Smith & Wesson Brands Inc (SWBI) 2021 Q4 法說會逐字稿

Good day, everyone. And welcome to Smith & Wesson Brands, Inc. Fourth Quarter and Full Fiscal 2021 Financial Results Conference Call.

This call is being recorded.

At this time, I would like to turn the call over to Rob Cicero, General Counsel, who will give us some information about today's call.

Thank you. And good afternoon.

Our comments today may contain predictions, estimates and other forward-looking statements. Our use of the words anticipate, project, estimate, expect, intend, believe; and other similar expressions are intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies, strategic evolution, market share and demand for our products as well as inventory conditions related to our products, growth opportunities and trends and conditions in our industry in general. Our forward-looking statements represent our current judgment about the future; and they are subject to various risks and uncertainties that could cause our actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by our statements today. These risks and uncertainties are described in detail in our securities filings, including our periodic reports on Forms 8-K, 10-K and 10-Q, which you can find on our website at smith-wesson.com, along with a replay of today's call. Our actual results, level of activity, performance and achievements could differ materially from those expressed or implied by our statements today. And we expressly disclaim any obligation to update any forward-looking statements.

I have a few important items to note about our comments on the call today. First, we reference certain non-GAAP financial results on this call. Our non-GAAP financial results exclude acquisition-related amortization, onetime transition costs, COVID-19 expenses and the tax effect related to each of these exclusions. Reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they are discussed on today's call, can be found in our securities filings and also in today's earnings press release. Our securities filings and today's earnings press release can be found on our website. Also, when we reference EPS, we are always referencing fully diluted EPS.

Finally, when we discuss NICS results, we are referring to adjusted NICS, a metric published by the National Shooting Sports Foundation based on the FBI NICS data. Adjusted NICS removes those background checks conducted for purposes other than the purchase of a firearm. Please remember that adjusted NICS background checks are generally considered to be the best available proxy for consumer firearm demand at the retail counter, but since we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers and not to end-consumers, NICS generally does not directly correlate to our shipments or market share in any given time period, we believe mostly due to inventory levels in the channel.

Before I hand the call over to our speakers today, I want to remind everyone that we completed the spin-off of our outdoor products and accessories business on August 24, 2020. As such, we are now reporting all historical financial information for that business as discontinued operations. Unless otherwise indicated, any reference to income statement items during this call refers to results from continuing operations.

Joining us on today's call are Mark Smith, President and Chief Executive Officer; and Deana McPherson, Chief Financial Officer.

With that, I will turn the call over to Mark.

Thank you, Rob. And thanks, everyone, for joining us.

As we bring our fiscal year to a close, first and foremost, I'd like to take a moment to reflect on the unbelievable accomplishments of the Smith & Wesson employees in these last 12 months. As with the rest of the nation, each and every member of our team has faced adversity in their personal and professional lives this year that we could not have ever imagined just 18 short months ago. And yet, as they have always done, the Smith & Wesson team rose to the challenge without hesitation, immediately jumping into action to redesign workstations, develop rigorous disinfectant programs, expand PPE requirements, secure cleaning and disinfecting supplies, repurpose manufacturing assets to make PPE for frontline workers in our communities, set up home offices, alter work procedures to minimize exposure risk, implement temperature scanners. And the list just goes on and on, but the most impressive and humbling thing to see was how our unbelievable family of employees came together to support each other throughout the most challenging times we've seen in our lifetime and made sure the company they love never missed a beat. Whether as our order entry team working tirelessly to manage the influx of new orders, our operations team ramping production by over 60% in a few short months, our AP and AR teams keeping up with the immense volume of transactions that came along with this, our human resources team thinking outside the box to recruit almost 300 new employees in the midst of a pandemic, our sales team continuing to safely visit customers and make sure that their needs were met, our customer service team handling heavy call volume to ensure our reputation for world-class service never faltered and every other employee and function in the organization, the impressive results that Smith & Wesson delivered this year and the long-term success of the business simply would not be possible without them.

