Welcome back to another episode of Gun Industry Insider, where we bring you the latest developments shaping the firearms industry. I’m your host, Ray Toofan, and today is June 27, 2025. In this episode, we’ll dive into the financial struggles and restructuring efforts at Watchtower Firearms, and we’ll also break down Smith & Wesson’s latest financial results. These developments matter to you, offering critical insights into industry trends and opportunities. Let’s get into today’s episode.

First up, Watchtower Firearms, a Texas-based manufacturer, has been navigating rough waters recently. We spoke about the bankruptcy way back in our first episode and now we’ve got some updates. The company, established in 2022 by Jason Colosky, a former U.S. Marine and Raytheon executive, focuses on high-end firearms for civilian, military, and law enforcement markets. Their lineup includes the Apache double-stack 9mm pistol and the Bridger bolt-action rifle. In 2023, they acquired F-1 Firearms to expand their offerings, particularly in the modern sporting rifle category. However, financial strain led to a Chapter 11 bankruptcy filing on February 27, revealing $2.8 million in debt. This amount covers obligations to Alpha Foxtrot, another firearms manufacturer, and unpaid federal excise taxes.

On June 24, the United States Bankruptcy Court for the Northern District of Texas approved debtor-in-possession for Watchtower. This type of funding, known as DIP financing, allows companies in Chapter 11 to borrow money to sustain operations during restructuring. For Watchtower, it ensures the ability to purchase materials, maintain manufacturing, and continue sales and customer service. The approval marks a critical step toward stabilizing the company, with CEO Jason Colosky expressing confidence in its long-term viability, citing support from customers, vendors, and lenders.

The debt and bankruptcy filing stem from more than just market conditions. Watchtower has encountered operational difficulties, including a legal dispute with the former owner of their building, who also had connections to F-1 Firearms. Quality control has been another thorn in their side. The Apache pistol, for instance, has drawn criticism on social media and gun forums for issues like safety malfunctions—some users reported discharges despite the safety being engaged—and inconsistent finishes with visible manufacturing flaws. Triggers measuring heavier than advertised have also frustrated customers, leading to increased returns and repairs. These problems have damaged the company’s reputation in a market where reliability is paramount.

Marketing efforts have added to the challenges. Watchtower leaned heavily on social media influencers like Nick ‘Pew View’ Johnson and Matt Carriker of Demolition Ranch to promote their products. While this generated visibility, some in the gun community have questioned whether the approach overemphasized flash over substance. With price tags like $4,200 for the Apache pistol, comparisons to established brands such as Wilson Combat, Nighthawk, or Staccato often leave Watchtower wanting in perceived value, especially given the quality concerns.

The high-end firearms market itself is a finnicky arena. Long-standing manufacturers hold strong positions, offering proven performance that newer companies can struggle to match. Consumer preferences are evolving, with growing demand for customization and technological advancements, such as metallurgy improvements in higher end firearm design. The firearms released by Infinity and Cabot demonstrate these advancements. For a company like Watchtower, balancing innovation with consistent quality and financial health is essential, and their current situation illustrates the pitfalls of entering this space without deep reserves or flawless execution. Broader industry trends compound the pressure—nationwide gun sales have been estimated to decline from 21.8 million in 2020 to 15.3 million in 2024. Even in Texas, a key market, sales have softened, particularly when regulatory fears ease under Republican leadership.

For shop owners, the DIP financing means Watchtower products, like the Demolitia pistol or Raider Series rifles, should remain accessible. However, caution is warranted. Given the quality issues, stocking large inventories might be risky unless demand is clear. Focusing on better-received models or offering discounts could help move stock. Gunsmiths, meanwhile, may see an uptick in work repairing Watchtower firearms, although the firearms should be covered under warranty. Understanding common complaints—like trigger problems or safety malfunctions—could position a good gunsmith as a go-to for quick fixes, building customer loyalty.

Wholesaler reps should track Watchtower’s restructuring closely. A successful outcome could solidify the company’s place in the market, opening doors for partnerships. If the process stumbles, however, supply chains could face disruptions, impacting dealers reliant on their products. The lifetime guarantee on Watchtower firearms remains a selling point, but clarity on how bankruptcy affects warranty obligations is necessary to reassure retailers.

