Shares of gunmaker Smith & Wesson Brands experienced a significant decline in premarket trading following the release of their second-quarter earnings for fiscal 2025, which ended on October 31. The adjusted earnings per share (EPS) of 11 cents fell short of the analyst consensus of 17 cents, as tracked by Bloomberg. Additionally, net sales of $129.7 million did not meet the estimated $133.7 million, and the company reported an adjusted operating income of $7.91 million, well below the anticipated $9.59 million, while the gross margin also came in lower than expected at 26.6%, compared to the estimated 29.8%. This disappointing performance is attributed to a cooling demand for firearms in the U.S., which has declined from the heightened purchasing activities seen during the COVID-19 pandemic.
The decline in firearm demand coincides with a shift in the political landscape, with President-elect Trump taking office next month. Following the years of heightened concern over potential gun control measures under a Democratic administration, there is a sense of reassurance among gun owners that the Second Amendment may face less pressure. This transition in political climate has led to observed hesitancy among consumers, significantly influenced by inflation and economic challenges. CEO Mark Smith commented on the company’s second-quarter results, indicating that inflation has made consumers more cautious in their discretionary spending, particularly impacting the firearm market’s performance.
Despite the downturn, Smith emphasized that Smith & Wesson managed to outperform the broader market and gained market share during this challenging period. While the company faced substantial headwinds, Smith suggested that it has a proven ability to navigate through difficult environments in the past. CFO Deana McPherson acknowledged the 4% increase in net sales compared to the previous year, largely due to the popularity of new products like the Bodyguard 380 pistol and lever-action rifles. However, she cautioned that given the softer demand trends observed across the industry, the company’s expectations for the second half of fiscal 2025 had been adjusted downward, anticipating a revenue decline of 10-15% compared to fiscal 2024.
Industry analysts, including Craig-Hallum’s Steve Dyer, have also noted the impact of weakened consumer demand and a lack of urgency to buy firearms, which previously spiked during election cycles. Dyer characterized the current phase of the firearms market as a “digestion period” following years of panic buying triggered by crises, regulatory concerns, and social unrest. As a result, he reduced his price target for Smith & Wesson’s stock from $18 to $13, reflecting the anticipated continued volatility in the firearms market. Following the earnings report, Smith & Wesson shares fell by 15% in premarket trading, maintaining a flat position for the year.
Amid these changes in demand, a distinct market trend has emerged: a notable surge in suppressor demand. Recent sales data from the National Instant Criminal Background Check System (NICS) highlights the fluctuations in firearm purchasing activity, illustrating the boom and bust cycles that characterize the industry. NICS checks, used as a proxy to estimate gun sales, indicate that while demand has slowed recently, checks remain above the 20-year trend and are expected to rise seasonally as the year progresses.
Looking ahead, there is a view that under Trump’s anticipated second term, the frenetic gun-buying urges that were fueled by concerns of stricter regulations during Democratic leadership may subside. This potential stabilization could lead to increased promotional activities by gun manufacturers like Smith & Wesson as they aim to manage inventory levels. Overall, the market may witness more competitive pricing structures as firearm retailers maneuver through the challenging landscape of consumer demand in the upcoming months.