Because of this firmly held belief, our company has maintained a long-standing profit-sharing program. And earlier today, we announced to our employees that, this year, we will be distributing over $14 million to eligible employees, which will be 15% of each employee's annual wages. In addition, the company achieved a very significant milestone in fiscal 2021, surpassing $1 billion in sales for the first time in our 169-year history. As I said, this would not have been possible without all of our employees, and so in recognition of this milestone, we will also be awarding every employee who is not eligible for our management bonus program a special bonus of $1,200 per full-time employee and $600 for temporary workers, prorated for the months of service during the fiscal year and to be paid next Thursday, June 24.

Congratulations to each of you. And thank you to our entire Smith & Wesson family.

Turning now to the business results. Our fourth quarter revenue of nearly $323 million was the highest quarter ever on record and marks the fourth consecutive record-breaking quarter for the company, capping off the year in which the company achieved just under $1.1 billion in revenue, as I mentioned this now, surpassing the $1 billion mark for the first time in our history. As far as profitability, our goal is always to keep costs low and leverage overhead during periods of heightened demand, and the team did an outstanding job this year. Even though we doubled our top line revenue year-on-year, they held fixed costs largely flat and therefore drove net income of over $89 million for the fourth quarter and nearly $244 million for the year, again both new high watermarks for the company.

All of this led to nearly $318 million in cash from operations for the year. And in keeping with our stated capital allocation strategies at the spin-off, we used this cash to completely pay off our $160 million debt, return over $8 million to shareholders through dividends and reduce our outstanding shares by over 14% just in the short 10 months since the spin-off. And demonstrating our continued commitment to returning value to shareholders, our Board this week approved a 60% increase in our fixed dividend and also authorized an additional $50 million share repurchase program.

Undoubtedly, our fourth quarter and the year have been remarkable, but the most exciting aspect has been how these achievements have positioned Smith & Wesson for long-term success. Our manufacturing and logistics teams produced and shipped nearly 2.5 million units last fiscal year, representing a 70% increase year-on-year, while during the same time frame, the U.S. firearms market as measured by NICS grew by 42%. So even though it was a record year of growth for the industry, we were still able to realize astounding market share gains. We did this by leveraging our flexible manufacturing model, which as we've discussed on previous calls enables us to react much more quickly to changes in market demand, ensuring that our product is more readily available at retail even during periods when the overall industry is capacity constrained.

Our sales and marketing team has also been hard at work, ensuring that the millions of new firearms owners who have entered the market over the past 15 months are welcomed and encouraging them to learn how to responsibly enjoy the shooting sports while also continuing to connect with the tens of millions of long-time loyal Smith & Wesson consumers who trust in our products every day. Just in the past year, we have conducted a thorough A&U study to understand the new firearm owner population and how we can best connect with them. We have recorded over 45 instructional videos for our GUNSMARTS program, along with our professional shooting team, on topics ranging from the basics of responsible firearm ownership, how to find a local firearm social community or increase your skills and become a proficient target shooter. And these videos have been viewed over 2 million times.

We have completely redesigned and relaunched our website to improve ease of use and brand messaging, which has been very well received by the 16 million people who have visited our site for the first time this year. We held the first-ever virtual show in the firearms industry, highlighting our brand; and launching our extremely popular new pistol, the Shield Plus, which has sold over 148,000 units just in the first 3 months since we launched it. We produced the first-ever brand anthem for the company, a powerful video highlighting the values and beliefs that Smith & Wesson shares with firearms owners across the nation.

We completed a full strategic product line review, priming the next generation of Smith & Wesson products, with 12 unique brand-new products scheduled for launch in this upcoming year. And next month, we will be debuting a state-of-the-art touchscreen interactive display at over 50 major retail locations around the country designed to highlight Smith & Wesson products, features, brand messaging; and connect with firearms consumers directly at the retail level as they make their purchase decisions.

As you can see, our renewed focus on being a pure-play firearms company has allowed us to move the needle very quickly across every function of the business in a very short amount of time, and we are just getting started. When we combine our results of the past year, the well-publicized influx of first-time firearms owners, our laser focus on driving market share growth within the firearms space, our iconic brand and our millions of loyal followers even before the pandemic, we are extremely well positioned to parlay the success of the past year into lasting long-term results.

With that, I'll turn the call over to Deana to cover financial results before we take questions.

Thanks, Mark.

