Executive Summary

Q3 FY2025 underwhelmed on revenue and margins as core product demand softened and promotions increased, but management delivered on EPS and Adjusted EBITDAS expectations via lower opex and a gain on asset sale; new products were 41%+ of sales and supported share gains in key categories .
Gross margin fell 460 bps YoY to 24.1% (25.1% non-GAAP) on under-absorption from lower volumes and heavier promotions; GAAP EPS was $0.04 (non-GAAP $0.02) versus $0.17 a year ago .
Guidance tightened lower: FY25 revenue now expected at the low end (≈-10% YoY), Q4 revenue down 2–5% YoY, and Q4 margins “several percentage points” below last year; FY margins to end a “few percentage points” lower than FY24; FY capex trimmed to $20–25M (from $25–30M) .
Capital allocation steady: $0.13 dividend (record 3/20; payable 4/3), ~220k shares repurchased in Q3, quarter-end cash $26.7M and $110M on revolver; management expects strong Q4 cash flow and further debt paydown with leverage “well under 2x” by year-end .

What Went Well and What Went Wrong

What Went Well
- New product momentum and share gains: “Products introduced within the past year accounted for over 41% of sales,” with Bodyguard 2.0 and lever-action rifles driving mix; management believes it gained share in those categories .
- Operating discipline supported bottom line: Despite revenue below target, lower operating expenses and a flexible manufacturing model enabled delivery on EPS and Adjusted EBITDAS expectations .
- Clean channel and capital returns: Distributor channel inventory under 9 weeks; $0.13 dividend declared; ~220k shares repurchased in Q3; expectation for strong Q4 cash flow and additional debt paydown .
What Went Wrong
- Demand softness in core portfolio pressuring sales and margins: CFO flagged lower demand for core products hurting top line and margins; gross margin down 460 bps YoY on under-absorption and promotions despite some labor savings .
- Long gun shipment declines and mix headwind: Long gun shipments fell 26.7% YoY on tough compares and market mix; overall shipments into the channel declined 7.7% .
- Cash generation slowed: Q3 cash used in operations was -$9.8M (vs +$25.4M prior year) due to larger working capital build and lower net income .

Financial Results

Metric	Q3 FY2024	Q2 FY2025	Q3 FY2025
Net Sales ($M)	$137.5	$129.7	$115.9
GAAP Diluted EPS ($)	$0.17	$0.09	$0.04
Non-GAAP Diluted EPS ($)	$0.19	$0.11	$0.02
Gross Margin (%)	28.7%	26.6%	24.1%
Non-GAAP Gross Margin (%)	29.1%	27.1%	25.1%
Operating Income ($M)	$11.3	$7.0	$4.1
Operating Margin (%)	8.2%	5.4%	3.6%
Adjusted EBITDAS ($M)	$21.4	$18.5	$13.3
Adjusted EBITDAS Margin (%)	15.6%	14.3%	11.5%

Notes: Management reported Q3 net sales down 15.7% YoY and gross margin of 24.1% (25.1% non-GAAP); GAAP EPS $0.04 (non-GAAP $0.02) . Gross margin pressure reflected under-absorption and promotions; operating expenses benefited from a ~$2.3M gain on Missouri property sale -.

KPIs and Operating Metrics

KPI	Q3 FY2025
Adjusted NICS YoY	-4.5%
SWBI shipments into channel	-7.7% YoY
Handgun shipments (sporting goods channel)	-3% YoY
Long gun shipments	-26.7% YoY
Overall ASP change	-3.1% YoY
Handgun ASP change	-7.8% YoY (Bodyguard 2.0 ~$400 retail mix)
Long gun ASP change	+17.2% YoY (lever-action mix)
New products as % of sales	>41%
Distributor channel inventory	<9 weeks
Channel unit inventory change	-15,000+ units in quarter
Cash from operations (Q3)	-$9.8M
Capex (Q3)	$6.3M
Cash & equivalents (end Q3)	$26.7M
Revolver borrowings (end Q3)	$110M
Shares repurchased (Q3)	~220,000
Dividend	$0.13/sh; record 3/20; payable 4/3

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue vs FY2024	FY2025	Down 5–10% YoY (12/5 call)	At lower end ≈-10% YoY (3/6 call)	Lowered/tightened down
Revenue vs prior year	Q4 FY2025	N/A	Down 2–5% YoY	New
Gross margin	Q4 FY2025	N/A	“Several percentage points” below prior-year Q4	New (cautious)
Gross/Full-year margins	FY2025	In line to slightly below FY2024	A few percentage points below FY2024	Lowered
Operating expenses	Q4 FY2025	N/A	In line with prior-year Q4	New
Effective tax rate	Q3 FY2025	≈25% (for Q3)	≈28% (for Q4)	Higher rate for Q4
Capex	FY2025	$25–30M	$20–25M	Lowered
Leverage	FY2025 Exit	N/A	Well under 2x	New
Dividend	Q4 FY2025	$0.13/sh (maintained)	$0.13/sh (3/20 record; 4/3 pay)	Maintained

