Q3 2021 Smith & Wesson Brands Inc Earnings Call
Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
[music].
Good day, everyone and welcome to Smith, <unk> Wesson brands, Inc. Third quarter of fiscal 2021 financial results Conference call.
This call is being recorded.
At this time I would like to turn the call a bunch of 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 are subject to various risks and uncertainties that could cause our actual results.
The 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.
You can find on our website of Smith, <unk> Wesson Dot com along with the replay of today's call.
Our actual results about the electorate 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.
Onetime transition costs.
The 19 expenses on the tax effect related to each of these exclusions.
Reconciliations of GAAP financial measures to non-GAAP financial measures.
There are not they are discussed on today's call can be found on 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're always referencing fully diluted EPS.
Finally, when we discuss Nyx results, we are referring to adjusted mix of metric published by the National shooting Sports Foundation based on the FBI next data.
Adjusted Nick's removes those background checks conducted for purposes other than the purchase of of firearm.
Please remember that adjusted mix background checks are generally considered to be the best available proxy for consumer firearm demand at the retail counter.
Since we transfer firearms only to law enforcement agencies, and federally licensed distributors and retailers and not to end consumers mix 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 24th 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.
First the results from continuing operations.
Joining us on today's call are Mark Smith, President and Chief Executive Officer, and Genomics Pearson Chief Financial Officer.
With that I will turn the call over to Mark.
Thank you Rob.
And thanks, everyone for joining us.
Before I cover the results and highlights of our third quarter I just want to provide a quick update regarding our ongoing response to the COVID-19 pandemic.
The decisive and immediate actions that we implemented at the beginning of the pandemic to ensure the health and safety of our employees and that we've detailed on previous calls are all still in effect.
We closely monitor best practices and are always looking to make improvements to enhance our protocols.
Thanks to the diligence of our employees, we have been able to safely operate our business through these difficult times.
With that let me cover the highlights of our third quarter.
Our quarterly revenue of $257 million more than doubled the prior year period and marks the third consecutive record breaking quarter.
These impressive topline numbers resulted in record net income of over $62 million of 27% increase over the prior record set just last quarter.
Drove a $1 12 of EPS for both GAAP and non-GAAP.
And we generated over $60 million in cash from operations.
Our manufacturing and logistics teams produced and shipped over 623000 units during the three month period, an increase of more than 250000 units over the prior year period.
These numbers are certainly impressive and the testament to the ability of our dedicated operations team to leverage our flexible manufacturing model and deliver results in any market conditions.
However, as we've spoken about on previous calls our key metric for the long term is our ability to take and hold market share by ensuring that our products are not only available at the retail counter but that our brand is front of mind with the consumers and our product line is best in class for meeting their preferences.
Our sales marketing and new product development teams have also been hard at work ensuring the share gains that we've achieved over the last nine months are lasting.
Our sales team is the meeting with retailers ensuring their needs are met during these busy times.
Safely leading classes with consumers to ensure that beginners and experts alike are increasing their knowledge and skill.
And even occasionally stepping behind the counter to help our retail partners manage of the heavy influx of new consumers at their stores.
Our marketing team is busy setting the stage for the next chapter of our iconic brand.
As we've discussed on previous calls they have developed and launched the gun Smarts program to welcome into our community of millions of new consumers from all walks of life, who purchased their first firearm in the past year.
We've repositioned pricing to better align with our brands value proposition.
And they are thoroughly reviewing our entire product line to ensure any white spaces addressed and the feature set of our existing line exceed consumer expectations.
Our new product development team is tirelessly working to ensure that in spite of the record demand levels and capacity constraints that the industry as a whole is facing our new product pipeline is extremely healthy for the long term.
And finally, we're thrilled to announce that we'll be hosting our first ever virtual show on March 15th.
During this event, we will be giving of behind the scenes look in our history, highlighting a few of our loyal consumers and launch of an exciting brand new product to.
At the register RSVP for this event. Please just visit our website at Www Dot Smith, <unk> Wesson Dot com.
The outcome of our collective team's efforts is that consumers are responding by choosing Smith <unk> Wesson product at the retail counter.
Smith <unk> Wesson shipments into the channel continue to exceed overall mix and.
And inventory of our product in the channel decreased even the impressive production numbers, we highlighted earlier.
So let's go over those numbers.
In our fiscal Q3, Nick's background checks for all of firearms types increased 45% over the comparable timeframe last year.
For Smith <unk> Wesson, our total units shipped into the sporting goods channel. During this time increased over 70% to 593000 units. While Meanwhile, during the quarter, our SRA and distributor of combined inventory levels declined by 28000 units.
