Q2 2021 Smith & Wesson Brands Inc Earnings Call
Good day, everyone and welcome to Smith, <unk> Wesson brands Inc. second quarter fiscal 2021 financial results Conference call. This call is being recorded at this time I would like to turn the call over.
Rob just a real 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 interest the 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.
Good day 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 form 8-K.
10-K and 10-Q.
Which you can find in our website at Smith <unk> Wesson Dot com.
Along with a replay of today's call.
Our actual results levels 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 are weighted to each of these exclusions.
Reconciliations of GAAP financial measures to non-GAAP financial measures, whether or not they're 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, yes.
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 24th 2020.
As such we are now reporting always storable financing net financial information for that business as discontinued operations.
That's otherwise indicated any reference to income statement items. During this call refer to results from continuing operations.
Joining us on todays call are Mark Smith, President and Chief Executive Officer, and Dina Macpherson Chief Financial Officer.
With that I will turn the call over to Mark.
Thank you Rob.
Thanks, everyone for joining us.
Before I cover the results from highlights of our second quarter, just a quick update regarding our response to the ongoing COVID-19 pandemic.
The aggressive and decisive actions that we took at the start of the year to ensure the health and safety of our employees.
And that I detailed on our last call are all still in effect.
Because of the hard work and dedication of our employees who have been extremely diligent in following our safety protocols.
We have been able to continue safely operating our business in this challenging environment.
Turning now to our financial performance during the second quarter.
Our quarterly revenue of $249 million more than doubled the prior year period.
And marks the second consecutive record breaking quarter per hour 168 year old company.
Q2, net income of over $49 million drove 87 cents of GAAP EPS and.
And 93 cents of non-GAAP EPS.
Generated over $55 million in cash from operations.
And has allowed us to end the quarter with zero net debt.
Our operations and logistics teams produced and shipped over 626000 units during the three month period exceeding last quarter's record numbers like 43000 units.
And demonstrating once again the power of our unique flexible manufacturing model and more importantly, our dedicated teams ability to deliver strong performance in the face of any challenge.
We're also proud to say that during these extremely difficult times when so many of our fellow Americans are out of work so nothing less than created and filled 287, new jobs just in our second quarter.
And along with our existing employees each of these new team members played a critical role in achieving our record breaking numbers.
Our success in the quarter is a direct representation of the trust that our loyal consumers have placed in the iconic Smith and Wesson brand and.
And bodes very well for the long term success of the company as we continue to gain significant market share as measured by our performance against next.
But before I go through those numbers as always two quick notes.
First 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 Oneq law enforcement agencies, and federally licensed distributors and retailers and not to end consumers.
Next generally does not directly correlate to our shipments were market share in any given time period, we believe mostly due to inventory levels.
That said given the continued lack of inventory in the channel throughout our second quarter. We believe that Nics is currently more correlated to our shipments then it would be during periods when the inventories are not so depleted.
Secondly, as you may recall, we are providing more insight into our business and specifically market share trends by sharing with you the quarterly channel inventory levels at our strategic retailer accounts.
And distributors.
Please remember that we have three main consumer channel.
And the inventory levels I will discuss do not include buying groups.
So with that let's go into the market share numbers.
And our fiscal Q2 overall nics background checks for all firearm types increased 57.5 per cent over the comparable timeframe last year.
For Smith <unk> Wesson.
Our total units shipped into the sporting good channel during this time increased 93.4%.
To 586000 units, while simultaneously, our EPS IRA and distributor combined inventory levels declined by over 208000 units.
Breaking those numbers down a little further.
Nics checks per handgun.
Increased 75.6% during the quarter, while our handgun units shipped increased by 74.3% to 420000 units.
Simultaneously, our hand gun channel inventory dropped by 178000 units.
And finally, nics checks per long guns increased 48.8% in the quarter well.
Well, our long gun units shipped increased 167.7% to 166000 units.
