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Smith & Wesson Shares Plummet on Full-Year Outlook

Reuters
Tuesday, 30 Oct 2007 | 12:40 PM ET

Smith & Wesson Holdingforecast second-quarter results below Wall Street's view, hurt by lower demand for its hunting rifles and shotguns, and cut its fiscal 2008 outlook, sending shares plummeting.

The legendary gunmaker's shares on Tuesday dropped more than 36 percent in trading on the Nasdaq.

"The company is reaching a plateau in terms of sales growth," Amit Dayal, an analyst with Rodman & Renshaw, said by phone.

Smith and Wesson is now even more dependent on the consumer market than it was before, because of its entry in the rifle market.

Smith and Wesson shares have more than doubled in value since the start of the year, as strong growth in its core handguns segment as well as its newer long-guns business fueled stellar quarterly results.

The combination of a slowdown in the hunting season and consumers being unable to afford guns anymore and putting off purchases for the future is going to hurt the company's sales, Dayal added.

The company, which also cited growing inventories and unseasonably warm autumn weather, said it expects second-quarter earnings of 5 cents to 7 cents a share, on revenue of $69 million to $71 million.

The Springfield, Mass.-based company, known traditionally for its 155-year-old handgun business, entered the long-guns market with the acquisition of Thompson/Center late last year and the category provided more than 25 percent of its revenue for the first quarter.

"The sales have been on such an uptrend, they were bound to slow or have a hiccup at some point. This does not affect my long-term positive outlook for the company. I may use this weakness as a buying opportunity," Steven Schow, a shareholder of the company, said by e-mail.

Indeed, private-equity and investment firm Wedbush cut Smith & Wesson's price target to $22 from $26; however, it kept its "Strong Buy" rating for the weaponry firm.

For the quarter, analysts on average were expecting earnings of 12 cents a share, before items, on revenue of $82.4 million, according to Reuters Estimates.

For the fiscal year, it sees earnings of 53 cents per share on revenue of about $325 million. The company had earlier forecast earnings of 63 cents per share on revenue of $330 million.

For 2008, analysts were expecting earnings of 64 cents per share, on revenue of $334.9 million.

The company plans a series of promotions to counter the competitive environment, that would somewhat impact second-half gross margins, it said in a statement.

Due to the increased costs for the promotions, the company expects fiscal 2008 gross margins of 33.5 percent to 34.5 percent, lower than its earlier outlook of 35 percent to 36 percent.

CNBC.com contributed to this story.

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