Guns blazing: Polished image boosts 'new' Smith & Wesson

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Guns blazing: Polished image boosts 'new' Smith & WessonEileen Brill Wagner Less than a year after Saf-T-Hammer acquired firearms giant Smith & Wesson, the Scottsdale-based company is locked and loaded for its shot at big-time growth. When Saf-T-Hammer purchased the company in May 2001 from the British conglomerate Tomkins PLC for $15 million, it was beset by slumping sales, a negative image with dealers and consumers, and a regulatory environment pushing for major safety constraints. Life is different in a post-9-11 world with President George Bush staring down the barrel at the scourge of terrorism. On Feb. 14 the shareholders of 4-year-old Saf-T-Hammer voted to change the company to Smith & Wesson Holding Corp., capitalizing on the venerable 150-year-old name. It was a name the powerful gun lobby had perceived as tarnished by the company's willingness to capitulate to anti-gun sentiment in the face of a slew of lawsuits. But recently, its president, Bob Scott, was named a nominee for the National Shooting Sports Foundation "Man of the Year" award; Scott also received a standing ovation at the annual meeting of the National Rifle Association for bringing the company back to American soil. Sign up to receive free daily business updates by email every weekday afternoon. Use Search Watch to watch for related topics, companies. Receive free Industry News via email. Choose from 46 different industries. From a financial standpoint, the company, which relied on the save of an 11th-hour investor to put together the initial $5 million down payment, is estimating a profit of $2.6 million for the third-quarter ended Jan. 31, following a $97,000 loss in its second quarter. John Kelly, vice president of finance, said the company is "in final negotiations" with two banks to secure the additional $10 million of the purchase price due in May, noting, "We expect to have the deal completed well before the fiscal year ends in April." And equity research firm ManageSource has rated Smith & Wesson's stock a "strong buy," citing its financial turnaround and "unique opportunities for licensing and co-branding." It is a move which could impact shareholders and employees who sign on to the company's new stock option and employee stock purchase plans approved several weeks ago. Chairman and CEO Mitchell Saltz attributes the company's turnaround to both internal measures and external factors. "Once we took over, we had to right-size the company," he said, referring to the cutting of 43 administrative positions. "There was a decrease in sales and they had never made the proper adjustments." According to Saltz, shoring up operations was made easier by the fact that Saf-T-Hammer's Scott had been the No. 2 man at Smith & Wesson for 10 years and knew the people and the company's landscape, seriously contracting the learning curve. He is based at the 660,000-square-foot facility in Springfield, Mass., where the bulk of the company's 700 employees work. The company is in ongoing discussions about moving to Arizona, which Saltz said, "makes a lot of sense from a labor-cost standpoint." He said, however, that some of the people have worked in the plant for generations, and it might be difficult to replicate their level of expertise. No moves will take place for the next "one to two fiscal years for sure," he said. The company also has benefited from the addition of several key distributors, said Saltz. Looking ahead, he is hoping to boost revenue by expanding the product line to other law enforcement security products, as well as pursuing licensing and acquisition opportunities. The Sept. 11 terrorist attack did create a surge in sales for October, but that was not what has sustained them, Saltz said. "Unfortunately, all the weaponry business did go up," he said. "For people who were on the fence, thinking about taking security measures, it reminded them and gave them a little push." But a bigger boon to business has been a decision by the Department of Housing and Urban Development to back off from an agreement inked by the Clinton administration in March 2000 that required Smith & Wesson to increase gun-safety efforts. The deal was made in exchange for cooperation in dealing with pending lawsuits filed by cities and counties against gun makers such as Smith & Wesson related to gun violence. Smith & Wesson was to provide locking devices and to develop child-proof guns, as well as to more closely monitor dealers that sold its products. "From a dealer standpoint, a lot of people were angry and dropped the line," said Scott Hanson, general manager of the Arizona Sportsman stores, which has seven locations. "From a customer standpoint, it was vicious for a while. But that has changed, and they've taken a different attitude with the new company; they are back to the principle that no one can restrict what we do." To even the casual observer, there has been a turning of the tide in terms of Americans' relationship to both guns and safety. "It seems that the gun industry has had considerable success in the past year, and a number of lawsuits have been dismissed," said Dan Larson, a partner with Phoenix law firm Gammage & Burnham PLC, which is involved with Smith & Wesson's securities and transactional work. Larson, who was part of the team that helped put together the original deal for Saf-T-Hammer last May, agreed there have been many positive changes for the company in the past year. "It's nice to see a client set about to do something and be part of helping them to achieve success," he said. http://www.bizjournals.com/phoenix/stories/2002/03/04/story1.html