Springfield, Mass.-based Smith & Wesson (SWBI -0.60%) shares gained 3.5% in Thursday trading, as investors anticipated strong results in the company's afternoon fiscal Q1 2014 earnings report. Then investors actually saw the results -- and S&W gave up all the day's gains, and more.

Smith & Wesson earnings per diluted share grew to $0.40, up 48% in comparison to last year's fiscal Q1 on a 26% increase in revenues ($171 million). These results exceeded expectations on both counts. Much of the gains came from a 490-basis point improvement in gross profit margins, which hit 42.6% in Q1. Boosting the company's profitability even further, operating expenses shrank by about 20 basis points, falling to 14.5%, giving rise to improved operating profits and net profits alike.

Free cash flow for the quarter, defined as operating cash flow minus capital expenditures, was $7 million, more than twice the $3 million in cash profits generated one year ago.

CEO James Debney pointed out that the company made: "Improvements across all of our key metrics, including a meaningful increase in year-over-year sales and significant expansion of our gross margins. Ongoing increases in our manufacturing capacity, combined with strong consumer demand for firearms, resulted in increased market share and higher sales ..."

What appears to have spooked investors was guidance for the current quarter. Smith & Wesson is expecting to earn between $0.20 and $0.22 in fiscal Q2 2014, on revenues of at most $140 million. Wall Street's prediction: $0.29 on $143 million in sales. Thus, S&W is predicting "misses" on both profits and sales.

Shares were down 4.6% in after-hours trading.