Simultaneously, our long gun channel inventory dropped by 30000 units.
So in addition to our terrific financial results. These numbers indicate a very robust market share gains as well.
As we've discussed previously is the key metric and our focus on long term growth.
Our shipments into the channel significantly exceeded nics overall, while inventory of our products in the channel actually decreased.
Reflecting our ability to deliver a strong preference for our product at the retail level.
Before I hand, the call over to Dino I, just want to provide a longer term perspective on the overall firearm market dynamics that we've all seen this past year.
Including the recent November Nics results released this week in calendar 2020 through November Thirtyth.
There have been approximately 19.2 million background checks for firearm purchases.
This represents a year to date growth of 65% over the prior year and the largest 11 month period on record since F.B.I. began tracking nics in 1998.
With that it's just that predicting that 40% of the fire ants purchases in 2020 are coming from first time from owners. We can estimate that there were nearly 8 million Americans, who made the decision in 2020, so far to exercise their second amendment rights for the first time.
Additionally, these new consumers are broadening and diversifying our consumer base with NSSF survey data, indicating that women are making up 40% of new buyers.
And overall firearm purchases by African Americans are outpacing all other demographics.
With 58% growth in the first half of the year alone through June.
So what does this mean for our company and our industry.
In October we conducted an attitude and usage study of over 1200 law abiding firearm owners with the goal of gaining a better understanding of today's firearm consumer.
The research indicated that for those people who own firearms. The average number of firearms possessed was eight.
And according to research conducted by NSSF in 2013 at that time, approximately one in four new firearm owners, who went on to purchase additional firearms with a subsequent purchase at a higher sales price then their initial purchase.
Therefore, this expanded consumer base of new firearm owners represent a healthy long term opportunity for the industry as a whole, but specifically per Smith <unk> Wesson.
Yeah, and you study also concluded that once again, the iconic Smith and Wesson brand was number one in unaided awareness in the handgun in MSR categories, and again number one in aided awareness.
With 84% of respondents recognizing our brand.
Most encouraging however was that 85% of respondents would recommend Smith and Wesson to others and endorsement that we do not take for granted and one that combined with our results in the first half of our fiscal year positions us very favorably within the marketplace long term.
Finally, and as I mentioned on the last call. We have taken a leadership position in welcoming these new consumers to our community through our Smith and Wesson guns March program.
We continue to produce instructional videos and distribute free safety kit.
And to date, we have donated over 47000 guns marked kits complete with hearing an eye protection basic safety in storage instructions as low as links for the consumer to find our Youtube channel, where we share roughly 40 videos with content ranging from shooting fundamentals responsible gun ownership safety stock.
Average and enjoyment of the shooting sports.
In just four months since its inception, we have received over 24 million impressions on this program.
Please visit Www Dot Smith, <unk> Wesson dotcom forward.
Forward slash guns smarts to see the program tools for yourself.
And with that I will turn the call over to Dina to deliver the financial results.
Thanks Mark.
The ongoing heightened consumer demand combined with our ability to increase our production capacity through use of our flexible manufacturing model resulted in a second consecutive quarter of record revenue totaling $248.7 million, a $135 million increase or more than double the prior year results.
Once again these results are a testament to our operations team the increased firearms production output beyond our expectations utilizing a combination of targeted headcount increases additional machine capacity and continued activation of our flexible manufacturing model, all while keeping our employees safe during low.
Pandemic.
Gross margin of 40.6% well above the 28.2% realized from the prior year was due to increased unit shipments combined with a reduction in promotional activity slightly offset by recall related costs increased depreciation on machinery purchases and compensation related costs.
I say that with the increased headcount.
Operating expenses were $8 million higher than the prior year due to $4.8 million of spin off call three.
$3.1 million of increased profit sharing expense.
$500000 donation to the National shooting Sports Foundation gunboat campaign.
Increased volume related customer allowances were more than offset by reduced travel lower advertising costs and lower employee medical costs likely due to the deferral of elective procedures, resulting from the pandemic.
