-cost absorption from lower production volumes, higher materials cost, higher tariffs on imported materials and components, and unfavorable inventory adjustments (including standard cost revaluations, shrink, and excess inventory write downs), partially offset by lower promotional costs and lower federal firearms excise taxes as a result of the favorable completion of a recent audit. We estimate higher tariffs negatively impacted gross margin by approximately 100 basis points when compared to the comparable period last year.

Inventory balances decreased $6.7 million between April 30, 2025 and October 31, 2025 as a result of our proactive inventory management and production planning efforts intended to optimize inventory levels and cash flows. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventory levels to decline during the remainder of the fiscal year.

Operating Expenses

The following table sets forth certain information regarding operating expenses for the three months ended October 31, 2025 and 2024 (dollars in thousands):

22

Selling, marketing, and distribution expenses increased $723,000, primarily as a result of one-time costs related to the grand opening event in September 2025 for the Smith & Wesson Academy and higher profit-related compensation expenses. General and administrative expenses decreased $1.7 million from the prior year comparable quarter, primarily as a result of lower legal expenses.

The following table sets forth certain information regarding operating expenses for the six months ended October 31, 2025 and 2024 (dollars in thousands):

Research and development expenses increased $704,000 over the prior year comparable period because of higher tooling-related costs. Selling, marketing, and distribution expenses decreased $415,000, primarily as a result of lower promotional costs and the timing of certain industry events, partially offset by one-time costs related to the grand opening event for the Smith & Wesson Academy. General and administrative expenses decreased $1.8 million from the prior year comparable quarter, primarily as a result of lower legal expenses and compensation-related expenses, partially offset by higher insurance costs.

Operating Income

The following table sets forth certain information regarding operating income for the three months ended October 31, 2025 and 2024 (dollars in thousands):

Operating income for the three months ended October 31, 2025 decreased $3.4 million from the comparable quarter last year, primarily for the reasons outlined above.

The following table sets forth certain information regarding operating income for the six months ended October 31, 2025 and 2024 (dollars in thousands):

Operating income for the six months ended October 31, 2025 decreased $4.9 million from the comparable quarter last year, primarily for the reasons outlined above.

Interest Expense, net

The following table sets forth certain information regarding interest expense, net for the three months ended October 31, 2025 and 2024 (dollars in thousands):

Interest expense, net decreased by $34,000 from the comparable quarter last year, primarily as a result of a lower average interest rate on debt and a higher average yield on cash balances, partially offset by the impact of higher average debt balances and lower average cash balances during the three months ended October 31, 2025 compared with the comparable quarter last year.

The following table sets forth certain information regarding interest expense, net for the six months ended October 31, 2025 and 2024 (dollars in thousands):

23

Interest expense, net increased by $438,000 over the comparable period last year, primarily as a result of higher average debt balances and lower average cash balances, partially offset by lower average interest rates on debt during the six months ended October 31, 2025 compared with the comparable period last year.

Income Taxes

The following table sets forth certain information regarding income tax expense for the three months ended October 31, 2025 and 2024 (dollars in thousands):

Income tax expense decreased $477,000 from the comparable quarter last year, primarily as a result of higher operating loss. Before adjusting for discrete items related to stock-based compensation, the effective tax rate was 35.6% in the current quarter and 26.0% in the prior year comparable quarter. The increase in the effective tax rate before adjusting for discrete items was due to decreased forecasted pretax income and changes in state apportionment.

On July 4, 2025, the reconciliation bill, commonly known as the One Big Beautiful Bill Act, or the OBBBA, was enacted into law. The OBBBA, among other things, eliminates the requirement to capitalize U.S. research and development expenses, permanently extends certain provisions of the Tax Cuts & Jobs Act of 2017, and modifies certain international tax provisions, including changes to the foreign-derived intangible income regime, with effective dates beginning in calendar year 2025 and extending through calendar year 2027. As the OBBBA was enacted during the fiscal quarter ended July 31, 2025, we have considered and reflected the impacts on our consolidated financial statements. We do not expect the impact of these provisions to have a material impact on our consolidated financial statements.

The following table sets forth certain information regarding income tax expense for the six months ended October 31, 2025 and 2024 (dollars in thousands):

Income tax expense decreased $758,000 from the comparable quarter last year, primarily as a result of higher operating loss. Before adjusting for discrete items related to stock-based compensation, the effective tax rate was 28.3% in the current quarter and 26.4% in the prior year comparable quarter. The increase in the effective tax rate before adjusting for discrete items was due to decreased forecasted pretax income and changes in state apportionment.

