SWBI Q2 Deep Dive: Market Share Gains Offset Pricing and Margin Pressures

American firearms manufacturer Smith & Wesson (NASDAQ:SWBI) reported Q2 CY2025 results exceeding the market’s revenue expectations, but sales fell by 3.7% year on year to $85.08 million. Its non-GAAP loss of $0.08 per share was 33.3% above analysts’ consensus estimates.

Is now the time to buy SWBI? Find out in our full research report (it’s free).

StockStory’s Take

Smith & Wesson’s Q2 results for 2025 reflected a mixed picture, as the company’s revenue surpassed Wall Street’s expectations despite a year-over-year decline. Management highlighted robust demand for new products, particularly in the handgun segment, which saw shipments rise over 35% in the sporting goods channel. CEO Mark Peter Smith credited the strength of the Bodyguard, Shield, and M&P lines for driving these results. However, he acknowledged that the overall market remained highly promotional and that average selling prices trended lower. Smith noted, “Our performance during the seasonal slow period for firearms demonstrates the strength of our brand and the ongoing success of our innovation strategy.”

Looking ahead, management expects typical seasonal strength in the second half of the year but remains cautious due to ongoing macroeconomic headwinds and tariff impacts. The company plans to maintain a disciplined approach to promotions while focusing on expanding its product lineup and leveraging the recent reopening of the Smith & Wesson Academy. CFO Deana McPherson stated that gross margins are likely to remain under pressure from tariffs and lower production absorption, and operating expenses will rise with higher volume and special initiatives. Management believes that its innovation pipeline and clean inventory position will allow Smith & Wesson to maintain or expand market share going forward.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to new product success in handguns, selective participation in promotions, and effective inventory management, while also highlighting external pressures on pricing and margins.

• Handgun outperformance: The company experienced notable growth in handgun shipments, up over 35% year over year in the sporting goods channel, even as overall background checks (NICS) for handguns declined.
• Selective promotional activity: Management emphasized a disciplined approach to promotions, participating when necessary but leveraging strong brand preference to avoid widespread discounting, which helped maintain average selling prices.
• New product contribution: New products represented 37.3% of total sales, with the Shield X introduction in late July receiving positive initial reception and forming a key component of the company’s innovation-driven growth strategy.
• Inventory and channel health: The company reported a more than 13,000-unit reduction in distributor inventory compared to the prior quarter, enabling greater flexibility to respond to any demand uptick in the busier fall and winter periods.
• Margin pressure from tariffs: Gross margin was negatively impacted by tariffs, primarily on steel, as well as lower production volumes. Management noted that this was partially offset by reduced promotional costs and lower excise taxes following a favorable audit outcome.

Drivers of Future Performance

Smith & Wesson’s outlook centers on expanding its product portfolio, navigating tariffs, and adjusting promotional strategies to protect both market share and profitability.

• Product pipeline expansion: Management is focused on launching additional lever action and specialty firearms, as well as capitalizing on anticipated regulatory changes that could boost suppressor demand, especially through the Gemtek brand.
• Tariff and cost headwinds: Ongoing steel tariffs and lower production absorption are expected to keep gross margins under pressure. Management flagged these as significant factors for the next quarter, alongside higher operating expenses from increased sales activity and special projects like the Smith & Wesson Academy relaunch.
• Measured promotional participation: While maintaining a willingness to participate in targeted promotions, management aims to avoid broad-based discounting, expecting average selling prices to remain relatively stable thanks to the strength of the brand and innovation pipeline.

Catalysts in Upcoming Quarters

Looking forward, our analysts will watch for (1) the pace of new product launches and their acceptance in the market, (2) the company’s ability to maintain or improve average selling prices in a promotional environment, and (3) the impact of steel tariffs and higher operating expenses on margins. Progress on the relaunch of the Smith & Wesson Academy and regulatory changes affecting suppressors will also be key indicators of execution.

Smith & Wesson currently trades at $8.25, in line with $8.22 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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