SMITH & WESSON BRANDS, INC.

Previous wording

This section generally discusses year-to-year comparisons between the three months ended July 31, 2025 and 2024. A discussion of our results of operations, liquidity, and capital resources for the three months ended July 31, 2024 compared to July 31, 2023 is not included in this Quarterly Report on Form 10-Q and can be found in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Quarterly Report on Form 10-Q for the quarterly period ended July 31, 2024, filed with the SEC on September 5, 2024. See also the discussion below related to an immaterial correction of an error.

Current wording

This section generally discusses year-to-year comparisons between the three and six months ended October 31, 2025 and 2024. A discussion of our results of operations, liquidity, and capital resources for the three and six months ended October 31, 2024 compared to October 31, 2023 is not included in this Quarterly Report on Form 10-Q and can be found in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Quarterly Report on Form 10-Q for the quarterly period ended October 31, 2024, filed with the SEC on December 5, 2024. See also the discussion below related to an immaterial correction of an error.

Previous wording

Net sales were $85.1 million, a decrease of $3.3 million, or 3.7%, from the comparable quarter last year.

Current wording

Net sales were $124.7 million, a decrease of $5.0 million, or 3.9%, from the comparable quarter last year.

Previous wording

Gross margin was 25.9% compared with gross margin of 27.4% for the comparable quarter last year.

Current wording

Gross margin was 24.3% compared with gross margin of 26.6% for the comparable quarter last year.

Previous wording

Net loss was $3.4 million, or $0.08 per diluted share, compared with $1.9 million, or $0.04 per diluted share, for the comparable quarter last year.

Current wording

Net income was $1.9 million, or $0.04 per diluted share, compared with $4.5 million, or $0.10 per diluted share, for the comparable quarter last year.

Previous wording

During the fourth quarter of fiscal 2025, we identified an immaterial error related to our accrual for certain legal expenses, resulting in an overstatement of general and administrative expenses in the interim and annual periods for the fiscal year ended April 30, 2024 and during the interim periods for the fiscal year ended April 30, 2025. In accordance with SAB No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the quantitative and qualitative considerations of the error and determined that the related impact was not material to the results of operations, financial position, or cash flows for any historical annual or interim period. Prior year amounts have been adjusted to correct the immaterial error, which overstated general and administrative expenses by $336,000 and understated income tax expense by $85,000 for the three months ended July 31, 2024. Related changes to net income, corresponding line items within cash provided by operating activities, and related disclosures within the notes accompanying these financial statements reflect the immaterial correction.

Current wording

During the fourth quarter of fiscal 2025, we identified an immaterial error related to our accrual for certain legal expenses, resulting in an overstatement of general and administrative expenses in the interim and annual periods for the fiscal year ended April 30, 2024 and during the interim periods for the fiscal year ended April 30, 2025. In accordance with SAB No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, we evaluated the quantitative and qualitative considerations of the error and determined that the related impact was not material to the results of operations, financial position, or cash flows for any historical annual or interim period. Prior year amounts have been adjusted to correct the immaterial error, which overstated general and administrative expenses by $565,000 and $901,000 and understated income tax expense by $153,000 and $238,000 for the three and six months ended October 31, 2024, respectively. Related changes to net income, corresponding line items within cash provided by operating activities, and related disclosures within the notes accompanying these financial statements reflect the immaterial correction.

Previous wording

Sales of our handguns increased $11.7 million, or 21.9%, over the comparable quarter last year, primarily as a result of increased shipments of newly introduced products (defined as any new SKU not shipped in the comparable period last year), partially offset by a shift in product mix to lower priced models. Shipments of new products represented 37.7% of handgun sales in the quarter. Handgun unit shipments into the sporting goods channel increased by 35.1% from the comparable quarter last year while overall consumer handgun demand decreased by 2.4% (as indicated by adjusted background checks reported in the National Instant Criminal Background Check System, or NICS).

Current wording

Sales of our handguns decreased $3.0 million, or 3.2%, from the comparable quarter last year, primarily as a result of lower consumer demand, partially offset by increased shipments of newly introduced products (defined as any new SKU not shipped in the comparable period last year). Shipments of new products represented 42.8% of handgun sales in the quarter. Handgun unit shipments into the sporting goods channel decreased by 1.9% from the comparable quarter last year while overall demand for handguns increased by 2.9% (as indicated by adjusted background checks reported in the National Instant Criminal Background Check System, or NICS) due to a reduction in inventory in the channel.

Previous wording

Newly introduced products represented 37.3% of net sales for the three months ended July 31, 2025 and included three new pistols, three new long guns, and many new product line extensions.

Current wording

Newly introduced products represented 38.7% of net sales for the three months ended October 31, 2025 and included four new pistols, four new long guns, and many new product line extensions.