Breaking those numbers down a little further as compared to our fiscal Q3 of 2020 Nix checks for handguns increased nearly 49%, while our handgun units shipped increased by 64% to 473000 units.
And finally as compared to our fiscal Q3 of 2020.
Nix checks per long guns increased 46% in the quarter, while our long gun units shipped increased nearly 107% to 120000 units.
For both long guns, and handguns distributor inventory in the channel for our products remains at approximately one week of supply.
Before I hand, the call over to Deanna, just a quick update on the overall firearms market.
As we all know calendar 'twenty or 'twenty delivered tremendous growth for the industry with $21 million Nix checks smashing the previous record set in 2016 by 34% or $5 3 million.
As we've discussed on previous calls and SSF data indicates that an estimated $8 4 million Americans purchased their first firearm in the year.
And the industry is not only growing but also diversifying with women and minorities, making up more than 40% of the overall purchases.
This expanded base of new consumers and the increased general consumer interest in the outdoors and shooting sports bodes very well for the industry as we look forward.
More recently January of 2021 was the fifth largest next month ever on record and the February results that were just released on Tuesday indicate that although the firearm sales decelerated sequentially. We believe due to a number of factors from severe weather disruptions to delayed stimulus and tax returns.
Interest in the shooting sports remains very strong.
With daily rate of fire on permit checks flat sequentially and 35% above prior year for February.
We do expect as we lap the beginning of the pandemic in March that Nix checks comparisons will become more difficult.
But we also believe that the expanded consumer base has fundamentally increased the number of participants in the market.
All of this combined with an exciting new product launch coming up this month healthy new product pipeline behind it the most recognizable brand in the industry of proven flexible manufacturing model ready enable to deliver impressive profitability in any market conditions and.
In comparison data showing Smith <unk> Wesson is gaining market share we couldnt be more excited about what the long term future holds for our industry and our company.
With that I'll turn the call over to Diana to cover the financial highlights.
Thanks Mark.
For the third consecutive quarter, we are reporting record revenues due to the increases in capacity that we implemented in response to the very strong demand for firearms that began in March 2020.
Revenue for the quarter reached $257 6 million, a $130 million increase of more than twice of the prior year results.
Our team was able to generate an $8 $9 million increase.
Over our second quarter in spite of having three less production days by implementing a 3% price increase that went into effect in mid November.
Capitalizing on the shift in mix toward higher price products and by maximizing the small capacity increases that went into effect early in the quarter.
These outstanding results are a testament to the hardworking and dedicated Smith <unk> Wesson in place.
The maintained a safe and productive work environment throughout the pandemic.
Gross margin of 42, 6% was 14 160 basis points above the 28% realized in the prior year comparable quarter, and 200 basis points above our second quarter.
This increase in margin against the prior year sales due to increased unit shipments combined with the elimination of promotional activity.
3% price increase and the mix shift of higher margin products.
Margins were slightly negatively impacted by recall related costs increased depreciation on machinery purchases and compensation related costs associated with increased head count.
Operating expenses of $2 $4 million higher than the prior year due to increased shipping costs associated with increased volume.
$3 $3 million of increased profit sharing expense and a $500000 donation to the national shooting Sports Foundation.
Increased volume related customer allowances and increased stock and incentive compensation costs were more than offset by reduced travel and other costs associated with the cancellation of the tradeshow season due to the ongoing pandemic.
The lower advertising costs and.
And lower employee medical costs.
Due to the deferral of elective procedures, resulting from the pandemic.
Additionally.
In the prior year third quarter, there were $1 $2 million of spin related costs that were not repeated in the current year.
Yeah.
The increase in revenue and gross margin led to record profitability.
<unk> net income of $62 $3 million.
GAAP and non-GAAP earnings per share both of $1.12.
And adjusted EBITDA of $89 $8 million or almost 35% of revenue.
During the quarter, we generated $63 million in cash from operations and spent $3 3 million on capital equipment, leaving $57 $1 million from free cash.
We also spent $50 million to repurchase approximately two 7 million shares of our common stock at an average price of $18 on 26 cents.
And paid $2 $8 million on dividends.
The thing in the company ending the quarter with $59 $7 million of cash and no bank debt.
As you May remember from our call last quarter, we indicated that our capital allocation priorities are to invest on our business repay our debt and return capital to our shareholders.
I am pleased to announce that our board has once again authorized our five cent per share dividend to shareholders of record on March 17th the payment to be made on March 31.
And as Al also authorized a new share repurchase program for up to $100 million of the company's common stock through March one 2022.
Looking forward regarding our fourth quarter 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.
