[Management View]
Smith & Wesson reported net sales of $85.1 million for fiscal Q1 2026, a 3.7% decrease YoY. Adjusted EBITDA was $8 million, and the net loss was $3.4 million. Handgun shipments increased by over 35% YoY, while long gun shipments decreased by 28.1%. New products accounted for 37.3% of sales, highlighting the company's innovation strategy.

[Outlook]
Management projects fiscal Q2 2026 sales to grow significantly over fiscal Q1 2026, landing roughly 3% to 5% below fiscal Q2 2025. Operating expenses are expected to rise by 20% due to profit sharing and the opening of the Smith & Wesson Academy. The effective tax rate is estimated at approximately 33%.

[Financial Performance]
Net sales decreased by 3.7% YoY to $85.1 million. Handgun shipments increased by over 35% YoY, while long gun shipments decreased by 28.1%. Average selling prices declined 6.1% sequentially. Gross margin was negatively impacted by 120 basis points due to steel tariffs. Operating expenses were $680,000 lower than the prior-year comparable quarter.

[Q&A Highlights]
Question 1: Hi, guys. I wanted to ask first about ASPs, kind of both in handgun and long gun. Just given kind of the competitive dynamics, but more so kind of where the consumer is. You know, how do you feel about your pricing today on products? And do you feel there's any shifting that potentially could happen as we look through the rest of the year?

Answer: Hey, Mark. Yeah. We are pretty pleased with the ASPs. Throughout the summer, as you know, that's our typically slow season in firearms. We were able to maintain that. The promotional environment remains fairly robust, but with innovation making up a significant portion of our pipeline and the strength of our core portfolio, we were able to be selective. We did participate in promotions but maintained ASPs. As we enter the busy season, we expect to hold those up throughout the rest of the year.

Question 2: And then I wanted to ask about the long-term business. You talked about some markets where you don't really participate or have products. What opportunities do you have in expanding your product offerings to hit some of these segments?

Answer: We've been very successful with the 1854, entering into the lever action market. This paves the way for us to continue expanding into more white space in the industry. We're still expanding the lever action platform with two more calibers coming shortly. After that, it's on to the next thing.

Question 3: Perfect. And the last one for me is just as we look out to changes in regulations with the recent tax law, is there an opportunity for some NFA items like suppressors and SBRs to offer higher demand as we move into January?

Answer: Good question. There's a lot of pent-up demand in the suppressor market, with folks waiting for the law to go into effect in January. From a long-term perspective, it bodes well for us with the Gemtek brand. We're already seeing some movement with early discounts and tax stamp promos, indicating a healthy market come January.

Question 4: Hey. Thanks. This is Matthew Raab on for Steve. Just want to hone in on the legacy products. On my math, legacy products were actually up very slightly year over year in the quarter. What do you credit the better performance to in the quarter? And how do you feel about getting through the rest of that inventory as we look towards the back half of the year?

Answer: The legacy products did very well for us. We continue to gain share in that category, excluding new products. We have more runway to go through the rest of the year. From an inventory perspective, we're focused on bringing internal inventories down. We ended last year with more than we wanted, but with a strong balance sheet, we can navigate the ups and downs. We'll make adjustments to the production run rate and bring it down throughout the year.

Question 5: Sure. That's great. And then just on promos, really thinking about the back half of the year, do we expect promo activity to accelerate to aid inventory reductions, or should we expect promos to remain rational? Comparing that cadence to last year would be helpful.

Answer: On the promotional side, I don't foresee any need to lean in more than we already have throughout the summer. We are participating thoughtfully. We expect ASPs to hold up throughout the rest of the year. We'll participate, but you shouldn't expect a significant increase in promotions as we go through the back half.

[Sentiment Analysis]
The tone of the management was cautiously optimistic, emphasizing strong performance in handguns and innovation. Analysts' questions focused on pricing, market expansion, and inventory management, reflecting a balanced interest in both current performance and future opportunities.

[Quarterly Comparison]
| Metric | Q1 2026 | Q1 2025 | YoY Change |
|-------------------------|---------------|---------------|------------|
| Net Sales | $85.1 million | $88.4 million | -3.7% |
| Adjusted EBITDA | $8 million | N/A | N/A |
| Net Loss | $3.4 million | N/A | N/A |
| Handgun Shipments | +35% | N/A | N/A |
| Long Gun Shipments | -28.1% | N/A | N/A |
| Average Selling Prices | -6.1% | N/A | N/A |
| Gross Margin | 25.9% | N/A | N/A |
| Operating Expenses | $25 million | $25.68 million| -2.6% |

[Risks and Concerns]
- Market cyclicality and seasonality affecting demand.
- Impact of steel tariffs on gross margin.
- Higher interest expenses due to increased borrowings.
- Potential regulatory changes affecting NFA items.

[Final Takeaway]
Smith & Wesson's Q1 2026 performance was marked by a significant increase in handgun shipments and a strong contribution from new products, despite a YoY decline in net sales. The company remains focused on innovation and market expansion, with a cautious outlook for the rest of the fiscal year. Management's strategic investments, including the opening of the Smith & Wesson Academy, are expected to support future growth and customer engagement. Investors should monitor the impact of market conditions, regulatory changes, and promotional activities on the company's performance in the coming quarters.