What happened
Shares of Smith & Wesson Brands (SWBI -0.90%) are tumbling 18.1% at 11:00 a.m. ET after the firearms manufacturer reported earnings indicating the sales surge it's enjoyed over the past few years has finally dissipated. Fiscal 2022 third-quarter net sales of $177.7 million plummeted 31% from the year-ago figure, though they're still 140% higher than where they were two years ago.
GAAP net income was also cut in half, and adjusted earnings nearly so as president and CEO Mark Smith said the firearms market "has cooled significantly from the height of the pandemic surge and seems to now be following pre-pandemic historical demand patterns."
So what
The market seems to be overreacting to the news of slowing sales, which has been occurring for some time and was evident after industry-peer Sturm, Ruger (RGR -0.97%) reported results almost two weeks ago. Yet as CEO Smith noted, the industry demand is simply returning to the mean. While lower than during what turned out to be the single greatest year for firearms sales ever, sales are still elevated.
The trajectory of firearms sales continues to rise over time, and a large portion of the sales are going to consumers who are buying their very first firearm.
Image source: Getty Images.
Now what
Smith & Wesson is still selling a lot of guns, more than from before all the unrest and upheaval, and is now a much more focused company that's debt free. It also repurchased $50 million in shares in the quarter and some $200 million worth since the start of the pandemic, while paying out $20 million in dividends.
Unlike Ruger, which ties its dividend payment to a percentage of the net income it produces, Smith & Wesson Brands pays a fixed amount. The $0.08 per-share payout is currently yielding 1.8% annually.