The increase in revenue and gross margin led to a significant profit gain as compared to the prior year comparable quarter, including net income of $49.1 million GAAP.
GAAP earnings per share of 87 cents.
Non-GAAP earnings per share of 93 cents and.
And adjusted EBITDA of $78.9 million.
During the quarter, we generated $55.3 million in cash from operations and spent $8.7 million on capital equipment, leaving $46.6 million and free cash.
We also see that the outdoor products and accessories business with $25 million.
And repaid the final $25 million on our revolving line of credit, resulting in a company ending the quarter with $55.5 million of cash and no bank debt as.
As you May remember from our call last quarter, we indicated that our capital allocation priorities were to invest in our business repay our debt and return capital to our shareholders I'm pleased to announce that our board has once again authorized a five cent per share dividend to shareholders of record on December 17th with payment.
To be made on January 5th.
Looking forward, although we do not intend to provide guidance, we will provide the following color for third quarter.
We implemented a 3% price increase that went into effect on November 16th.
This increase applies to nearly all product shipped subsequent to November 15th.
In periods of high demand our ability to recognize revenue is primarily a function of our production capacity.
Production capacity is somewhat governed by the number of operating days, we have available due to weekends holidays and other non operating day is such a shutdown.
Our second quarter had 59 operating days with five shut down days and one holiday.
Our third quarter will have only 56 operating days due to the Thanksgiving and Christmas holiday shutdown periods.
During our 12 week second quarter.
We increased our capacity by over 50% with nearly half of this increase occurring at the start of week four and two thirds in place at the start of week six.
We are not currently planning to add any significant additional capacity beyond that.
In fact, we have been monitoring our supply chain due to recent indications that the pandemic is now starting to impact some suppliers ability to supply us with material, we need to meet our very aggressive production plans. We continue to monitor the situation and are actively working to mitigate any disruption.
Finally, due to the increase in our taxable income our effective tax rate has dropped to just below 25%.
With that operator can we please open the call to questions from our analysts.
As a reminder to ask a question you won't need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q1 day roster.
Our first question comes from the line of Scott Stember from C.L. King Your line is now open.
Good evening and thanks for taking my questions.
Hi, Scott.
Oh, I know you guys arent, giving guidance.
You swear, but just looking at where do you see the industry going forward I know, we have a new foundational layer borough spend it seems like things are a lot different this time around.
Versus prior surges, but just give us your sense of you know to 2021 at least for the industry.
Be a year of growth and how.
How would supply issues play into.
I think that from happening.
Yeah. Scott This is mark Yeah, I mean, obviously, when we're not giving guidance so I'm not going to get too much into detail about you know, whether it's a growth year or or not but what I will say is you know as I said in the prepared remarks, it's I mean, there's there's obviously a lot of new firearms consumers in the.
Industry now.
And you know all indications are that you know.
Anywhere between a quarter to a third of those are going to become a long term enthusiast and as we mentioned you know that that tends to bode very well for us going forward as you know in two years become collectors and move up in the S. P that they you know.
So they're subsequent purchases are oftentimes a lot a lot more than their initial purchase.
You know where the.
Where the market is going and while we're not giving guidance I think you can kind of take take from some muddiness comments about an overproduction day that you know the demand is very strong remains very strong interest from inventory in the channel is still very depleted. We expect this to continue at least through our Q3 and you know into our Q4, and we'll see where it goes from there.
But as I said, you know I mean, we're really taken a long term view to this.
I think we've got as you said, we've kind of put a new layer on in terms of the consumer base.
All right and could you just.
Just go back and talk about or recap.
What you mentioned about supplier issues.
How that could potentially how serious is it and.
How could that.
What kind of bad when could that be in the next couple of quarters.
Sure sure we don't really expect any disruptions to our current plan Oh. This is more a situation where we have to be flexible things come up you know cobot numbers are going up you know there's lot lots happening across the country right now and at this point.