Of that production capacity of somewhat governed by the number of operating days, we have available due to the weekends holidays and other non operating days such of shutdowns.
Our third quarter had only 56 operating days due to the Thanksgiving and Christmas holiday shutdown periods, whereas our fourth quarter will have 65 days.
Although we had a small increase of capacity during the early part of the third quarter. We are not currently planning to add any capacity that will have an impact on our fourth quarter results.
As Mark noted we are investing in strategic marketing initiatives and we will have our first virtual of shell that will coincide with the launch of an exciting new product.
We would expect that the of an increase on our marketing costs for our fourth quarter, while other costs remained relative to our sales volume.
We continue to monitor our supply chain for indications of stress related to the significant increase in demand.
Or issues related to the pandemic.
And are happy to report that at this time, we have been able to overcome or mitigate any challenges.
We're closely monitoring the impact of the weather situation across the south.
Take care of Italy in Texas as that May have some impact on our resin suppliers.
As always supply chain risks are subject to change and our team continues to develop contingencies to avoid any interruptions.
Finally, our effective tax rate at approximately 24%.
With that operator can we please open the call to questions from our analysts.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
That is star then one if you'd like to ask a question at this time.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Cai von <unk> with Cowen.
Yes, thanks, so much.
Nice quarter.
Were your shipments supply constrained.
At any point and what's the current status maybe give us some color on demand you mentioned.
On the impact of stimulus and severe weather, but maybe just give us some color on all of those issues.
Yeah.
Sure Hey, How're you doing the Mark.
Yeah.
Obviously, our demand still are our supply still capacity constrained.
So.
In terms of I think what you're referring to with the question on on the.
On the.
Stimulus et cetera is the February of next results.
There's a lot of noise in those numbers right now.
I think there is.
You look at the overall mix results for for February <unk>.
Including the permit checks who it was the high in February ever however, backing the backing out the permit checks.
There was a there was a pretty severe deceleration between January and February now.
A lot of the channel checks and the information we have as you know theres a lot of reasons that went behind that Theres a lot of.
Mitigating circumstances, if you will between the weather situation down in Texas, We had several retailers large retailers just closed for up to a week.
You've got the.
The tax returns being delayed as many of you probably know this year versus previous years, you've got stimulus checks of people, maybe may or may not be waiting for you of also probably got a little bit of the hangover from the largest <unk>.
January ever so.
And so it's probably a combination thereof, and it's probably too early to tell exactly what that means going forward keep in mind is okay that that relates to sort of February mix, not our results and our results for the quarter during the quarter our.
Operations team was able to manage and mitigate supply chain issues, though as they came up.
We're continually working through those in times like this we can only go as you know as hard as we can on on production.
And as things come up we will shift production around and try to be as flexible as possible.
On making sure that we're always keeping in mind, what's coming in and what's going out.
Got it.
So maybe I mean, you have the 3% price hike.
What's the kind of the strategy for next year, I mean, obviously not asking for numbers, but you talked a little bit what's the strategy. I mean, we may has higher medical costs higher travel.
What sort of sales from 20000 to the strategy for dealing with kind of a return to a more normal environment.
Yes.
The great question.
We manage the business very much for the long term as we've talked about many many times before on the calls right. So.
We are able to be obviously, we our flexible manufacturing model enables us to take advantages of <unk> as you see from from the results in an environment, where the demand is very strong.
However, we maintain our fixed cost base.
At a level, where we're able to be profitable.
Any market conditions right. So.
In terms of of how to think about price increases next year we.
We do an annual price increase and it really is frankly going to depend on the market conditions of the time. So for me to predict now what we're going to do.
And our annual price increase which is usually in the late fall early winter is probably too early to be talking about that.
Got it and the last one you mentioned 56 days go on the 65 was last year 58 co on the 62 that from Irobot.
Maybe we can.
Yeah, I'll have to take a look at that and I don't really recall, what last year's was but.
I get the chance I will.
But this is I mean, it looks like you will always have a weaker third quarter because of.
No.
Can you share it looks like this is a little bit more pronounced on normal.
Probably not far off generally when we closed down between Christmas and new year's.
And we always have the two days off on Thanksgiving. So it's not often that it's.
Too far off.
Yeah.
It is generally speaking the fourth quarter, it's always the longest we have no holidays in the fourth quarter. So.
It's usually 64 65.
Got it thank you very much.
Thank you Scott.
Our next question comes from Mark Smith with Lake Street capital.
Hi, guys.
Another good quarter, just wanted to ask on on pricing just real quick and you hit it a little bit here. You know you took it in November any any changes in your thought process around price and do you feel like Theres opportunity.