Previous wording

Gross margin for the three months ended July 31, 2025 was 25.9% compared with 27.4% for the comparable quarter last year, primarily driven by unfavorable fixed-cost absorption from lower production volumes and higher tariffs on imported materials and components, partially offset by favorable inventory adjustments (including standard cost revaluations, shrink, and excess inventory write downs), lower promotional costs, and lower federal firearms excise taxes as a result of the favorable completion of a recent audit. We estimate higher tariffs negatively impacted gross margin by approximately 120 basis points when compared to the comparable quarter last year.

Current wording

Gross margin for the three months ended October 31, 2025 was 24.3% compared with 26.6% for the comparable quarter last year, primarily driven by unfavorable fixed-cost absorption from lower production volumes, higher tariffs on imported materials and components, and unfavorable inventory adjustments (including standard cost revaluations, shrink, and excess inventory write downs), partially offset by lower promotional costs and lower federal firearms excise taxes as a result of the favorable completion of a recent audit. We estimate higher tariffs negatively impacted gross margin by approximately 80 basis points when compared to the comparable quarter last year.

Previous wording

Sales of our long guns decreased $11.1 million, or 45.0%, from the comparable quarter last year, primarily as a result of lower consumer demand within the industry during the period. Shipments of newly introduced products represented 53.2% of long gun sales in the period. Long gun unit shipments into our sporting goods channel decreased by 28.1% from the comparable quarter last year while overall consumer demand for long guns decreased by 7.8% (as indicated by NICS). We believe the difference in our unit demand compared to NICS results was driven by stronger relative performance in categories in which we do not participate fully, specifically hunting.

Current wording

Sales of our long guns decreased $11.6 million, or 23.2%, from the comparable period last year, primarily as a result of lower consumer demand during the period and the timing of new product launches in the comparable period last year. Shipments of new products represented 43.4% of long gun sales in the period. Long gun unit shipments into the sporting goods channel decreased by 15.5% from the comparable period last year while overall consumer demand for long guns decreased by 8.1% (as indicated by NICS). We believe the difference in our unit demand compared to NICS results was driven by stronger relative performance in categories in which we do not participate fully, specifically hunting.

Previous wording

Other products and services revenue decreased $3.8 million, or 36.7%, from the comparable quarter last year, primarily because of lower business-to-business and suppressor sales.

Current wording

Other products and services revenue decreased $5.3 million, or 25.2%, from the comparable period last year, primarily because of lower business-to-business, parts, and suppressor sales; partially offset by e-commerce sales, which began in the third quarter of fiscal 2025.

Previous wording

Inventory balances increased $13.3 million between April 30, 2025 and July 31, 2025 as a result of level loading of our manufacturing facilities to ensure our ability to satisfy anticipated future demand. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventory levels to decline during the remainder of the fiscal year.

Current wording

Inventory balances decreased $6.7 million between April 30, 2025 and October 31, 2025 as a result of our proactive inventory management and production planning efforts intended to optimize inventory levels and cash flows. While inventory levels, both internally and in the distribution channel, in excess of demand may negatively impact future operating results, it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events, and consumer tastes. We expect our inventory levels to decline during the remainder of the fiscal year.

Previous wording

Research and development expenses increased $492,000 over the prior year comparable quarter because of higher tooling-related costs associated with new product development, partially offset by lower compensation-related costs. Selling, marketing, and distribution expenses decreased $1.1 million, primarily as a result of lower promotional costs and the timing of certain industry events. General and administrative expenses were largely flat compared to the prior year comparable quarter.

Current wording

Research and development expenses increased $704,000 over the prior year comparable period because of higher tooling-related costs. Selling, marketing, and distribution expenses decreased $415,000, primarily as a result of lower promotional costs and the timing of certain industry events, partially offset by one-time costs related to the grand opening event for the Smith & Wesson Academy. General and administrative expenses decreased $1.8 million from the prior year comparable quarter, primarily as a result of lower legal expenses and compensation-related expenses, partially offset by higher insurance costs.

Previous wording

Operating loss for the three months ended July 31, 2025 increased $1.4 million over the comparable quarter last year, primarilyfor the reasons outlined above.

Current wording

Operating income for the three months ended October 31, 2025 decreased $3.4 million from the comparable quarter last year, primarilyfor the reasons outlined above.

Previous wording

Interest expense, net increased by $473,000 over the comparable quarter last year, primarily as a result of higher average debt balances and lower average cash balances during the three months ended July 31, 2025 compared with the comparable quarter last year.

Current wording

Interest expense, net increased by $438,000 over the comparable period last year, primarily as a result of higher average debt balances and lower average cash balances, partially offset by lower average interest rates on debt during the six months ended October 31, 2025 compared with the comparable period last year.