As Mark noted, for the fourth consecutive quarter, we are reporting record revenues due to a combination of increases in capacity that were implemented in response to ongoing heightened demand; an increase in average selling prices due to the lack of promotions being offered, combined with a 3% price increase that was implemented in November; and an increase in operating days during the quarter.

Revenue for the quarter reached $322.9 million, a $129.9 million or 67.3% increase over the prior year comparable quarter. The fourth quarter is typically our strongest quarter of the year, with 65 operating days. Finally, the introduction of our very popular Shield Plus, which began shipping during the middle of the quarter, contributed to the strong fourth quarter performance.

Turning to a review of full year sales. As Mark noted, for the first time in company history, we achieved over $1 billion in sales, hitting $1,000,059,000, actually doubling our fiscal 2020 sales of $529 million. As Mark also noted, this achievement is the result of the hard work and dedication of all of the Smith & Wesson employees, who worked throughout the pandemic, increasing volume by over 60% in the middle of the year and navigating numerous challenges in the supply chain due to the pandemic, weather and other issues.

Gross margin in the fourth quarter of 45.1% was nearly 1,300 basis points above the 32.2% realized in the prior year comparable quarter. This increase in margin was due to increased unit shipments, combined with the elimination of substantially all promotional activity; and 3% price increase; and a mix shift toward higher-margin products. Margins were slightly negatively impacted by increased volume-related spending, some inflation impacts, increased depreciation on machinery purchases and compensation-related costs associated with increased head count and profitability. We have fully accrued for the special bonus that we are paying to our team members, most of which work in operations.

For the full year, gross margin of 42.4% was over 1,100 basis points higher than the 31.3% recognized in fiscal 2020. A full year of record production levels led to very favorable absorption, which when combined with increased average selling prices and strong cost control, drove margins to a record high.

Operating expenses of $29.7 million for our fourth quarter were $1.5 million lower than the prior year comparable quarter in spite of the increased shipping costs and customer allowances associated with increased volume; $2.9 million of increased profit-sharing expense; increased legal fees; and an increase in costs associated with market research, new product launches and the launch of a new marketing initiative. The net decrease in operating expenses was driven by reduced salaries, $4.3 million in reduced spin-related costs, lower stock compensation, lower trade shows and travel costs due to the pandemic and lower consulting.

For the full year, operating expenses of $129.4 million were approximately $14 million higher than fiscal 2020, driven primarily by a $12.6 million increase in profit sharing that will be distributed to our hard-working Smith & Wesson employees later this year. In addition, increased volume-related costs, combined with $3.2 million of spin-related costs, more than offset cost savings initiatives, lower pandemic-related costs and lower free goods and samples that are generally used as needed to spur sales. We are thrilled that our team demonstrated the ability to leverage operating costs while doubling revenue, resulting in operating expenses being 12.2% of revenue for the full year, as compared to 21.8% for the prior year.

The increase in revenue and gross margin, combined with strong expense containment, led to record quarterly profitability, including net income of $89.2 million, GAAP earnings per share of $1.70, non-GAAP earnings per share of $1.71 and adjusted EBITDAS of $125.6 million or almost 39% of revenue.

For the full year, our profitability exceeded expectations, including net income of $243.6 million, GAAP earnings per share of $4.40, non-GAAP earnings per share of $4.54 and adjusted EBITDAS of $366.6 million or 34.6% of revenue.

During the fourth quarter, we generated $118.8 million in cash from operations and spent $3.7 million on capital equipment, resulting in $115.1 million in free cash. We also spent $60 million to repurchase approximately 3.4 million shares of our common stock and paid $2.6 million in dividends, resulting in the company ending the quarter with $113 million of cash and no bank debt.

Looking at our full year. We generated $317.3 million in cash from operations and spent $22.3 million on capital equipment, which resulted in a record $295 million in free cash. Executing the capital allocation priorities that we have described over the past year, we used this free cash to entirely pay off our $160 million revolving line of credit, repurchase 6.1 million shares of our common stock for $110 million and paid $8.2 million in dividends to our shareholders. In addition, after the close of the year, we repurchased the remaining $40 million authorized on our share repurchase program, buying back another nearly 2 million shares, bringing the total outstanding share count down by over 14% in just the 10 months since we became a pure-play firearm company.

