Smith & Wesson Aims Higher

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Shares of Smith & Wesson (Nasdaq: SWHC) got nicked for more than 5% in the hours leading up to its fiscal Q1 2008 earnings report last week. But exclaiming, "It's only a flesh wound," they've bounced right back.

On Thursday, S&W announced not only that business went great guns last quarter, but also that it was raising its targets for the rest of the year. Let's run down the actual numbers before we take a look at the prospective ones:

• Sales for the quarter increased 56% to $74.4 Million, helped by the firm's tacking on the revenue stream of hunting rifle maker Thompson/Center Arms, acquired in January.
• Gross margins widened by 170 basis points to 36.4%.
• Operating income grew 67%, while net profits per diluted share rose "only" 38% to $0.11.

Now, looking over the above numbers, I imagine a lot of investors might key in on the growth rates. Others will focus on gross margin number and exclaim, "Hey, S&W is now getting higher margins than its most-comparable publicly traded rival, Sturm, Ruger (NYSE: RGR) earns." What most impressed me, though, had little to do with S&W's numbers per se. Instead, it was what some might call a "throwaway" comment by CEO Michael Golden.

Several paragraphs into the release, after regaling investors with all the good news, Golden cautioned, "Our stronger-than-expected results in the first quarter reflect not only growth in our business but also the integration of Thompson/Center and the impact of hunting on our traditional seasonality."

Rather than just take credit for an exceptional quarter and leave it at that, Golden made a point of clarifying just why the quarter went so well. He emphasized the non-organic nature of much of S&W's growth, and also implied that part of the reason long guns sales improved so very much (the firm has only been making them since 2006, after all) may have been because we're now heading into hunting season -- when shotguns and rifles would be expected to sell well. Suffice it to say, I appreciate the extra effort to put things in context.

All the more so when...
Nor did Golden do this to set up investors for lowered expectations going forward, post-hunting season. To the contrary, S&W guided us to expect $330 million in sales this year, a 40% year-over-year increase (and 60% growth in Q2.) Between continued strong sales growth and higher-than-expected margins on those sales, S&W upped guidance for the year by a penny, to $0.63 per share, and mentioned that while net cash flow would run negative throughout the first half of fiscal 2008, the firm expected to end the year with a positive net cash flow of $23 million.

Learn more about this famous name in arms making at:

• Stocks for Dad: Smith & Wesson
• Smith & Wesson Shot Down
• Smith & Wesson Pops