We are flexible enough to change things around and that we can react to them, but it is something that we're monitoring closely and I want to make sure that that you know everybody considers that in how we look at the future right now and it's part of the reason that we don't want to you know be out there providing guidance. It's a it's a situation where we may.
Management, and our operations team and our procurement teams have done a great job in our suppliers have been behind us but.
But it is something that we're actively managing.
Yes got it Mark.
Market I don't think its growth I mean, I I don't think it's going to have any impact in our quarter and you know, but I think it's more a factor of you know I think we're going to take a little bit we brands. Obviously as you can see from the numbers you rent really quickly.
You know and and we're going to take a little bit of a you know we're going to accounts pause here for a little bit and let them get the supply chain stabilize and then we'll see where the market goes from there. Obviously, we've got we've got upside, but and we've proven we can you know we can manage through any kind of normalization that may come at some point in the future, but now so we're just kind of pausing here to let the supply chain stabilize a little.
But I think is kind of what you should take away from that.
Okay.
And just lastly, we have the first two quarters of fiscal 20 regarding adjusted EPS.
I don't know if you guys are prepared to give anything on a quarterly basis, but could you give us for the full year at least from fiscal 20.
So we could have a framework to judge the fiscal 21 off of obvious.
Obviously I was just wondering on the lot higher but [laughter] yeah. We're we're not giving we're not giving guidance. There's just too many variables and we want to manage for the long term.
No I'm not referring to guidance, but for 2020, we do not have.
What a fiscal <unk> fiscal 20, what the you want to know what.
Yes, I want to know my E. P. S is for continuing operations.
As far as just so we could have something to judge basically to the base 21 off that's all share.
Hold on one moment.
[laughter].
It's about a 50 cents for the full year fiscal 20.
You said 55 zero times area Okay.
Okay. Thank you thanks, a lot guys.
Okay.
Thank you. Our next question comes from the line of Steve Dyer from Craig Hallum. Your line is now open.
Oh, Thank you good afternoon, and congratulations on the excellent results.
Thanks, Steve.
From a couple of questions. One are long gone performance was really exceptional in the quarter by almost any measure I think it's by far the biggest quarter I've ever seen.
You clearly don't have really much if any shotgun exposure. So I'm wondering if you could elaborate a little bit on what may have driven that whether it was a ours, whether it would feel like it was more hunting rifles et cetera.
Yeah, we don't we typically haven't you know, we don't provide that kind of break down Steve. Unfortunately.
I think every every category in the in the firearms industry right. Now is is very very strong.
You know our.
Art Art Thompson Center arms was above expectations, but to me you know to be honest, our Thompson Center arms as you know in terms of the the brands out there is kind of one of the.
Smaller brands in the market in the industry and so you know you can kind of draw your own conclusions from that and our <unk>.
And <unk> on our MSR side that is one of our debt is one of our most volatile. It's just one of the most volatile categories I'm in the portfolio just in general in the industry. Obviously, you know its very subject to political rhetoric and and tends to have wild swings were very very used to that our our.
Applied spy changed very very used to that you know we've we've been through this before and we're able to ramp up very quickly. We're also able to.
No to absorb any kind of normalization very well as well, there's we don't make a whole lot of those components are supplied from the outside so from us from on the source from perspective. It doesn't you know doesn't really affect us.
But just in general I think it's safe to say that was if you feel like it was more personal protection sale as opposed to hunting sale in <unk> in the long good category.
Yeah, I think well you know that the dynamics that happened I think you know as the as the years gone on it was very very heavy obviously as we came into the pandemic and you know in March and April I'm very heavily focused on personal protection.
And through the summer and then as we kind of came into you know as the election kind of heated up through September and October and you know obviously.
The gun control became a topic of discussion then BMS ours really kind of have.
Have heated up just you know.
In recent months.
Yes, you guys talked about per expanded production capacity in the quarter I'm wondering if you if you could tell us sort of.