Watchtower’s experience reflects wider hurdles in the firearms industry, especially for newcomers aiming at the high-end segment. As preferences shift toward customization and advanced technology, delivering products that meet lofty expectations is critical for earning trust. The DIP financing offers Watchtower a chance to regroup, but addressing quality flaws and rebuilding confidence will be decisive in shaping their future.

Next up, Smith & Wesson’s financial results for the fourth quarter and full fiscal year 2025, released on June 18, paint a challenging picture for the company and signal broader pressures within the firearms industry. Net sales for the fourth quarter reached $140.8 million, reflecting an 11.6% decline from the same period in 2024. For the full year, sales totaled $474.7 million, down 11.4% from the prior year. Net income saw an even steeper fall, with the fourth quarter bringing in $8.6 million compared to $27.3 million in 2024’s fourth quarter. 

Over the full year, net income landed at $13.4 million, a significant decrease from $41.4 million the previous year. Gross margins also contracted, slipping to 28.8% for the quarter and 26.8% for the year, compared to 35.5% and 29.5% in fiscal 2024. These declines stem from a combination of reduced consumer demand, higher material costs—particularly for steel—and increased promotional efforts to move inventory.

The stock market responded immediately to these results. On June 18, Smith & Wesson’s stock price fell by approximately 12%, a reaction tied to the company missing analyst expectations. Analysts had forecasted earnings per share of $0.23 for the quarter, but the actual figure came in at $0.20. The absence of full-year guidance for fiscal 2026, alongside concerns about potential tariff-related cost increases, added to investor unease. By June 26, the stock had settled at $8.69, showing some stabilization but still reflecting the initial impact of the earnings release.

Behind these numbers lies a clear story of reduced consumer demand, a trend not unique to Smith & Wesson but evident across the firearms industry. U.S. gun sales, as mentioned previously, have been estimated to decline from 21.8 million in 2020 to 15.3 million in 2024, driven by inflation and easing regulatory fears that once fueled purchases. For Smith & Wesson, this meant leaning heavily on promotions, which cut into margins, while higher material costs and lower production volumes raised per-unit expenses. 

One positive note stands out: new products contributed 43.9% of fourth-quarter revenue, highlighting innovation as a key driver even in a tough market. Still, the company expects demand in fiscal 2026 to hold steady at 2025’s lower levels, with first-quarter 2026 sales projected to be 10% below the same period in 2025. Gross margins will likely remain squeezed by ongoing promotions and possible tariff hikes.

To adapt, Smith & Wesson plans to extend its summer shutdown by an extra week in the second quarter of 2026, aiming to align inventory with demand. The focus will also shift toward cost control and further investment in new product development, building on the success of lines like the updated M&P series. Financially, the company remains stable, ending the year with $25.2 million in cash and $92.3 million in available borrowings, alongside $33.5 million in free cash flow for the fourth quarter. This positions them to navigate the downturn, though the near-term outlook remains cautious.

For those in the industry, several details matter most. The persistent drop in demand is hitting sales and profitability hard, a reality retailers and manufacturers alike need to face. Shop owners should consider prioritizing high-margin items or the new products still drawing interest—those recent offerings from Smith & Wesson could help keep customers engaged. Gunsmiths might find more work servicing or upgrading existing firearms, as buyers hold off on new purchases. Wholesaler representatives can point to the company’s innovation and cash reserves to reassure partners of its resilience, even as margins face pressure.

Inventory management stands out as another critical factor. Smith & Wesson’s efforts to adjust stock levels suggest retailers should follow suit—overstocking risks tying up capital in a slow market. Potential tariff increases on raw materials could further complicate pricing, so staying lean and flexible will be essential. The broader industry context ties this all together: after a surge in sales during the pandemic and regulatory uncertainty, the market is normalizing, and companies like Smith & Wesson are feeling the adjustment. Their ability to maintain a dividend and generate cash flow offers some reassurance, but the path ahead requires careful navigation for everyone involved.

Wrapping up today’s episode, we dove into Watchtower Firearms’ recent debtor-in-possession financing and we also unpacked Smith & Wesson’s financial results. Got thoughts or topics you’d like us to look into? Email us at insider@gunindustryinsider.com or reach out on X at @GunInsider. Stay tuned for the next episode—we’ll bring you more updates that matter to your shop or next sales call. Thanks for listening. Until next time!