What happened

Shares of gunsmith American Outdoor Brands (SWBI 0.45%) stock -- the company formerly known as Smith & Wesson -- crashed 16.5% in early trading Friday after the company offered up a mixed bag of earnings. The stock has clawed its way back to "only" an 11.2% loss as of 11 a.m. EST, but still, it's looking like a rough day for American Outdoor enthusiasts.

Golden revolver

American Outdoor Brands gets no gold medal after earnings today. Image source: Getty Images.

So what

Earnings for the fiscal second quarter of 2018 came in at $0.06 per diluted share GAAP, and $0.11 pro forma, beating Wall Street's predicted  $0.07 in "adjusted earnings" for the quarter. Sales likewise exceeded expectations, with American Outdoor Brands booking $148.4 million in revenue for the quarter, nearly $10 million ahead of Wall Street's expected $138.5 million -- but that was the end of the good news.

Objectively speaking, Q2 was a horrible quarter for American Outdoor Brands. Sales for the quarter may have exceeded expectations, but they were nonetheless down more than 36% year over year. The company's gross profit margin plunged 760 basis points to 34.2%. GAAP net income -- remember, this was just $0.06 per share, and less than half the $0.11 pro forma profit that American Outdoor would prefer that you focus on -- plummeted 90% from the year-ago level.

Now what

And the news only got worse from there. Laying out its financial guidance for the rest of this fiscal year, American Outdoor Brands predicted that fiscal Q3 earnings will range between $0.01 and $0.04 per diluted share. Full-year earnings should fall between $0.33 and $0.43. Taken at the midpoint, this implies a year-over-year decline of 83% from the $2.25 per share that American Outdoor earned last year, and a current-year valuation of more than 36 times earnings on a stock...with declining earnings.

No wonder investors are selling.