Smith & Wesson Under the Gun: Loses $37.3m in Q2

The Truth About Guns ^ | Robert Farago

[marktwain]

Bloomberg reports that Springfield, MA-based gunmaker Smith & Wesson lost $37.2 million in the second financial quarter. The company racked-up $96.3 million in total net sales in Q2, down $13.4 million or 12.2% from Q2 2010. Drilling down to the trigger-related bits, Smith’s Firearm Division clocked in with net sales of $83.6 million, down $9.8 million or 10.5%, from last year’s Q2 net sales of $93.4 million. As you’d expect, CEO Michael F. Golden downplayed the news . . .

“As overall purchasing of firearms moderated during the quarter compared with the record levels a year ago, total sales came in slightly below our previously issued guidance.” What’s more (or less), “The environment has become increasingly challenging, leading us to the decision to lower our revenue outlook.”

Click here to read the official statement. Meanwhile or alternatively, I’d like to draw your attention to three items.

First, Smith & Wesson sells FAR too many products. ome of the members of Smith’s ever-increasing family of firearms are not that great. Some don’t jibe within the public’s brand expectations. Their existence lowers perceived quality (threatening margins), increases consumer confusion and weakens the brand. The BODYGUARD series, in particular, is generally recognized to be two of the worst pistols Smith has ever made, with terrible triggers and serious quality concerns.

The gunmaker’s corporate masters don’t see it. Like pre-C11 GM, like a rat tapping a bar for an endless line of coke, Smith & Wesson is hooked on the thrill of the new. “Overall, new firearm products remain central to our focus,” Golden’s statement states. “We look forward to unveiling some exciting new models and product line extensions next month at the SHOT Show.”

Smith doesn’t need new products. It needs less products. And it needs to sell a small selection of its world famous wheelguns to non-gun owners. To paraphrase Cambell’s soup ads, “It’s amazing what a revolver can do.” A revolver.

Second, like a pre-C11 GM, Smith & Wesson doesn’t underdstand that there’s no such thing as a core brand. There is a brand. And that brand, Smith & Wesson fans, is firearms. Period. The company’s decision to buy a perimeter security company will end in tears, either by tanking (as it shows signs of doing) or distracting the corporate big-wigs from the business of making guns.

We also remain confident in our business strategy to expand beyond firearms, and we are committed to tapping into the long-term potential of the large and expanding perimeter security market. After the close of the quarter, we successfully expanded our revolving line of credit from $60.0 million to $120.0 million.

See the problem? Which mouth gets fed? And what happens to the passion that informs the Smith brand as factions within the company fight for resources?

Speaking of which, Smith is spending $9m+ to “relocate” Thompson/Center Arms from Rochester, New Hampshire to Springfield, Massachusetts. This for “increased operational efficiencies through the optimization of the company’s manufacturing footprint and increased synergies generated in fixed, marketing, and administrative costs.”

Translation: Thompson/Center Arms will now be a Smith & Wesson sub-brand. Whether they know it or not, they’re euthanizing the blackpowder brand’s vibrant corporate culture. Check this from the Thompson website:

Our precision investment castings come from our own casting facility here in Rochester, Thompson Investment Castings. T/C’s dedication to giving shooters and hunters their best product value begins with the T/C employees. More often than not, T/C employees use T/C products when they head into the fields and woods… products they (and you) can rely on, year after year.

How many of those T/C employees are moving to Springfield? What are the odds that Smith corporate drones will let them take a little time off to go huntin’? Anyway, thing three:

Total company operating expenses, including the $39.5 million expense related to the non-cash USR asset impairment [re: the perimeter security company] and the $3.3 million of expenses related to DOJ and SEC matters, totaled $65.1 million, or 67.6% of sales, for the second quarter of fiscal 2011 versus operating expenses of $23.4 million, or 21.4% of sales, for the comparable quarter last year.

Never mind the write-off, we learn that the DOJ and SEC case against Smith & Wesson for violating the Foreign Corrupt Practices Act (FCPA) lingers. Click here for the gov’s investigation. To refresh your memory on the potential fallout in Springfield, here’s the key excerpt from S&W’s last annual report:

If the SEC determines that we have violated federal securities laws, we may face injunctive relief, disgorgement of ill−gotten gains, and sanctions, including fines and penalties, or may be forced to take corrective actions that could increase our costs or otherwise adversely affect our business, results of operations, and liquidity. We also face increased legal expenses and could see an increase in the cost of doing business. We could also see private civil litigation arising as a result of the outcome of this inquiry. In addition, responding to the inquiry may divert the time and attention of our management from normal business operations. Regardless of the outcome of the inquiry, the publicity surrounding the inquiry and the potential risks associated with the inquiry could negatively impact the perception of our company by investors, customers, and others.

Never mind outside perception. The damage to Smith & Wesson internally could be enormous. Remember: culture eats strategy for lunch. If a corporate culture fails, its strategies are doomed. Hey, whatever happened to that nice little revolver company?

[rarestia]

That’s the exact pistol I use for carry on long days. I love it.

[Eric in the Ozarks]

There's nothing finer than S&W wheelguns from the ‘50s and ‘60s. Gimme a Kit gun any time.