Previous wording

Income tax benefit increased $281,000 from the comparable quarter last year, primarily as a result of higher operating loss. Before adjusting for discrete items related to stock-based compensation, the effective tax rate was 33.7% in the current quarter and 25.5% in the prior year comparable quarter. The increase in the effective tax rate before adjusting for discrete items was due to decreased forecasted pretax income and changes in state apportionment.

Current wording

Income tax expense decreased $477,000 from the comparable quarter last year, primarily as a result of higher operating loss. Before adjusting for discrete items related to stock-based compensation, the effective tax rate was 35.6% in the current quarter and 26.0% in the prior year comparable quarter. The increase in the effective tax rate before adjusting for discrete items was due to decreased forecasted pretax income and changes in state apportionment.

Previous wording

On July 4, 2025, the reconciliation bill, commonly known as the One Big Beautiful Bill Act, or the OBBBA, was enacted into law. The OBBBA, among other things, eliminates the requirement to capitalize U.S. research and development expenses, permanently extends certain provisions of the Tax Cuts & Jobs Act of 2017, and modifies certain international tax provisions, including changes to the foreign-derived intangible income regime, with effective dates beginning in calendar year 2025 and extending through calendar year 2027. As the OBBBA was enacted during the fiscal quarter ended July 31, 2025, we have considered and reflected the impacts on the consolidated financial statements. We do not expect the impact of these provisions to have a material impact on the consolidated financial statements.

Current wording

On July 4, 2025, the reconciliation bill, commonly known as the One Big Beautiful Bill Act, or the OBBBA, was enacted into law. The OBBBA, among other things, eliminates the requirement to capitalize U.S. research and development expenses, permanently extends certain provisions of the Tax Cuts & Jobs Act of 2017, and modifies certain international tax provisions, including changes to the foreign-derived intangible income regime, with effective dates beginning in calendar year 2025 and extending through calendar year 2027. As the OBBBA was enacted during the fiscal quarter ended July 31, 2025, we have considered and reflected the impacts on our consolidated financial statements. We do not expect the impact of these provisions to have a material impact on our consolidated financial statements.

Previous wording

Net loss for the three months ended July 31, 2025 was $3.4 million compared with$1.9 million for the comparable quarter last year for the reasons outlined above.

Current wording

Net income for the three months ended October 31, 2025 was $1.9 million compared with$4.5 million for the comparable quarter last year for the reasons outlined above.

Previous wording

The following table sets forth certain cash flow information for the three months ended July 31, 2025 and 2024 (dollars in thousands):

Current wording

The following table sets forth certain cash flow information for the six months ended October 31, 2025 and 2024 (dollars in thousands):

Previous wording

Cash used in operating activities was $8.1 million for the three months ended July 31, 2025 compared with $30.8 million for the three months ended July 31, 2024. The improvement was primarily driven by a $24.0 million reduction in working capital usage.

Current wording

Cash provided by operating activities was $19.2 million for the six months ended October 31, 2025 compared with cash used in operating activities of $38.2 million for the six months ended October 31, 2024. The improvement was primarily driven by a $61.6 million reduction in working capital usage.

Previous wording

Working capital usage for the three months ended July 31, 2025 was favorably impacted by a $16.1 million reduction associated with inventory, a $5.3 million reduction associated with accounts payable, a $3.5 million reduction associated with accrued payroll and incentives, and a $3.3 million reduction associated with accounts receivable, partially offset by a $4.6 million increase in working capital usage associated with accrued expenses and deferred revenue.

Current wording

Working capital usage for the six months ended October 31, 2025 was favorably impacted by a $42.2 million reduction associated with inventory, a $7.1 million reduction associated with accounts payable, a $5.2 million reduction associated with accrued payroll and incentives, and a $3.7 million reduction associated with accounts receivable, partially offset by a $5.3 million increase in working capital usage associated with accrued expenses and deferred revenue.

Previous wording

Cash used in investing activities increased $2.8 million for the three months ended July 31, 2025 compared with the prior year comparable period, primarily as a result of $3.2 million of purchases of marketable securities during the three months ended July 31, 2025 compared to no purchases in the prior year period.

Current wording

Cash used in investing activities increased $12.0 million for the six months ended October 31, 2025 compared with the prior year period, primarily as a result of a $7.3 million increase in capital expenditures, largely related to the Smith & Wesson Academy, and $4.6 million of purchases of marketable securities during the six months ended October 31, 2025. There were no purchases of marketable securities in the prior year period.

Previous wording

Cash provided by financing activities was $8.3 million for the three months ended July 31, 2025 compared with $10.2 million for the three months ended July 31, 2024. Cash provided by financing activities during the three months ended July 31, 2025 was primarily the result of $15.0 million in net borrowings under our revolving line of credit, partially offset by $5.9 million in dividend distributions.