How much of that added capacity was internal versus external.
We're not going to provide any kind of details on that but as we've talked about many times before our main motive operation when it comes to managing through surges and ups and downs as you know we have a base level of capacity, which we feel is largely rightsized internally and then we manage these kind of you know the.
Heavier demand periods through outsourcing with a with the outside so I can kind of give you that direction. So and Steve you can you can take a look at the cash flow statement and you can see our our capital spending is not outsized.
So that'll kind of guide you in the direction.
Yep Yep very helpful. And then I guess lastly from me and I'll hop back in line. Your free cash flow is extraordinary and you know has turned to.
Net debt situation around very very quickly you have a dividend, although it's it's probably fairly I guess nominal in the big Big picture, but.
When you look at whether its share buybacks, whether it's a special dividend.
You know I think any any further sort of guidance as to especially given another couple of quarters of this kind of cash flow, how you might think about that in the future.
Yeah, Yeah, we've said before that and it is our intention to return.
Our our profits back to our shareholders at this point, we do want to be a growth dividend.
Company, and we know that we started out at a relatively small level. What we don't want to do is grow the dividend. So fast that it becomes unsustainable. When there was a lot of volatility in the marketplace. So that is one piece of it we are continuing to evaluate.
They want to do we recognize that the the last two quarters of free cash have been very positive, but you know our goal is to to manage for the long term and we don't want to make rash decisions. So you know stay tuned we'll when a decision gets made will.
We'll let everyone know.
All right very good thanks to book.
Thank you.
Thank you. Our next question comes from the line of Mark Smith from Lake Street Capital. Your line is now open.
Hi, guys I'm wondering just talk a little bit about a S. P going forward and just confirm you guys took a 3% price increase in the middle of November do you feel like that was.
As much as you could take are you being conservative in that maybe talk about what's your what's your scene in the environment is force pricing.
Sure.
So the ASP is up largely because of just due.
Due to the fact that there the promotional activity is non existent right now.
So and you know is obviously there is you know there is some mix adjustments that we can make and so to maximize that ASP going forward.
Just speaking real quickly about the 3% price increase we again take a pretty long term view to our pricing could we have gone higher in this environment, Yes of course, we could have.
But we're taking a long term view to the marketplace and maintaining credibility with the consumer and we want our price our products to be priced appropriately in the marketplace.
Not just in this environment, but in any environment.
So versus our competition. So we took a hard look at that there were some categories that we took some targeted increases beyond the 3% just to kind of bring those back in line you know, it's it's an opportunity right now when the demand is so strong.
And so I think you know go.
Going forward.
You know at least through the rest of our fiscal year I think it's pretty safe to say that these asps are going to hold up.
Okay. The next opportunity be and kind of the next question as we look at the calendar you without shot show really happening in person. This year, how does the calendar change and as we look at new products is there opportunity to to maybe spread out to release of new products and take price strategically.
And new products.
Yeah. That's a great question. So we're continuing to push hard on new products. There are a couple that we've just just strategically decided to kind of leave on.
Waiting in the wings for now Theres also a couple that we're going to be really excited to be talking about next time, we speak.
So we're continuing to remain very aggressive and I guess, we're kind of taking the view of you know, let's let's take this opportunity now to be pushing hard so that you know.
So that again in any environment, we can continue to be successful and injecting.
Life and excitement into our brands from new product launches. So I'm actually very excited about the new product pipeline that we have coming up here in the next 12 to 18 months, So and yes, you're right I mean, that's something we can definitely use to help offset any kind of pricing pressure is new product and is something we.
We spend a lot of time talking about and planning for.
Okay, and then Mark you talked a fair amount about you kind of brand loyalty and awareness you as we look at these new and first time buyers any insight into kind of how.
The brand helped you maybe take share with these new buyers and then additionally, if we get a little more granular you do you think the easy models within handguns really helped you drive sales to some of these first time buyers.