Net Income/(Loss)

The following table sets forth certain information regarding net loss and the related per share data for the three months ended October 31, 2025 and 2024 (dollars in thousands, except per share data):

Net income for the three months ended October 31, 2025 was $1.9 million compared with $4.5 million for the comparable quarter last year for the reasons outlined above.

The following table sets forth certain information regarding net loss and the related per share data for the six months ended October 31, 2025 and 2024 (dollars in thousands, except per share data):

24

Net loss for the six months ended October 31, 2025 was $1.5 million compared with net income of $2.7 million for the comparable period last year for the reasons outlined above.

Liquidity and Capital Resources

Our principal cash requirements are to finance the growth of our operations, including working capital and capital expenditures, and return capital to stockholders. Capital expenditures for new product development and repair and replacement of equipment represent important cash needs.

The following table sets forth certain cash flow information for the six months ended October 31, 2025 and 2024 (dollars in thousands):

Operating Activities

Cash provided by operating activities was $19.2 million for the six months ended October 31, 2025 compared with cash used in operating activities of $38.2 million for the six months ended October 31, 2024. The improvement was primarily driven by a $61.6 million reduction in working capital usage.

Working capital usage for the six months ended October 31, 2025 was favorably impacted by a $42.2 million reduction associated with inventory, a $7.1 million reduction associated with accounts payable, a $5.2 million reduction associated with accrued payroll and incentives, and a $3.7 million reduction associated with accounts receivable, partially offset by a $5.3 million increase in working capital usage associated with accrued expenses and deferred revenue.

Investing Activities

Cash used in investing activities increased $12.0 million for the six months ended October 31, 2025 compared with the prior year period, primarily as a result of a $7.3 million increase in capital expenditures, largely related to the Smith & Wesson Academy, and $4.6 million of purchases of marketable securities during the six months ended October 31, 2025. There were no purchases of marketable securities in the prior year period.

We currently expect to spend $25.0 million to $30.0 million on capital expenditures in fiscal 2026.

Financing Activities

Cash used by financing activities was $2.1 million for the six months ended October 31, 2025 compared with $24.3 million of cash provided by financing activities for the six months ended October 31, 2024. Cash used by financing activities during the six months ended October 31, 2025 was primarily the result of $11.7 million in dividend distributions, partially offset by $10.0 million in net borrowings under our revolving line of credit. Cash provided by financing activities for the six months ended October 31, 2024 was primarily the result of $60.0 million of net borrowings, partially offset by stock repurchases totaling $22.6 million and $11.7 million in dividend distributions. We had no stock repurchases during the six months ended October 31, 2025.

Credit Facilities — We entered into the Second Amended and Restated Credit Agreement on October 3, 2024. The Second Amended and Restated Credit Agreement provides for a revolving line of credit of $175.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Second Amended and Restated Credit Agreement) or the Adjusted Term SOFR rate, plus an applicable margin based on our consolidated leverage ratio. The Second Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Second Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Second Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of October 3, 2029 or the date that is six months in advance of the earliest maturity of any

Permitted Notes (as defined in the Second Amended and Restated Credit Agreement) under the Second Amended and Restated Credit Agreement.

On August 15, 2025, we entered into the First Amendment, which provides for (a) in connection with the calculation of Consolidated Funded Indebtedness (as defined in the Second Amended and Restated Credit Agreement), the exclusion of any Indebtedness (as defined in the Second Amended and Restated Credit Agreement) of the guarantors relating to a particular guaranty; (b) in connection with the calculation of Consolidated Fixed Charge Coverage Ratio (as defined in the Second Amended and Restated Credit Agreement), a one-time exclusion of cash taxes paid by the loan parties during fiscal 2026 in connection with the filing of amended tax returns in fiscal 2026 covering particular periods; and (c) an amendment to the minimum Consolidated Fixed Charge Coverage Ratio for particular measurement periods.

As of October 31, 2025, we had $90.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 6.28%, which is equal to the Adjusted Term SOFR rate plus an applicable margin.

The credit agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. We were in compliance with all debt covenants as of October 31, 2025.

