Smith & Wesson Brands, Inc. (SWBI) Q4 2021 Earnings Call Transcript

Smith & Wesson Brands, Inc. (SWBI 1.82%)
Q4 2021 Earnings Call
Jun 17, 2021, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

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.

Rob Cicero -- General Counsel

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 referenced certain non-GAAP financial results on this call. Our non-GAAP financial results exclude acquisition-related amortization, one-time 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 spinoff 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.

Mark Smith -- President and Chief Executive Officer

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, repurposed 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 for a full-time employee and $600 for temporary workers, prorated for the month 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 a year in which the company achieved just under $1.1 billion in revenue as I mentioned just 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 spinoff, we used this cash to completely pay off our $160 million debt, return over $8 million to shareholders through dividends, and reduced our outstanding shares by over 14% just in the short 10 months since the spinoff.

In 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 logistics teams produced and shipped nearly 2.5 million units last fiscal year, representing a 70% increase year on year, while during the same timeframe, 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 in 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 ANU 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 firearms 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 three 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, touch-screen, 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 the financial results before we take questions.

Deana McPherson -- Chief Financial Officer

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 $1,000,000,059, actually doubling our fiscal 2020 sales of $529 million. As Mark also noted, this achievement is a 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. The 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 headcount 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 record highs. 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 are approximately $14 million higher than fiscal 2020, driven primarily by a $12.6 million increase in profit sharing that will be distributed to our hardworking 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 EBITDA 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 EBITDA 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, repurchased 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 under the 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 non-operating 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 two-week shutdown occurring in July. Our distributor inventory as of today still remains very low at one 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 our 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?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Mark Smith with Lake Street Capital.

Mark Smith -- President and Chief Executive Officer

Hi, guys.

Hi, Mark.

Great quarter. Just want to hit a little bit, if you could give us any additional detail on new products, you know, specifically Shield Plus and you gave us 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. Yeah. So, I think we've -- as we talked about maybe on the last call, you know, our approach to new products right now in this environment where we're 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 product that we're launching are, you know, the goal right now is to obviously just keep our loyal consumers excited about our brand, keep us fresh, etc.

You know, make sure that, you know, we're closing any of those big white spaces that we see out there. And the Shield Plus was 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 that new product pipeline is extremely healthy. You know, that 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 in 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.

OK. Great. And then as we look at average selling price, it moved higher, you know, it's continued to move a little higher if you took the 3%. You know, it looks like, especially in long guns, if you maybe had more success in price increases in long guns rather than handguns or anything you talked about on ASP as far as any pushback that you're getting or just that you used to tick pricing.

Sure. First of all, on pushback, no pushback whatsoever on pricing. I think, you know, our customers understand, you know, that A, we're capacity-constrained; and B, there's been some inflation impacts that I think are very well-publicized out there and just in general. So, you know, no pushback on price increases.

As far as the ASP though and the increase scenario, I think the majority of the driver there, Mark, are going to be promotional -- is lack of promotional activity overall. It's that we just don't need to participate and, you know, when we see that going forward here, we know 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, you know, we deemphasized the TC brand as, you know, we're coming back into hunting under the Smith & Wesson brand. And you'll see that coming up here in the next, you know, or beginning into that -- in the next few months.

But a lot of that ASP on that -- on long gun side is going to be that.

OK. All right. And the last one for me is really just looking at the cost side. Deana talked a little bit about, you know, some inflation, you know, where are you seeing that, where are you seeing any pressure on the cost side?

Yeah. I mean, we've managed to hold off a lot of the cost increase, but we are seeing some, you know, obviously, that's just across the entire, you know, 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 -- or pass it through.

So --

OK. Excellent. This is helpful. Thank you, guys.

Thanks, Mark.

Deana McPherson -- Chief Financial Officer

Thanks, Mark.

Operator

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

Cai von Rumohr -- Cowen and Company -- Analyst

Yes. Thanks so much and a pretty extraordinary quarter.

Mark Smith -- President and Chief Executive Officer

Thanks, Cai.

Deana McPherson -- Chief Financial Officer

Thanks.