The answer to both of those so the answer your last question is absolutely.
The easy is all feedback in the marketplace right now from all of our retailers distributors et cetera is the number one product.
Hands down in the marketplace right now and a lot of it is due to the fact that it it just caters to those two exactly what a net.
Somebody who's new coming into the marketplace is looking for.
In terms of the brand, yes, I think the you know the the brand really did help a lot.
You know I think you know we in the industry are very familiar with all the major players I think people outside of the industry definitely know Smith <unk> Wesson and then maybe you know a few of the other larger players so Smith and lessons just such and such an iconic.
Brands in American Heritage that when somebody is coming in new it's a trusted.
Welcoming brand to see that under that to see that brand and I think we've done a great job of keeping our product in stock maybe better than some others in the industry and and that's really helped us as well to make sure that were there and that.
That consumers, making that for first purchase and that brand Association with Smith <unk> Wesson.
Great and then just two more from me as we look at gross profit margin that certainly looks solid are there any pressures that you guys see that could impact us going forward you know primarily as we look at the labor market or for commodities anything to call out.
[noise] nothing on the commodity side or the labor market is frankly, it's been tough and Weve are all credit to our operations and human resources teams that we really havent hasn't haven't had any issues with that.
I don't expect it to have any material impact going forward.
On our on our gross margins so but it.
It is a it is a challenge for US right now believe it or not just because we are growing so quickly but we.
We did we did see our ability to.
Higher improve after the you know additional unemployment benefits expired, depending on whether there is a new agreement you know that that could have an impact on on hiring you know or you know.
Quite frankly people, whom who might not want to just you know be out but you know at this point, we have a good flow of of really great workers and so we're doing the best we can to keep up with that you know as as Mark noted in his call you know we hired 287 people.
During the quarter. That's you know that's a lot.
Absolutely.
Last one from me is any insight you can give us as far as kind of backlog of orders and where you're sitting at today.
Yeah, we don't provide the backlog on a quarterly basis, but obviously given the fact that you know our results. We just posted in fact, we're kind of moving you know indicating that we're.
We're going to be pretty constrained through our third quarter. It's strong it's very strong.
Excellent. Thank you guys.
Thanks Mark.
Thank you. Our next question comes on the line of Rommel disowned meal from Hs capital. Your line is now open.
Hi, Good afternoon. Thanks for taking my question I'm sure a lot of moving parts from the supply chain, obviously with the ramp in production new employees as you alluded to.
And no. So I mentioned to covert safety practices as well I Wonder if you could just address what do you guys are doing to ensure quality control and product quality and also just given that I'm sure somebody's sectors importing.
Thanks Amir.
The company's you outsource.
From the <unk>.
From production substitute or you see any deterioration in terms of product quality from components that you guys are having brought it. Thank you.
Sure. Thanks, Rob.
No we're not seeing any any.
Material changes.
We we run a.
Very similar to the automotive industry, we've kinda copied from a lot of their quals.
Quality control processes and got those implemented it's extremely important for us to make sure that you know obviously its a firearm and we want to make sure that it's as safe as possible on quality and safety go hand in hand as far as that goes we have a lot of pretty disciplined rigorous processes internally in terms of testing and making sure that all of the product that's going out the door is.
It is up to our very very high standards.
So no we have not seen any of that issue any of those issues. We actually have a you know every one of the sales folks does a bi weekly report where the money on one of the main questions. We ask is saved or sorry is quality and.
And you know any reports coming from the field and so we can watch trends and we watch a lot of our own internal metrics in terms of warranty returns and scrap rates hold on the floor et cetera, and we have not seen any kind of increase whatsoever.
Okay very good that's all I had thanks and congrats from the quarter. Thanks.
All right. Thanks.
Thank you. Our next question comes from line of Cai von Rumohr from Cowen. Your line is now open.
Hi, This is Scott mccrary onto cash.
I had two questions.