Consistent with our capital allocation strategy, I am pleased to announce that our Board has authorized a 60% increase in our quarterly dividend to $0.08 per share. This quarter's dividend will be paid to shareholders of record on July 1, with payment to be made on July 6. The Board has also authorized a new share repurchase program for up to $50 million of the company's common stock.

Looking forward into our first quarter fiscal 2022, I'd like to remind you that in periods of high demand our ability to recognize revenue is primarily a function of our production capacity. That production capacity is somewhat governed by the number of days we have available due to weekends, holidays and other nonoperating days such as shutdowns. Our fourth quarter had 65 operating days, whereas our first quarter 2022 will have only 58 operating days due to the first week of our 2-week shutdown occurring in July. Our distributor inventory as of today still remains very low at 1 week of supply.

On June 14, we implemented a 3% price increase on our products. In addition, as we always do, we monitor our supply chain for indications of stress related to a significant increase in demand or issues related to the pandemic. During the start of our first quarter, we did have one of our key suppliers shut down for over a week due to COVID issues. We believe we have recovered from the situation, but it did impact our capacity for about a week. As always, supply chain risks are subject to change, and our team continues to develop contingencies to offset and avoid any additional interruptions. We are not currently planning to add any capacity that will have an impact on our first quarter results.

And finally, our effective tax rate is approximately 24%.

With that, operator, can we please open the call to questions from our analysts?

(Operator Instructions) Our first question comes from Mark Smith with Lake Street Capital.

[Good quarter]. Just wanted to hit a little bit if you can give us any additional detail on new products, specifically Shield Plus, and you gave some great detail there, but kind of if new products are skewing heavier in your sales mix now than maybe they historically have. And then any insight into kind of your outlook on new products and how that can help going forward?

Sure, yes. So I think we -- as we talked about maybe on the last call, our approach to new products right now in this environment where capacity constrained is to be a little bit more strategic or judicious, if you will, on launching them into the market just given the fact that we're capacity constrained. So we really want to make sure that the products that we're launching are -- the goal right now is to obviously just keep our loyal consumers excited about our brand, keep us fresh, et cetera, make sure that we're closing any of those big white spaces that we see out there. And the Shield Plus is a great example of that and obviously been very, very successful and very well received by the market. As we go forward into the next fiscal year, we're going to continue that approach, but I will say that new product pipeline is extremely healthy. The NPD team and -- has done a tremendous job. We've got a lot of new products teed up and kind of waiting in the wings. And we've got plans, as I mentioned on the prepared remarks, for 12 of those to be launched into the marketplace over the next year. So it will be a bit of a heavier year this year than it was last.

Okay, great. And then as we look at average selling price: It moved higher. It's continued to move a little higher. You took the 3%. It looks like, especially in long guns -- I mean you've maybe had more success in price increases in long guns rather than handguns. Or anything you can talk about on the ASP, as far as any pushback that you're getting or just [the ease to take pricing]?

Sure. And first of all, on pushback, no pushback whatsoever around pricing. I think our customers understand that, a, we're capacity constrained. And b, there has been some inflation impacts that I think are very well publicized out there and just in general. So no pushback on price increases. And far -- as far as the ASP, though, and the increase in there, I think the majority of the driver there, Mark, is going to be promotional, is lack of promotional activity overall is that we just don't need to participate. And we see that going forward here. We don't foresee any need in the near future to be participating in promotional activity. On the long gun side, what you're seeing there is a little bit that the -- as we announced at the beginning of May, we deemphasized the T/C brand, as we're coming back into hunting under the Smith & Wesson brand. And you'll see that coming up here in the next -- or beginning into that in the next few months, but a lot of that ASP on the long gun side is going to be that.

Okay, great. And the last one for me is really just looking at the cost side. Deana talked a little bit about some inflation. Where are you seeing that? Where are you seeing any pressure on the cost side?

Yes. I mean we've managed to hold off a lot on the cost increase, but we are seeing some. Obviously that's just across the entire manufacturing supply chain just in the U.S. in general, not just in firearms. I think it's pretty well publicized we're seeing inflation. We've passed-on a lot of that. That was, I mean, you saw the price increase that we just went into effect earlier this week. So we've been able to pass-on, so far. We've either been able to mitigate it or pass it through, so...

