In premarket trading, shares of Smith & Wesson Brands Inc (NASDAQ:SWBI). saw a significant decline, dropping 18% following the announcement of their second-quarter results, which fell short of analysts’ expectations. The gun maker’s adjusted earnings per share (EPS) came in at 11 cents, whereas the Bloomberg consensus had estimated 17 cents based on two estimates. Additionally, net sales reported were $129.7 million, missing the forecast of $133.7 million. The company also reported an adjusted operating income of $7.91 million, lower than the anticipated $9.59 million, and a gross margin of 26.6% compared to the estimated 29.8%.
Amidst these results, Craig-Hallum analyst Steve Dyer downgraded Smith & Wesson Brands to a hold rating, reducing the price target to $13 from the previous $18. The downgrade reflects a broader trend in the firearms industry, which, according to Dyer, has entered a “digestion period” after years of heightened purchasing activity. This period is marked by a normalization following the surge in buying driven by fears of stricter gun regulations in the 2010s and the pandemic in the early 2020s.
The industry-wide cooler demand for firearms and an increase in promotions are factors contributing to what Craig-Hallum describes as a “more challenging near-term financial profile” for Smith & Wesson Brands. Despite these headwinds, the firm maintains a long-term positive outlook on the brand, expecting it to continue delivering returns to shareholders.
Lake Street Capital Markets LLC analyst Mark Smith also revised his recommendation for the firearms manufacturer to hold from buy. The new price target set by Smith indicates a 4.6% decrease from the last closing price.
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