Earnings Call Themes & Trends

Topic	Q1 FY2025 (9/5)	Q2 FY2025 (12/5)	Q3 FY2025 (3/6)	Trend
Demand/Macro	Softer-than-expected summer; expected fall rebound; anticipated full-year growth	Inflation pressured discretionary spend; trade-down intensified; reduced 2H and FY outlook (FY down 5–10%)	Market steady at current levels; core demand softer; guidance to low end; Q4 down 2–5%	Deteriorated from Q1 optimism to cautious
Promotions/ASPs	N/A	Promotions broadened; overall ASP -8% YoY; handgun ASP -11%, long gun +11%	Promotions continued; overall ASP -3.1% YoY; handgun -7.8%, long gun +17.2%	Persistent pressure; long guns supported by lever-action mix
New products	Bodyguard 2.0 launched; strong early demand	New products 44% of sales; awards for Bodyguard 2.0; lever-action expansion planned	New products >41% of sales; share gains in those categories	Sustained strength and mix driver
Channel inventory	N/A	Largely flat in units; weeks outstanding fell; plan to align production and reduce internal inventory	Distributor inventory <9 weeks; internal inventory slightly elevated; plan to reduce in Q4	Clean channel; internal inventory being managed down
Regulatory/Tariffs	N/A	N/A	Minimal tariff exposure; factored into outlook; seeking stability in regulatory environment	Stable/limited impact
Capital allocation	New $50M repurchase; $0.13 dividend	New $50M repurchase authorized; $175M revolver signed; plan to pay down in 2H	Dividend maintained; ~220k shares repurchased; $10M debt repaid post-Q3; leverage <2x expected	Consistent returns; balance sheet flexible
Long gun category	N/A	Entering hunting via lever-action; long gun mix up; shipments down on timing	Lever-action strength; long gun shipments -26.7% vs tough prior-year compare	Expanding line; near-term comps tough

Management Commentary

CEO Mark Smith: “Our top line revenue for the third quarter came in slightly below our target range. However, lower operating expenses and leveraging of our flexible manufacturing model… allowed us to deliver on EPS and EBITDAS expectations. Our new products continue to perform very well… with products introduced within the past year accounting for over 41% of sales in the quarter.”
On mix and ASPs: “Average selling prices… moderated to a 3.1% decline… In handguns, our ASPs declined 7.8%… Bodyguard 2.0… around $400… In long guns, our ASPs increased 17.2%… lever-action rifles.”
CFO Deana McPherson: “Gross margin of 24.1% was 4.6% below the comparable quarter last year due to unfavorable fixed cost absorption… and higher promotional costs… Operating expenses… were $4.3 million lower… due primarily to a $2.3 million gain on the sale of property in Missouri.”
Outlook: “We continue to expect full year revenue to be down 5% to 10%… now anticipate… closer to a 10% decline… Q4 down… 2% to 5%… Q4 margins… several percentage points lower than our prior year fourth quarter.”

Q&A Highlights

ASP and mix outlook: Expect Q4 similar to Q3 on handguns; long gun mix to remain supported by lever-action; near-term mix effects persist .
FY2026 frame: Market expected to remain steady; growth to be modest absent catalysts; innovation and expansion into “white spaces” to drive share and pricing opportunities .
Handgun category dynamics: Bifurcation toward entry-level concealed carry and high-end innovation; Bodyguard 2.0 success at entry price point; unique products (metal M&P) can carry higher ASPs .
Long gun margin: Lever-action (Model 1854) margins not materially different from core rifles .
Tariffs/regulation: Limited tariff exposure incorporated into outlook; management emphasized need for regulatory stability; no comment on ongoing litigation outcomes .
Channel health: Distributor inventory ~8.5–9 weeks; industry remains disciplined with no stockpiling; clean channel supports rapid translation of demand to orders .

Estimates Context

We attempted to retrieve S&P Global (Capital IQ) Wall Street consensus for Q3 FY2025 actual vs estimates and Q4 FY2025 outlook, but the S&P Global API was unavailable due to request limits at this time. As a result, we cannot definitively state a beat/miss versus Street consensus for revenue or EPS. Management noted Q3 revenue was “slightly below” its target range, while EPS and Adjusted EBITDAS met internal expectations .

Key Takeaways for Investors

Innovation-led resilience: New products (>41% of sales) continue to outgrow the market and support share gains; lever-action rifles buoy long gun ASPs despite volume pressure .
Near-term margin pressure: Expect Q4 gross margin several points below last year given intentional inventory reduction and under-absorption plus elevated promotions; FY margins to finish a few points lower than FY24 .
Guidance bias negative: FY revenue now guided to the low end (~-10% YoY); Q4 revenue down 2–5% YoY; plan for cautious Street revisions if consensus assumed a firmer Q4.
Clean channel and cash generation setup: Distributor inventory under 9 weeks and internal inventories targeted lower support management’s expectation for strong Q4 cash flow and additional revolver paydown; leverage to end well under 2x .
Capital return intact: $0.13 dividend maintained and buybacks ongoing; supports shareholder yield even through softer demand .
Watchlist items: NICS trajectory into Q4, cadence of new product launches, ASP pressure from promotions, and the timing/magnitude of inventory normalization and debt repayment; regulatory and tariff developments appear contained near-term .
Positioning: Narrative likely hinges on execution of Q4 inventory/cash targets and sustained new-product outperformance; upside catalyst would be stronger-than-expected Q4 sell-through and higher-margin mix.

Appendix: Primary Source References

Q3 FY2025 8‑K and Press Release (3/6/25): key financials, margins, EPS, non-GAAP reconciliations, balance sheet, cash flow, dividend .
Q3 FY2025 Earnings Call Transcript (3/6/25): demand/ASP/mix commentary, guidance, channel, capital allocation, Q&A ; corroborating transcript version –.
Q2 FY2025 8‑K and Call (12/5/24): prior-quarter comparatives and initial FY guidance; capex plan .
Q1 FY2025 8‑K (9/5/24): early-year views, Bodyguard 2.0 launch, initial full-year optimism .

SMITH & WESSON BRANDS, INC. (SWBI)·Q3 2025 Earnings Summary