Our next question comes from Cai von Rumohr with Cowen and Company.

Yes. And a pretty extraordinary quarter.

Thanks, Cai.

Could you comment, Mark, a little bit on availability of labor? I think at one point you mentioned that -- kind of with the payouts from the government, that basically it was tough to get workers. How is your ability to get workers?

It's still a challenge. What I will say -- and I'll give kudos to our HR team. They've been able to kind of think outside the box and do some creative -- and come up with some creative ideas to get some labor in, so it hasn't impacted our ability, obviously as you can see from the results, materially to ramp production, but we're having to work twice, 3x as hard to get those -- to get the labor in. So it's just it's definitely still continuing to have an impact on labor availability. However, due to the hard work of the team, we've been able to kind of stave it off.

Got it. And so I think everybody recognizes you're in a cyclical industry, but not many companies I follow have net cash positions. As you look forward from what you see, assuming we're going to see some deceleration, I mean, how do you think about what kind of balance sheet -- are you going to be net -- you want to stay net cash positive. Or would you take on debt because interest rates are so low? And give us some color how you think about all of that, if you could.

Yes. It's a great question. And we will talk in much more detail tomorrow, on the Analyst Day presentation, about this, Cai, but the short answer to your question is we do intend to remain zero debt, net cash positive. And we will talk some more tomorrow on this as well, but we -- I think you can expect that, as you mentioned, we're in a cyclical industry. And you saw over $300 million in cash generated from operations this year. That -- we don't expect that will ever drop below a $75 million range, so -- and we intend to always remain net cash positive.

Yes. It's our stated strategy, Cai, to keep the zero debt; and use cash to reinvest in the business, to pay the dividend, to buy back stock as we can. As you know, and you'll probably remember, we're limited on how much stock we can buy back for the rest of the year until we get to the anniversary, the second anniversary, of the spin, but our intention is to build a little bit of a war chest, be prepared for the next time we can do stock buybacks and return cash back to our investors.

Refresh my memory. What is the limit? You just passed a new authorization of $50 million, so how much of that can you buy?

[Yes]. So we think, based on the stock price that we can do, we could do the rest of that through August of next year but probably not a lot more than that. There's a safe harbor limit when you do a spin, but generally speaking, you don't want to purchase more than 20% of your outstanding shares. And so we're at 14% in the first 10 months. So that's just behind the 50, which is okay because, where we are on cash and our ability to keep generating, we raised the dividend and we have lots of ideas. We're reinvesting in marketing and doing some other things there. So we're pretty comfortable with where we are.

Excellent. And then you mentioned the days, 65 in the fourth, 58 in the first. Just so we can kind of -- for modeling purposes, can you walk us through how many days you had in the first -- each of the first 3 quarters and kind of how those days look like this year?

Yes, I sure can. I have that right here. So say -- so last year, fiscal '20, was 59, 59, 56, 65. Fiscal '22 will be 58, 59, 56, 65, so pretty close.

Okay. Was fiscal '20 -- was that fiscal '20 that was 65? I thought you were -- you said 68 in the fourth quarter of '21.

No, 65. So 59, 59, 56, 65...

Got it, got it, okay. So it's essentially relatively...

Yes, it's very close. There's 1 less operating day in '22 than there was in '21 just based on the way that weekends and holidays fall.

Got it. And so I don't know if you can give us -- obviously you have not been giving guidance, but can you give us any color about how you think about the opportunities for the year in terms of results, qualitatively even?

Yes. Obviously we can't give any quantitative notes or color, as you know that we're not giving guidance, but I think what we can tell you is that the firearms market still continues to be very active. I think it's widely known the ammunition shortages continue. There is still a lot of interest in firearms. May was the second highest NICS checks -- adjusted NICS checks ever on record. So while it was a deceleration versus -- last year was a pretty tough comp and still remains, if you look at kind of the stack chart. It's just in a different stratosphere from where it was in 2019. So we expect that the market will continue to remain elevated. Obviously we're going to be comping to a pretty tough year, though, as we go forward. So we're pretty optimistic. I think we've done a great job of taking market share and not just sitting back on our laurels and enjoying the fact that the operations team is cranking out product. We've also done a whole lot of work on the marketing side to be ready for any eventuality in terms of that, so we're pretty -- as I mentioned in my prepared comments, we're pretty excited about the long term.