Cai von Rumohr -- Cowen and Company -- Analyst

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

Mark Smith -- President and Chief Executive Officer

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 that -- it hasn't impacted our ability, obviously, as you can see from the results, you know, materially to think -- to ramp production, but we're having to work twice, three times as hard to get those -- to get the labor in. So, it's just, you know, it's definitely still continuing to have an impact on labor availability.

However, due to the hard work of the team, you know, we've been able to kind of stave it off.

Cai von Rumohr -- Cowen and Company -- Analyst

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

Mark Smith -- President and Chief Executive Officer

Yeah. It's a great question. And we'll 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.

You know, and we'll talk some more tomorrow on this as well. But, you know, we, you know, I think you can expect that, you know, as you mentioned, we're in a cyclical industry and you saw, you know, over $300 million in cash generated from operations this year. You know, that -- we don't expect that we'll ever drop below, you know, $75 million range. So, -- and we intend to always remain net cash positive.

Deana McPherson -- Chief Financial Officer

Yeah. It's our stated strategy, Cai, to keep the zero debt and use cash to reinvest in the business, to pay the dividend, buy back stock as we can. As you know and you probably remember that 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.

Cai von Rumohr -- Cowen and Company -- Analyst

Refresh my memory what is the limit? You just passed a new authorization of $50 million. So --

Deana McPherson -- Chief Financial Officer

Right.

Cai von Rumohr -- Cowen and Company -- Analyst

How much of that can you buy?

Deana McPherson -- Chief Financial Officer

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, that 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 the, you know, that's what's behind the $50 million, which is OK because where we are on cash and, you know, our ability to keep generating, we raised the dividend, and we have lots of ideas.

You know, we're reinvesting in marketing and doing some other things there, so we're pretty comfortable with where we are.

Cai von Rumohr -- Cowen and Company -- Analyst

Excellent. And then you mentioned, you know, the day 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 three quarters and kind of how those days looked like, you know, this year?

Deana McPherson -- Chief Financial Officer

Yeah. 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.

Cai von Rumohr -- Cowen and Company -- Analyst

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

Deana McPherson -- Chief Financial Officer

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

Cai von Rumohr -- Cowen and Company -- Analyst

Got it. OK. So, it's essentially -- essentially relevant.

Deana McPherson -- Chief Financial Officer

Yeah. Very close. There's one less operating day in '22 than those '21 just based on the way that the weekends and holidays fall.

Cai von Rumohr -- Cowen and Company -- Analyst

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

Mark Smith -- President and Chief Executive Officer

Yeah. You know, obviously, we can't give any quantitative notes or color. As you noted, we're not giving guidance. But I think what we can tell you is that, you know, that the firearms market still continues to be, you know, very active.

I think, you know, it's widely known the ammunition shortages continue. There is still a lot of interest in firearms, you know, May was the second highest NICS checks -- adjusted NICS checks ever on record. So, while it was a deceleration versus last year, last year was a pretty tough comp and still remains if you look at kind of the stack chart. It's, you know, just in a different, you know, in a different stratosphere from where it was in 2019.

So, you know, so we expect that the market will continue to remain elevated. You know, and obviously, we're going to be comping to a pretty tough year though as we go forward. So, you know, we're pretty optimistic. I think we've done a great job of taking market share and not just sitting back on our laurels, you know, and, you know, enjoying the fact that the operations team is cranking our product.

We've also done a whole lot of work on the marketing side to be ready for, you know, for any eventuality in terms of that. So, we're, you know, we're pretty -- as I mentioned in my, you know, in my prepared comments, we're pretty excited about the long term.

Cai von Rumohr -- Cowen and Company -- Analyst

Terrific. Thanks so much.

Deana McPherson -- Chief Financial Officer

Thanks, Cai.

Mark Smith -- President and Chief Executive Officer

OK.

Operator

Our next question comes from Scott Stember with C.L. King.

Scott Stember -- C.L. King & Associates -- Analyst

Hello. Good afternoon, guys. Congrats on the very strong results and thanks for taking my questions. You were just talking about, you know, 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 attitude with regards to usage? Or do you have any additional stats beyond what you gave last quarter about, you know, people hitting the ranges and just out there and actually using their guns versus prior surges where it was more stockpiling?