[I cannot think of a name]

“2) S&W should do away with the ridiculous internal locks on their revolvers except for the less free states that require them such as California, Illinois and Massachusetts.”

I own nine S&W guns, none have this STUPID feature, and I'll never buy a gun from ANYBODY that has this stupid “feature”.

I always say I own “classic” S&Ws. Any as far as the comments about semi-autos, my 10mm (1065 I think is the number) has had several thousand rounds through it without a jam, and has been the last thing several dozen feral hogs ever heard in this life.

[IamConservative]

First, Smith & Wesson sells FAR too many products

Need to heed some of Chuck Noll's advice. When you find yourself struggling, do less, not more.

[OKSooner]

Bean-counters running the business? There's a solution to that. It's like a case of acne, it can be cleared up just by depriving the bean-counters of chocolate and french fries. With a little incentive they'll go count someone else's beans.

Hostile action from DOJ?

"Very bad news", and not really hard to figure out at all.

No further comment...

[Tijeras_Slim]

Been following Smith for quite some time. They always seem to have these ups and downs. Their bacon was saved in the late 1800’s by big orders from Russia. They did OK in the heyday of the revolver, the 20’s and 30’s, but were in bad shape following WWII despite producing a ton of Victory models. Carl Helstrom got them back into shape in the 50’s and 60’s, but things got sketchy once again (particularly in quality) during the Bangor Punta days. Then the fiasco with British ownership and the Clinton deal nearly killed them off.

A couple observations. They make too many products. I’ve never met anyone who can remember the number designations for all the 2nd and 3rd generation autos. Their record with long guns is abysmal, rifles from Howa, pump and auto shotguns, and their recently made Turkish double guns. Their A-15 line is good, but as with their 1911’s, they were jumping on a bandwagon that was already well down the road. Crowded fields, and they can’t compete in price with some makers, or quality with the Les Baers. So they’re stuck in the middle.

They always seem to be a bit late to the party, as with the polymer guns. The M&P is OK but the Sigma stunk on ice. The new bodyguards are “me too” with Keltec and Ruger for the small .380 and the plastic revolver.

Their limited run guns, especially from the Performance Shop are very good, but pricey. They are more “collectibles” than working guns. They seem to make a big splash with innovative items, such as the 329PD lightweight .44, the 500 and 460 Magnums, but these are not items that sell in quantity. Their J frames have sold well in the past year or two, but so has everything that goes bang. Even in a steel frame, these are not “fun guns”.

Smith needs to find itself, and not just try to reinvigorate a moribund and scattered business model by mergers and acquisitions. All that usually does is kill the entity being acquired.

[OKSooner]

Well, okay I do have further comment.

This is the first I'd heard of DOJ messing with Smith. This is the first I've heard of it. The agenda is no doubt to put Smith pretty much out of the business of making firearms just as Klinton "persuaded" Colt back in his time.

Time for *ahem* someone with some stroke to help Smith stand up to DOJ for at least two years until Holder is gone.

[sarge83]

S&W Model 642 for CCW and an old Model 19 Combat Magnum for things that go bump in the night.

[Chode]

and with the likes of their new .380 Bodyguard i can see why...

i went to my gunshop with the express intent of buying one until i picked it up.

the gun is everything i wanted EXCEPT... the LASER is a hard switch on the side of the frame that would NOT be easy to turn on in a high stress situation nor do i always want it on!!!

it should of been like the CRC site is, a momentary switch on the front strap is where it is natural and only on if you squeeze it

i tried multiple times to feel comfortable with it but to no avail, so i left without it and my .380 Ruger/CRC still in my pocket.

damn shame...

[Chode]

but i love my M-59 and my M-4516...

[wtc911]

Who could ask for more?

[mcshot]

I’m a fan of the “classic” revolvers mentioned and S&W third generation autos and the 10mm in particular. I dislike the revolver lock and have but one, a 500 that remains unfired although I have the ingredients for hundreds of rounds.

[SoConPubbie]

Agree! Springfield XD .40 Sub Compact is an awesome weapon!

It is a thing of beauty and my next hand-gun purchase!

[Roklok]

S&W makes good revolvers, but their autos are a POS.

[B4Ranch]

Someone needs to do to Smith and Wesson exactly what needs to be done to the Obama Administration, flush it.

[pabianice]

Guns last at least 100 years if cared for. There are just so many guns people can add to their stock. The danger is in the Libs outlawing ammunition.

[goat granny]

Smith and Wesson cozied up to Clinton during his adm...and a lot of people haven’t forgotten...They decided to go along with some dumb rule Clinton put out and I remember the posts that said at the time they would never buy a S & W again....they took a beating at sales for a couple of years...seems lots of people have forgotten that, but a lot of people still won’t touch their guns...

[I cannot think of a name]

“I’m a fan of the “classic” revolvers mentioned and S&W third generation autos and the 10mm in particular.”

My good old 629 was a favorite for many years. Unfortunately the 10 spoiled me when hunting hogs in really dense brush. Can't buy any proper loads for it anymore and I'm too lazy/busy to get into hand-loading.

[ctdonath2]

A down quarter is inevitable after the Obama driven buying bubble burst. People could only buy so many guns.

[blackie]

I've had a S&W CS9 for several years and it works fine: