Smith & Wesson FY25 10-K Review: Shooting for the Bullseye?

Smith & Wesson Brands, Inc. (Nasdaq: SWBI) released its fiscal 2025 Form 10-K on June 20, 2025, covering the year ended April 30. The iconic firearm maker faced headwinds in FY25—net sales declined, margins compressed, and operating income halved—yet the company remains profitable and continues its $175 million credit facility to fund growth, product development, and its recent headquarters relocation to Maryville, Tennessee.

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1. Business Snapshot

• Products: Handguns (revolvers, polymer pistols), long guns (modern sporting rifles, pistol-caliber carbines, lever-action rifles), firearm suppressors (Gemtech), handcuffs & other restraint devices, manufacturing services.
• Brands: Smith & Wesson, M&P®, Performance Center®, Gemtech®, and others.
• Customers: Federal, state & local law enforcement and military; licensed distributors and dealers; direct-to-consumer for non-serialized parts and accessories.
• Facilities: Maryville, TN (HQ, assembly, injection molding, distribution); Springfield, MA (machining, engineering, R&D); Houlton, ME (machining, handcuffs).

2. FY2025 Financial Highlights

Metric	FY ’25	FY ’24	Change	% Change
Net Sales	$474.7 M	$535.8 M	–$61.2 M	–11.4 %
Gross Profit	$127.2 M	$158.1 M	–$30.9 M	–19.6 %
Gross Margin	26.8 %	29.5 %	–270 bps	–
Operating Income	$23.9 M	$47.1 M	–$23.2 M	–49.3 %
Operating Margin	5.0 %	8.8 %	–380 bps	–
Net Income	$13.4 M	$41.4 M	–$28.0 M	–67.5 %
EPS (Diluted)	$0.30	$0.89	–$0.59	–66.3 %
Cash Flow from Operations	–$7.2 M	+$106.7 M	–$113.9 M	–
Capital Expenditures (incl. patents & software)	$21.8 M	$90.9 M	–$69.1 M	–76.0 %
Free Cash Flow	–$29.0 M	+$15.8 M	–$44.8 M	–

 Free Cash Flow = Cash flow from operations less capital expenditures.

3. Income Statement Breakdown

Net Sales by Category

• Handguns: $331.9 M (–13.1 %)
• Long Guns: $104.0 M (–10.8 %)
• Other Products & Services: $38.8 M (+3.5 %)

Drivers:

• Lower consumer demand across the firearm industry in FY25 vs. FY24.
• Ongoing channel inventory adjustments following the historic COVID-driven spike in FY21–22.
• New product shipments (42.6 % of handgun and 59.5 % of long-gun sales in FY25) offset some headwinds.
• Price increases on select products (2 %–5 %) introduced in Q3 FY24.

Gross Margin

FY25 gross margin compressed to 26.8 % from 29.5 % in FY24 despite a $3.2 M legal settlement in the prior year. Excluding the one-time settlement, margin declined 330 bps due to:

• Higher material costs and freight/transportation costs in an inflationary environment.
• Increased promotional costs and a shift in mix toward lower-margin SKUs.
• Favorable inventory adjustments in FY24 (write-downs & standard-cost re-valuations).

Operating Expenses

• R&D: $9.6 M (+31.8 %)—investing in a robust product pipeline (e.g., Bodyguard 2.0, M&P 4, 1854 Lever-Action variants, Performance Center Spec Series).
• SG&A: $41.3 M (+1.7 %)—higher promotions and compensation costs, partially offset by prior-year relocation and distribution-center shutdown charges.
• G&A: $54.9 M (–13.0 %)—lower Relocation-related and profit-share costs, partially offset by incremental legal and compliance expenses.

4. Cash Flow & Liquidity

Operating: Used $7.2 M in FY25 vs. provided $106.7 M in FY24.
Investing: $21.8 M used for capital expenditures, down from $90.9 M in FY24 (Relocation capex winding down).
Financing: $9.2 M used, vs. $18.0 M in FY24—includes:

• $23.1 M dividends distributed.
• $25.5 M stock repurchases (1.84 M shares in FY25).
• $75.0 M net borrowings on revolving credit over two years.

Liquidity: $25.2 M cash on hand, plus a $175 M revolving line of credit (6.7 % interest, $80 M drawn).

We remain comfortable that we have adequate liquidity for the next 12 months given working capital, cash flows, and available capacity under our credit facility. Management expects to spend $25–30 M in capex in FY26 on productivity and new product lines.

5. Capital Deployment

• Share Repurchases: 1.84 M shares purchased for $25.5 M in FY25.
• Dividends: $0.52 per share quarterly, totaling $23.1 M in FY25.
• R&D and Automation: Continuing investments in Maryville & Springfield automation to improve unit costs and flexibility.

6. Strategic Initiatives

Relocation to Maryville, TN

• New 645K sq ft facility consolidating HQ, injection molding, assembly, and distribution.
• Discontinued Deep River, CT operations and vacated Columbia, MO distribution center (assets transferred to subsidiary).
• Government incentives tied to $120 M capex and creation of 620 jobs by Dec 31, 2025.

Product Pipeline

• FY25 launches: Bodyguard 2.0, new Ultimate Carry revolvers, CSX E-Series, M&P 4 select-fire rifle, Model 1854 variants, Performance Center Spec Series.
• R&D spend up 32 % in FY25, focused on personal carry, law-enforcement, competitive shooting, and suppressors.

7. Risk Factors

• Regulatory: Potential expansion of gun-control laws (federal, state, local) and microstamping requirements.
• Litigation: Ongoing product-liability suits, derivative suits, state-claim suits, and government investigations.
• Supply Chain: Lead times for critical parts, inflationary pressures on steel and components, and labor shortages.
• Market Cyclicity: Demand spikes & declines driven by elections, events, and social/political factors.
• ESG & Activism: Stockholder activism and de-platforming risk from payment processors, insurers, and retailers.

8. Outlook and Investment Considerations

• Smith & Wesson remains a top U.S. firearms brand with a legacy dating to 1852 and strong dealer/distributor relationships.
• Positive free cash flow may remain pressured in FY26 by steady capex (Maryville build-out), inventory build, and elevated SG&A.
• Attractive entry on weakness if you believe in ongoing market share gains, product leadership (M&P line, suppressors), automation dividends, and solid capital allocation (dividends + ≥$50 M buybacks).
• Caution warranted around litigation, regulatory shifts, and cyclical consumer spending.

Net Income (FY ’25): $13.4 million
Investment Score: 5.5 / 10—moderate appeal for long-term value investors; higher risk for volatility and regulatory headwinds.

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Disclosure: This report is for informational purposes only and does not constitute investment advice. Investors should consult their financial advisors.