Our next question comes from Scott Stember with CL King.

Congrats on the very strong results.

Yes, thanks, Scott.

You were just talking about the market. And obviously May, despite the fact that it decelerated, was still one of the best months on record, but in general what are you hearing from your guys about the attitudes with regards to usage, right? Do you have any additional stats beyond what you gave last quarter about people hitting the ranges and just out there and actually using their guns versus prior surges where it was more stockpiling?

Yes. I think with the -- as we've talked about, and I think it's been very well publicized, the influx of new firearms owners over the last year, 8 million in 2020 and probably another 2 million or 3 million on top of that since the end of 2020, so you're probably talking north of 10 million new firearms owners coming into the marketplace. A lot of those are new entrants into the market, excited about it, excited about using their product, learning -- becoming proficient. And as you know and we talked about quite a few times, we're doing a lot on that to try and reach out to those folks. How do we talk to them? Where do they -- which -- what are the best channels? What messaging should we be sending? The GUNSMARTS videos, but beyond that, social media, et cetera; reaching out on nonendemic advertising. And how do we engage with those new consumers? I think a lot of those new consumers are going to -- and again as we've talked about, expanding the demographics of the traditional firearms owner and making it less of a partisan, if you will, gun ownership less of a partisan issue and more of just sort of an American issue or American right and passion. So I think that's good for us for -- as Smith & Wesson and good for us as an industry.

In terms of the here and now right now, I think we're seeing a little bit of a summer seasonality like we'd normally always do this time of year, but the anecdotal feedback we're getting from our retailers is it's summer seasonality but it's not back to 2019 by any way, shape or form. So it's maybe down off of November, December, where we usually have our peaks, but it's at a different level than it was 2 years ago.

Got it. And much has been made with a lot of people, the -- with the economy opening back up and people going back to some of their previous outdoor or just activities in general. You're not hearing anything to suggest that some of these newer owners that have guns are just walking away. Well, I'm just trying to get a sense what you're hearing there.

No, we're not hearing anything to that effect.

All right. And then lastly, just following up on the last question before that. You talked about ammunition shortages and the impact that's having on new gun sales. Can you just maybe expand upon that? Is that getting any worse, any better? Or is it just going to probably be the same headwind for this year coming up?

We are hearing a little bit of pockets of folks being able to get a little bit of ammunition on the shelf, but I will say the general answer is no. It's not getting any better. It's not getting any worse either. I think that's just kind of remains to be an issue. And I mean I think the yin and the yang of that for us, frankly, is that, yes, it can have a dampening effect on the firearm sales, but it also shows a pretty strong, continued interest in shooting sports in general. So I think that's a bit of a headwind for us in the firearm sales, but it's also a bellwether for the industry in general.

(Operator Instructions) Our next question comes from James Hardiman with Wedbush Securities.

Wanted to circle back, Deana, to this manufacturing capacity. We talk about the difference in operating days 4Q versus 3Q. By my math, I guess about a 6% sequential benefit, if you want to call it that, 4Q versus 3Q, but you actually grew shipments more like 24%. And handgun shipments were up 30%. So obviously I understand that production capacity and shipments aren't quite the same thing, but maybe fill us in on how you're able to accomplish that, especially given, I think what you noted was, a key supplier shutting down, which -- where you lost a little bit of time.

Yes. So we lost a little time. That lost little time is for Q1 and that did not impact Q4, so -- okay? So that comment referenced kind of the first quarter look forward, but there's a definite mix issue or positive benefit of mix, what it takes to make certain products versus other products. You can make certain products faster. The other thing is that you might notice a little bit of inventory change. We were gearing up for a Shield Plus launch at the end of January. We had already made the product in January and had put it into inventory so that we could stock our distributors and dealers ahead of time. So you will see more sales in the beginning part of March. Mark noted that we sold an awful lot of those Shield Pluses during the quarter. And so those would -- we would have been starting to stock those up in Q1, so -- sorry, in Q3. So Q4 ended up taking advantage of that.