Share Repurchase Programs — On September 19, 2023, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024, or the 2023 Authorization. During fiscal 2025, we purchased 1,531,763 shares of our common stock for $21.4 million under the 2023 Authorization. The 2023 Authorization expired on September 19, 2024. On September 5, 2024, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 20, 2024 through September 20, 2025, or the 2024 Authorization. As of October 31, 2025, we had repurchased 312,310 shares of our common stock for $4.1 million under the 2024 Authorization. On September 15, 2025, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 21, 2025 through September 21, 2026, or the 2025 Authorization. As of October 31, 2025, we had not repurchased any shares of our common stock under the 2025 Authorization.

During the three and six months ended October 31, 2025, there were no common stock repurchases. During the three months ended October 31, 2024, we repurchased a total of 753,631 shares of our common stock for $9.8 million. During the six months ended October 31, 2024, we repurchased a total of 1,624,300 shares of our common stock for $22.6 million.

Dividends — Our Board of Directors has authorized a $0.13 per share quarterly dividend, which will be paid to stockholders of record on December 18, 2025 with payment to be made on January 2, 2026.

Our future capital requirements will depend on many factors, including net sales, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products and enhancements to existing products, the costs to ensure access to adequate manufacturing capacity, and costs related to the Relocation. Future equity or debt financing may not be available to us on acceptable terms or at all. If sufficient funds are not available or are not available on acceptable terms, our ability to take advantage of unexpected business opportunities or to respond to competitive pressures could be limited or severely constrained.

As of October 31, 2025, we had $22.4 million in cash and cash equivalents on hand. Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for at least the next 12 months.

Other Matters

Critical Accounting Policies

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant accounting policies are disclosed in Note 2 of the Notes to the Consolidated Financial Statements in our Fiscal 2025 Annual Report. The most significant areas involving our judgments and estimates are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2025 Annual Report, to which there have been no material changes. Actual results could differ from our estimates.

Recent Accounting Pronouncements

The nature and impact of recent accounting pronouncements, if any, is discussed in Note 2—Basis of Presentation to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

During the period ended October 31, 2025, we did not enter into or transact any forward option contracts nor did we have any forward contracts outstanding.

Evaluation of Disclosure Controls and Procedures

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies may deteriorate.

Management, with the participation of the Chief Executive Officer and Chief Financial Officer, under the oversight of our Audit Committee of our Board of Directors, conducted an evaluation of the effectiveness of our internal control over financial reporting as of October 31, 2025 using the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO Framework). Based on that evaluation, management concluded that our internal control over financial reporting was not effective as of October 31, 2025 due to the material weakness in internal control over financial reporting described below.

A material weakness, as defined in Rule 12b-2 of the Exchange Act, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A deficiency was identified in our internal control over financial reporting related to the operation of the control to review the accrual for certain legal expenses. This control did not operate effectively due to insufficient knowledge and experience of our personnel related to the reconciliation of the accrual for certain legal expenses.

The material weakness resulted in immaterial misstatements to the accrual for certain legal expenses that were recorded in our consolidated financial statements during the interim and annual periods for the fiscal year ended April 30, 2024 and during the interim periods for the fiscal year ended April 30, 2025. Prior period amounts have been adjusted to correct the immaterial error, which overstated accrued expenses and deferred revenue and general and administrative expenses, understated income tax expense, and overstated income tax receivable and deferred income taxes.

The material weakness creates a reasonable possibility that a material misstatement to our annual or interim consolidated financial statements would not be prevented or detected on a timely basis by our internal controls.

Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of October 31, 2025.

Management’s Plan for Remediation of the Material Weakness

In response to the material weakness described above, with the oversight of the Audit Committee of our Board of Directors, management plans to remediate the material weakness such that the control over the accrual for certain legal expenses is operating effectively. The remediation actions include developing a training program for certain personnel to increase their knowledge of accruals for legal expenses.

Our remediation efforts are ongoing, and management expects that the remediation efforts and testing will continue throughout fiscal 2026. Management believes that these actions, and the improvements achieved as a result thereof, will effectively remediate the material weakness. However, the material weakness in our internal control over financial reporting will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our second fiscal quarter of 2026 has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

Investors should carefully review and consider the information regarding certain factors that could materially affect our business, results of operations, financial condition, and cash flows as set forth under Part I, Item 1A “Risk Factors” of our Fiscal 2025 Form 10-K. Additional risks and uncertainties not presently known to us or that we currently believe not to be material may also adversely impact our business, results of operations, financial position, and cash flows. We are aware of no material changes to the Risk Factors discussed in our Fiscal 2025 Form 10-K.