Mark Smith -- President and Chief Executive Officer

Yeah. I think, you know, as we've talked about and I think has been very well-publicized that, you know, the influx of new firearms owners over the last year, you know, 8 million in 2020 and, you know, probably, you know, 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 coming into the marketplace. A lot of those are, you know, are new entrants into the market, excited about it, excited about using their product, learning, you know, becoming proficient.

And as you know, and we talked about quite a few times, you know, we're doing a lot on that to try and reach out to those folks. How do we talk to them, where do they, you know, where to shoot, you know, what are the best channels, what messaging should we be sending, the -- we have the GUNSMARTS videos. But beyond that, social media, etc., reaching out on non-endemic advertising, and how do we, you know, engage with those new consumers. I think a lot of those new consumers are going to.

And again, as we've talked about, you know, expanding the demographics of the traditional firearms owner and, you know, making it less of, you know, less of a partisan, you know, if you will, gun ownership less of a partisan issue and more of just an American issue or American right and passion. So, I think that's good for us for -- at Smith & Wesson and good for us as an industry. In terms of, you know, the here and now, right now, I think, you know, we're seeing a little bit of a summer seasonality like we normally always do this time of year. But, you know, the anecdotal feedback we're getting from our retailers is its summer seasonality, but it's not, you know, it's not back to 2019 by any way, shape, or form.

So, you know, it's maybe down off of, you know, November, December where we usually have our peaks, but, you know, it's at a different level than it was two years ago.

Scott Stember -- C.L. King & Associates -- Analyst

Got it. And, you know, much has been made with a lot of people 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 that are just walking away? Just trying to get a sense of what you're hearing there.

Mark Smith -- President and Chief Executive Officer

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

Scott Stember -- C.L. King & Associates -- Analyst

And then lastly, just following up on the last question before that. You know, you talked about, you know, ammunition shortages and, you know, the impact it's having on new gun sales. Could 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?

Mark Smith -- President and Chief Executive Officer

We are hearing a little bit of, you know, pockets of folks being able to get a little bit ammunition on the shelf. But I will say, you know, 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, you know, remains to be an issue. And I mean, I think, you know, that the yin and yang of that for us, you know, frankly, is that, you know, yeah, 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, you know, I think that's, you know, that's a bit of a headwind for us in the firearms sales, but it is also a bellwether for the industry in general.

Scott Stember -- C.L. King & Associates -- Analyst

Got it. All right. That's all I have. Talk to you tomorrow.

Thanks.

Mark Smith -- President and Chief Executive Officer

All right. Thanks, Scott.

Operator

[Operator instructions] Our next question comes from James Hardiman with Wedbush Securities.

James Hardiman -- Wedbush Securities -- Analyst

Hey, good afternoon. I want to circle back, Deana, to the manufacturing capacity. You know, we talked about the difference in operating days 4Q versus 3Q. By my math, I get to 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, you know, obviously, I understand that production capacity and shipments aren't quite the same thing, but maybe fill us in on how you were able to accomplish that, especially given what you noted was a key supplier shutting down, which -- where you lost a little bit of time.

Deana McPherson -- Chief Financial Officer

Yes. So, we lost a little time. That loss of little time is for Q1, that did not impact Q4.

James Hardiman -- Wedbush Securities -- Analyst

OK. Gotcha.

Deana McPherson -- Chief Financial Officer

So, OK. So, that comment reference, you know, kind of the first quarter to look forward. But there's a definite mix issue or a positive benefit of mix, what it takes to make certain products versus other products. You can mix in products faster.

The other thing is that you might notice a little bit of inventory change. We were gearing up for the 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 would see more sales in the beginning part of March.

You know, Mark noted that, you know, we sold, you know, an awful lot of those Shield Pluses during the quarter. And so, those -- what we would have been starting to stock those up in Q1. So, -- or sorry, in Q3. So, Q4 ended up taking advantage of that.