Current wording

Cash used by financing activities was $2.1 million for the six months ended October 31, 2025 compared with $24.3 million of cash provided by financing activities for the six months ended October 31, 2024. Cash used by financing activities during the six months ended October 31, 2025 was primarily the result of $11.7 million in dividend distributions, partially offset by $10.0 million in net borrowings under our revolving line of credit. Cash provided by financing activities for the six months ended October 31, 2024 was primarily the result of $60.0 million of net borrowings, partially offset by stock repurchases totaling $22.6 million and $11.7 million in dividend distributions. We had no stock repurchases during the six months ended October 31, 2025.

Previous wording

Credit Facilities — We entered into the Second Amended and Restated Credit Agreement on October 3, 2024. The Second Amended and Restated Credit Agreement provides for a revolving line of credit of $175.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Second Amended and Restated Credit Agreement) or the Adjusted Term SOFR rate, plus an applicable margin based on our consolidated leverage ratio. The Second Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Second Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Second Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of October 3, 2029 or the date that is six months in advance of the earliest maturity of any Permitted Notes (as defined in the Second Amended and Restated Credit Agreement) under the Second Amended and Restated Credit Agreement.

Current wording

Credit Facilities — We entered into the Second Amended and Restated Credit Agreement on October 3, 2024. The Second Amended and Restated Credit Agreement provides for a revolving line of credit of $175.0 million at any one time, or the Revolving Line. The Revolving Line bears interest at either the Base Rate (as defined in the Second Amended and Restated Credit Agreement) or the Adjusted Term SOFR rate, plus an applicable margin based on our consolidated leverage ratio. The Second Amended and Restated Credit Agreement also provides a swingline facility in the maximum amount of $5.0 million at any one time (subject to availability under the Revolving Line). Each Swingline Loan (as defined in the Second Amended and Restated Credit Agreement) bears interest at the Base Rate, plus an applicable margin based on our Adjusted Consolidated Leverage Ratio (as defined in the Second Amended and Restated Credit Agreement). Subject to the satisfaction of certain terms and conditions described in the Second Amended and Restated Credit Agreement, we have an option to increase the Revolving Line by an aggregate amount not exceeding $50.0 million. The Revolving Line matures on the earlier of October 3, 2029 or the date that is six months in advance of the earliest maturity of any

Previous wording

As of July 31, 2025, we had $95.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 6.69%, which is equal to the Adjusted Term SOFR rate plus an applicable margin.

Current wording

As of October 31, 2025, we had $90.0 million of borrowings outstanding on the Revolving Line, bearing interest at an average rate of 6.28%, which is equal to the Adjusted Term SOFR rate plus an applicable margin.

Previous wording

Share Repurchase Programs — On September 19, 2023, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024, or the 2023 Authorization. During fiscal 2025, we purchased 1,531,763 shares of our common stock for $21.4 million under the 2023 Authorization. The 2023 Authorization expired on September 19, 2024. On September 5, 2024, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 20, 2024 through September 20, 2025, or the 2024 Authorization. As of July 31, 2025, we had repurchased 312,310 shares of our common stock for $4.1 million under the 2024 Authorization.

Current wording

Share Repurchase Programs — On September 19, 2023, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions through September 19, 2024, or the 2023 Authorization. During fiscal 2025, we purchased 1,531,763 shares of our common stock for $21.4 million under the 2023 Authorization. The 2023 Authorization expired on September 19, 2024. On September 5, 2024, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 20, 2024 through September 20, 2025, or the 2024 Authorization. As of October 31, 2025, we had repurchased 312,310 shares of our common stock for $4.1 million under the 2024 Authorization. On September 15, 2025, our Board of Directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions from September 21, 2025 through September 21, 2026, or the 2025 Authorization. As of October 31, 2025, we had not repurchased any shares of our common stock under the 2025 Authorization.

Previous wording

During the three months ended July 31, 2025, there were no common stock repurchases. During the three months ended July 31, 2024, we repurchased a total of 870,669 shares of our common stock for $12.9 million.

Current wording

During the three and six months ended October 31, 2025, there were no common stock repurchases. During the three months ended October 31, 2024, we repurchased a total of 753,631 shares of our common stock for $9.8 million. During the six months ended October 31, 2024, we repurchased a total of 1,624,300 shares of our common stock for $22.6 million.

Previous wording

As of July 31, 2025, we had $18.0 million in cash and cash equivalents on hand. Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for at least the next 12 months.

Current wording

As of October 31, 2025, we had $22.4 million in cash and cash equivalents on hand. Based upon our current working capital position, current operating plans, and expected business conditions, we believe that our existing capital resources and credit facilities will be adequate to fund our operations for at least the next 12 months.