Lower demand for modern sporting rifles hurt Smith & Wesson's overall sales. Source: Smith & Wesson Holding Corporation.

Smith & Wesson's (SWBI 1.82%) namesake products might be deadly accurate, but that sure didn't help the gun-maker hit Wall Street's targets yesterday evening. To be sure, shares of Smith & Wesson Holding Corporation fell by 14% early Wednesday following the release of its mixed fiscal first-quarter 2015 results.

Specifically, Smith & Wesson saw quarterly revenue fall 22.9% year over year to $131.9 million. For that, we can mostly thank lower consumer demand for modern sporting rifles, which were responsible for a full 87% of the decline. However, Smith & Wesson's handgun sales continued to perform well, driven once again by strength in small polymer handguns. Meanwhile, Smith & Wesson repurchased another $30 million in shares during the quarter, which completed all share repurchases authorized by its board, but still translated to a 35% drop in net income per diluted share to $0.26.

Of course, that wouldn't have been so bad in isolation; analysts, on average, were expecting lower earnings of $0.25 per share on slightly higher sales of $133.9 million. 

The real reason Smith & Wesson stock hit the deck
But there's another reason investors are running for cover today: For the current quarter, Smith & Wesson sees revenue between $100 million and $110 million, and earnings per diluted share between $0.04 and $0.08. The mid-point of both ranges sits well below analysts' estimates, which called for earnings of $0.28 per share on sales of $136.8 million.

Smith & Wesson also lowered its full fiscal year 2015 guidance. As it stands, it expects net sales between $530 million and $540 million, with earnings per share between $0.89 and $0.94 -- both big drops from its previous guidance ranges, which called for fiscal 2015 revenue between $585 million and $600 million, and earnings per share between $1.30 and $1.40.

So, what happened? According to Smith & Wesson CEO James Debney, "We believe the current environment reflects high inventories industrywide resulting from channel replenishment that occurred following an earlier surge in consumer buying." Combine that environment with the firearm industry's typically slow summer season, and it's not hard to see why Smith & Wesson had no choice but to reduce guidance.

Then again, investors can take some solace knowing Smith & Wesson isn't alone. Given his "industrywide" comment, it should come as no surprise shares of competitor Sturm, Ruger (RGR 1.10%) simultaneously plunged around 4% today. 

Keep your eye on the (long-term) target
But there are a few silver linings, here. First, Debney says, is that today's high inventory levels should largely be restricted to the current quarter. After that, the market is expected to "return to a more normalized environment."

Even then, keep in mind one of Smith & Wesson's key strengths is its focus on manufacturing flexibility. By both maintaining a temporary workforce and outsourcing production of certain key components -- in stark contrast to the decidedly more permanent manufacturing infrastructure from Sturm, Ruger -- Smith & Wesson is able to more efficiently respond to unfavorable market conditions such as this. Sure enough, Debney confirmed during the subsequent earnings conference call that, "Now is the time to dial back these outsourcing arrangements, and we have begun that process."

At the same time, Debney insisted Smith & Wesson's strategy isn't to "simply react to the market, but rather manage our business for the long term in a manner that gives us the ability to take market share, independent of whether or not the market is growing or shrinking."

Foolish takeaway
But while previous quarterly comparisons in domestic unit sales to declines in NICS background checks made it possible to gauge the extent of Smith & Wesson's market share gains, management this quarter states high inventory levels and "noise in the channel" makes it more difficult to measure right now. Nonetheless, they assert the company's own internal monthly analysis shows Smith & Wesson remains the market leader in both handguns and modern sporting rifles.

Don't get me wrong: I can't blame the market for taking a big step back today given Smith & Wesson's big guidance reduction. But in the end, today's drop means shares of Smith & Wesson currently trade for an attractive 12 times the mid-point of this fiscal year's expected earnings. If this weakness proves temporary, as management claims, I think that makes Smith & Wesson stock a compelling buy for patient, long-term investors.