What happened

Firearms marketplace and supplier Ammo (POWW -1.15%) released fiscal first-quarter results that were below expectations, sending shares down as much as 20% in Tuesday trading. As of 2:55 p.m. ET, shares were still down 13%.

So what

Ammo has been a volatile stock, but its quarterly results, announced Monday night, still managed to catch Wall Street off guard. The company reported a fiscal 2023 first-quarter profit of $0.09 per share, down from $0.13 per share a year ago, on revenue of $60.8 million. The sales number was up sharply from $44.5 million last year.

The problem, as the numbers imply, was cost. Ammo's gross margin declined to 29.8% in the quarter, compared with 42.7% a year ago, due to higher materials costs and additional labor and overhead costs associated with the opening of a new manufacturing facility. Ammo believes much of that added cost will be temporary, providing the opportunity for margins to increase as the year goes on.

The results come just a week after Ammo announced plans to split itself into two publicly traded companies, with one focused on producing ammunition and components and the other running online marketplaces. In a statement, CEO Fred Wagenhals highlighted the continued sales growth despite the costs and said the split is the best path forward.

"With our revenue momentum continuing into fiscal 2023, Ammo's management team and board completed a detailed analysis and assessment of our operations, business units, and growth opportunities, all with the goal of unlocking and enhancing shareholder value," Wagenhals said. "We believe this separation will allow investors to more appropriately value the business models of each segment and create greater shareholder value by facilitating the expansion and value we have created in both brands while pursuing compelling and distinct growth opportunities."

Now what

Between corporate breakups and a difficult cost environment, Ammo has a lot going on right now. It could be difficult for the stock to vault higher while these issues play out, but the long-term trajectory of the company looks positive.

Revenue, as Wagenhals notes, is growing at an impressive clip. Post-split investors will have access to both a steady manufacturing business and what should be a faster-growing online marketplace. There is a lot to like about Ammo for those who are patient. But in the near term, the costs are canceling out a lot of the momentum.