First had have you seen firearm purchasing behavior change at all during the elections, whether it be from a consumer standpoint, I know you all of them deal with consumers directly but have you heard of anything or.
Have you seen anything with dealers and distributors.
Well, obviously the elections are any.
Any the election year as a driver for us.
The political.
Nickel landscape gets contentious and and you know talk of gun control.
Increases and therefore, there is a fear of gun control regulation increased rent control regulation, which drives a lot of our consumers too.
To go out and purchase firearms.
So yes, I mean, there was there was a change in behavior as the election ramped up and as everybody knows is the selection was obviously one more contentious and then maybe they have been in the past and so I think you know as we've talked about before though this year was a little different in terms of you know we had you know we had that the personal protection.
Kind of driver for your drivers coming at the beginning of the year and as we kind of went into the spring you know with the code pandemic and then continuing to the social unrest through the summer and that continues really still today, yet and then we layered on top of that I think some of the some of the the more typical if you want to call that election demand on top of that so you know.
It did I think it just changed a little bit of the I mean, I don't think it changes the base level of demand to that came out of the the personal protection and probably just layered on top of it.
With the with the gun with the gun control.
Rhetoric.
Okay, and then from my second question.
I know that someone asked previously but what.
What are your I guess pretty definitely what are your relative priorities, what you're thinking about returning cash or using cash.
You had the dividend now is there anything else you're thinking about I guess, just trying to understand the hierarchy there.
Yeah. Our hierarchy is is as I said, you know investing in the business is one of our main priorities and we continue to do that now with regard to returning.
Profits back to shareholders.
We do continue to evaluate it we are having active discussions at this point regarding what to do we are not trying to rush into something that will have a long term negative impact in a business that is you know quite frankly very very cyclic cyclical.
So you know.
We will let you know.
It is not our intention to you know just store and a tremendous amount of cash that wouldn't do anybody any good.
So.
Give us a little bit more time, and you know, we'll let everybody know.
Okay sounds good thank you.
Thank you. Our next question comes from the line of James Hardiman from Wedbush Securities. Your line is now open.
Hi, good evening, thanks for taking.
My questions. So a couple from me.
I'm interested in the commentary about the new.
Non owners that are getting into the market and then you guys gave us from great stat.
How quickly somebody that that is a first time buyer.
Typically takes to sort of get back into the market and get their second or third going it seems like that could be a significant driver at some point in the future just trying to think about how long that cycle takes.
Yeah James.
[music].
I think I'd be.
Giving you like.
Too much of a gas if I were to kind of Oh.
That's fair answer that question.
You know that you Directionally is it two years as a one year is it six months I think you're probably closer to the six month timeframe.
Okay.
Whether that one month or six I don't know I'd be I'd be a little too much guessing to give you an answer there. That's fair I think your guess is better than mine site [laughter].
So my second question Dino It [laughter] you gave us a lot of numbers in terms of the capacity increase.
Seems like we can do the math, but I just want to make sure I'm thinking about this the right way your capacity was 50% higher at the end of the quarter than at the beginning but it was sort of safe then over the course of the quarter is that is that the way to think about it yeah more toward the front half of the quarter than the back half. That's what I was trying to trying to get across is.
That they're ramping did do you know did come early and you got to remember too that you know that.
Quarter is a 12 week quarter for us because the first week shutdown. So we did definitely ramped more more toward the front end of the quarter. So that you just can't take that and assume that the next several quarters is going to be that much more additive.
Right no I get that Okay, and then just lastly.
Answer may be.
[laughter], we don't really know, but as I think about the substantial decrease in.
Inventories I.
I think it was 208000 units.
Aggregate between the two channels that you guys laid out any.
Any way to put that in context of what the restocking opportunity now is.
I guess part of the answer to that question is with the year ago number sort of where you wanted to be too high to low.
But I think what a lot of people are not going to try to figure out is how long does it take you to get back to quote unquote normal.