That is really helpful. And so as I think about modeling this going forward, should I not then think about sort of the fourth quarter shipment numbers as the sort of max -- it seems like what you're saying is that's maybe more than what your actual production capacity [use]. Assuming that you're going to be making as much as you can, at least for the next couple of quarters, which is what it sounds like you're saying, should we assume that there has been -- that it's maybe closer to the third quarter level, obviously adjusted for the difference in production days?

Right, yes. I think that's a great way to look at it. And then sort of layer in the fact that Q3 had a lot more holidays. It was a little bit lighter, I think, with 56 days. And then consider that we did have a bit of a supply chain disruption in May that we've recovered from but that you're not operating on 100% as you might always do. So I think about, looking at Q3, we didn't add capacity. In Q4, we just were able to change around some mix and then take advantage of the Shield Plus launch.

Got it. That is extremely helpful. And then just lastly, the most difficult one to actually know, but how long do you think it takes before you're able to get back to -- obviously you have to make some assumption about retail here, but given where inventories are, how long do you think it takes to replenish end market inventories from here?

Yes. Obviously there's a lot of factors that go into that, James, but the -- obviously the biggest one being the demand levels, right? So where do they go from here? And do they stay elevated? And which we believe they will versus 2019, but what will the seasonality look like, et cetera? But I think the one thing on inventories to just note is that, while we are hearing some anecdotal feedback from some of the retailers that they're definitely able to get some pockets of inventory back on the shelf again in certain categories, there are other categories that remain sold out. For example, for us, revolvers is in pretty short supply out there and just in general. And our distributor inventories remain at 1 week. And that's the number that Deana gave there is actually as of today, not as of the end of the quarter. So there's still a significant restocking that's going to have to take place. When that happens, I guess, is going to be a factor of the demand.

Our next question comes from Rommel Dionisio with Aegis Capital.

First question, on the professional channel units shipped, obviously a smaller portion of your business than sporting goods, but there was a jump on the handgun side and I wonder if we can just talk about that a little bit. It just doesn't seem -- I mean it was a great -- it's 52% increase year-over-year, and that doesn't seem to be a sector of the industry that is all that cyclical. I'm wondering. Was that a big contract or new products? Or what really kind of drove that handgun increase?

So I'll have to drive you back, Rommel, to -- it's a great question. And because it is a smaller part of our business, we didn't actually focus on it in our prepared remarks, but last year, in the fourth quarter, we were moving from state to commerce. So a lot of the ability to ship internationally we were really held up by the government. And the other thing is that the European governments were hit really hard earlier than United States with COVID-19, and they actually shut down a lot of the shipments in and out. Freight carriers couldn't get product in and out. So this -- that was more of the state-to-commerce stuff between January and February; and then in March and April, the impact of COVID on all of the European and other countries that would normally receive shipments for the professional sales.

Okay, but Deana, wouldn't that have impacted the fiscal '21 as well? Or was that pretty much wrapped up by, what, April of a year ago?

Yes, it's been wrapped up. Europe has been accepting shipments, and commerce has been running for over a year now. So if you looked at February, March, April of this year compared to February, March, April of fiscal '20, it's sort of night and day as to the way that Europe has been receiving product and the way that commerce has been running. There is not any holdups in licensing when you want to ship international anymore.

(Operator Instructions) I'm showing no further questions in queue at this time. I'd like to turn the call back to Mark Smith for closing remarks.

Thanks, operator. And I just want to say thanks, everybody, for joining us today. Once again, congratulations to my fellow Smith & Wesson team members for a record-breaking year.

And just as a reminder: Please note that, as we mentioned earlier, we will be conducting an Analyst Day presentation tomorrow at 9:00 a.m. Eastern Standard time. Deana and I will be presenting our long-term strategy for Smith & Wesson. We're taking a few calls from our -- or questions from our analysts. Presentation will be open to the public and available to call in using the information provided in our press release. And we will share the presentation materials on the investor relations page of our website.

With that, please stay safe. And we look forward to speaking with you all next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.