James Hardiman -- Wedbush Securities -- Analyst

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

Deana McPherson -- Chief Financial Officer

Right. Yeah. I think that's a great way to look at it. And then, you know, so a layer in the fact that, you know, Q3 had, you know, a lot more holidays.

There was a little bit lighter and I think of 56 days. And then consider that we did have a bit of a supply chain disruption in May that, you know, we've recovered from that, you know, you're not operating on 100% as you might always do. So, you know, I think about looking at Q3, we didn't add capacity in Q4. We just we're able to -- with the -- to interchange around some mix and then take advantage of the Shield Plus launch.

James Hardiman -- Wedbush Securities -- Analyst

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 assumptions about retail here.

But given where inventories are, you know, how long do you think it takes to replenish end market inventories from here?

Mark Smith -- President and Chief Executive Officer

Yeah. Obviously, there's lots of factors that go into that, James. But, you know, obviously, the big hunt in the demand levels, right? So, where do they go from here? And do they stay elevated and which we, you know, we believe they will versus 2019. But, you know, what will the seasonality look like, etc.

But yeah, I think the one thing on inventory is to just note that, you know, while we are hearing some anecdotal feedback from some of our 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, you know, for example, for us, you know, revolvers, you know, is at -- in pretty short supply out there and just in general. And our distributor inventories remain at one week, you know, and that's -- the number that Deana gave there is actually as of today, not as of the end of the quarter. So, you know, there's still significant restocking that's going to have to take place. You know, when that happens, I guess it's going to be a factor of the demand.

James Hardiman -- Wedbush Securities -- Analyst

Got it. Mark, Deana, thank you.

Deana McPherson -- Chief Financial Officer

Thank you.

Mark Smith -- President and Chief Executive Officer

Thanks, James.

Operator

Our next question comes from Rommel Dionisio with Aegis Capital.

Rommel Dionisio -- Aegis Capital -- Analyst

Good afternoon. Thanks. The first question on the professional channel units shipped, obviously, a smaller portion of your business than sporting goods, but are those big jump on the handgun side. And I wonder if you could just talk about that a little.

It just doesn't seem -- I mean, it was a great, you know, it's 52% increase year over year and that doesn't seem to be in a sector of the industry that, you know, is all that cyclical and maybe sort of big contract of new products. So, what really kind of drove that handgun increase?

Deana McPherson -- Chief Financial Officer

So, I'll have to drive you back, Rommel, to the -- 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 were really held up by the government. And the other thing is that the European governments were hit really hard earlier than the United States with COVID-19 and they actually shut down a lot of the shipments in and out.

The freight carriers couldn't get the product in and out. So, that was more of, you know, the state to commerce starts between January and February. And then in March and April, the impact of COVID on all of the European and, you know, other countries that would normally receive shipments for the professional sale.

Rommel Dionisio -- Aegis Capital -- Analyst

OK. But it wouldn't kind of impacted the fiscal '21 as well, or was that pretty much wrapped up by what April of a year ago?

Deana McPherson -- Chief Financial Officer

Yeah, it -- yeah, 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 sort of night and day as to the way that, you know, Europe has been receiving product and the way that commerce has been running. There's not any hold-ups in licensing when you want to ship internationally anymore.

Rommel Dionisio -- Aegis Capital -- Analyst

OK. Great. Thanks very much.

Deana McPherson -- Chief Financial Officer

You're welcome.

Mark Smith -- President and Chief Executive Officer

Thanks, Rommel.

Operator

[Operator instructions] No -- showing no further questions in queue at this time. I'd like to turn the call back to Mark Smith for closing remarks.

Mark Smith -- President and Chief Executive Officer

Thanks, operator. And I just want to say thanks to 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. The 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 look forward to speaking with you all next quarter.

Operator

[Operator signoff]

Duration: 49 minutes

Call participants:

Rob Cicero -- General Counsel

Mark Smith -- President and Chief Executive Officer

Deana McPherson -- Chief Financial Officer

Cai von Rumohr -- Cowen and Company -- Analyst

Scott Stember -- C.L. King & Associates -- Analyst

James Hardiman -- Wedbush Securities -- Analyst

Rommel Dionisio -- Aegis Capital -- Analyst

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