I doubt, you're going to answer that but but any sort of bread crumbs book to help us figure out what that restocking looks like.
Yeah, I can help a little bit I mean, I think you know, we'll let you know that our inventory levels in the channel right now we're right about one week worth of words of supply and really all that is the time it takes our our partners to.
You don't get the trucking back then unloaded.
Picked and ship back out again, we want that as we've talked about many times before our kind of our target level inventory in the channel we want it to be about eight weeks.
So you know as well I think.
So yeah, there is a significant opportunity there.
Eight weeks worth of supply. So you know so I think that's I think what's a little bit different even even this time around as we you know in addition to the layered in any additional layer of new consumers.
We also we've got to refill the entire channel. So you know you're right you're just be thinking about that there is you know there is significant.
Work to do just to get the channel back up to two where we want it to be.
Got it much appreciate it thanks guys.
And one other point you know if you're thinking about non wave that see the marketplace reacted. After the 2016 election that was where inventory was in the channel and consumer stopped buying in this case there is no inventory in the channel and consumers are still buying so as can be.
Numerous potentially slow down in the future at some point.
We'll have the opportunity to see the inventory as it moves through the channel and work with that said you know distributors and retailers. So it it should be a softer slowdown not like it wasn't 16. This is very different environment.
Got it very helpful. Thanks. Thank.
Thank you for share.
Thank you. Our next question comes from the line of Mark Smith from Lake Street Capital. Your line is now open.
Hi, guys. Just one quick follow up on on timing you. This year. It sure looked like we Didnt really see any Smith, <unk> Wesson or Thompson center firearms out on Black Friday specials, historically with the timing of shipments up for those kind of specials would that go in the October quarter can be shipped in.
Typically book that quarter, where would that fall under the the January quarter.
[noise], we'll just talking about black Black Black Friday quickly.
You know the feedback we've gotten unanimously from the retailers is theres very few of them, who felt the need to run promotions and as a matter of fact, a lot of the feedback has been that Black Friday was was you know not that is as big as we know from previous years I've been just frankly, because it didn't have any.
Inventory and they say you know a lot of the feedback we got was Monday Tuesday, and Wednesday of Thanksgiving week were very very busy day than Thursday was actually sorry, and then then Friday was actually a little bit of a down day and Saturday and Sunday picked up from I don't I don't know if that's because of the cold in fear of being Black Friday shopping or whether that's just the inventory was depleted and P.
Born shopping Monday through Wednesday, or what the case close but.
So I think it's a bit of a different year in terms of the promotional and you know that.
The again, there really isn't any promotional activity in the channel right now and everything that we're making we're shipping strength and generally the wave that you would think about like how do we promote our products and the timing of when we promote our product we don't generally promote products for black Friday.
So when.
The fact that we're not promoting and its increased the Sps wouldn't.
Wouldn't have fallen into any quarter as it relates to black Friday, yes.
Generally speaking as you know that our fourth quarter is generally the higher promotional period because of.
The different shows and different you know our distributor shows and buying group shows and whatnot. We generally would have promoted more end of summer time frames as our distributors and dealers were stocking up for their later periods.
But generally speaking within our financial statements.
The.
Back half of the second quarter and the front half of our third quarter Didnt generally have a significant number of promotions.
Generally speaking.
And outside of promotions as far as kind of.
Inventory that's on hand his initial historical year, you know, it's not like you would build into and ship a bunch in the last week or so of October just to prepare for the holidays. There's nothing historically that's happened that way no no. That's not that's not really how it operates you know generally speaking two step distribution would kind of cash.
A little bit of time for it to get through to the retailer. So there's not a big.
Not a big push generally in October to get.
You know inventory on the shelves for Black Friday.
Okay, great. Thank you.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Mark Smith for closing remarks.
Thank you and thanks, everyone for joining us today I just want to close by recognizing our devoted employees from making this record breaking quarter possible.
Everybody stay safe enjoy the holidays and we look forward to speaking with you in 2021.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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