To selectively.
Take pricing kind of outside of your normal cadence.
Hey, Mark.
Yeah, obviously when the market conditions are like they are right now it allows us a little more flexibility to adjust to adjust pricing in some categories, where maybe we didn't feel that we were we are undervalued.
And so yes, do we have a little more flexibility right now to make some adjustments and did we yes in some categories. We did we took we took some some higher than 3% price increases in some categories. We have made some product line adjustments from mix changes.
As you can probably see some from some of the numbers and the profitability increase some of that is driven by mix and discontinue on are deemphasizing certain categories of that work that we're frankly on profit not as profitable as one of them to be so yes, I mean.
Obviously, the something you know when the market is hot gives us a little more flexibility.
And I would assume here in another 10 11 days that we may see an opportunity to take some pricing and new products.
Yes.
So that's a great point I mean, obviously one of them from the best ways. We can do that is to launch new products.
Obviously, theres no theres no benchmark or there is no expectation of what that pricing is and we can kind of set of where we are where we feel it should be in that new product coming out is very exciting and.
It should do very well for us and you know obviously as all of our products as you know.
Moving to provide some nice profitability for us.
And then just kind.
Following up on <unk>.
Previous question, just as we look at consumer behavior, you guys have pretty good fingers on the pulse of what's going on out there are you seeing any changes whether it's in the price points of consumers are paying any pushback there any.
Shifting behavior from from more towards handguns, it looks like long guns, maybe done a little better here in the last couple of months anything that you can point to and then we would also just pointed out of February with leap year last year, certainly made the comp with five Saturday certainly the little different last year, but any anything you can point to where you're seeing any change in consumer behavior would be great.
Sure, Yeah, and that's of Great point and something to always remember as we go from January with 31 days to February of 2008, as you kind of need to look at the rate versus the the overall absolute number.
I think some of the again, we did some channel Jackson.
We always do.
We get.
Like I mentioned before we get a weekly report from our sales force in the market is still very healthy and strong and a lot of interest in the shooting sports.
I think some of the feedback we got was kind of a.
Combination of yeah, there was a little bit of I think a little bit of the hangover from from January.
But people are still coming into the store and maybe where they wanted the shield EZ.
And it wasn't available they would buy whatever else was under the under the counter now they're kind of simple I'll come back when you. When you have available availability. So you got a little bit of that going on maybe a little bit of that panic buying going <unk>.
Subsiding a little bit.
But then you also had we spoke to some retailers, who said well, yes of course, because that was shut down for a week because we didn't have any power down south of work.
So I think of as I said, we kind of got to a little bit of a confluence of a bunch of different factors playing into February.
And then the last one from me just.
Segment that we really don't talk that much about can you talk at all about genentech, the suppressor of business as well as kind of of your other products tank ops, and whatnot and kind of how that business has been trending.
Yes.
Jim <unk> has been doing very well for us.
This year it is a smaller portion of our business obviously.
But the suppressor market is doing very very well, it's up kind of in the same in line with the rest of our categories.
So, yes, I mean that does well for us on the Hancock side.
Can't really yeah.
Yes, I think theres the interest in the shooting sports was up in general and you know and a lot of foot traffic in the stores, where you know where those retailers of carrying the product and cost is up significantly as well.
So the end.
That's a really nice piece of business for us in extremely profitable.
Alright, and Thats showing up in our other products and services. When you say that are in the quarter other products on the San Francisco is up 52% on for the year, it's up 36% so.
That's where those categories for fall.
Absolutely.
This has been helpful. Thank you.
Thanks Mark.
Our next question comes from Scott Denver with C. L King.
Good evening and thanks for taking my questions.
Hey, Scott.
You were just talking about panic buying potentially some of the pulling back a little bit in February and last quarter, you talked about maybe on the long guns.
The possibly it was benefiting that side of it a little bit to just maybe broader speaking, we just talk about how much of the even the surge that we've seen the obviously there's tons of new shooters in the market, but as the panic buying is it the bigger than we thought or is the kind of.
Are there, but not nearly as big as it has been in the past.
That's the hard question to answer the a lot of speculation and conjecture, but.
I think this is as we've talked about before on previous calls I think the surge has been a little bit different than previous ones that we've seen I mean, a lot of a lot of times, it's mostly driven by fear of gun regulation and this one as we've talked about has been.
Thank you.
<unk>, yes. It was very good on regulation, but I think it was a lot of in large part with fear of personal protection. So a lot of handguns.
And then a lot of new shooters into the market now as the new shooter comes into the market.
Maybe it goes out of picks up on.
The concealed carry pistol or.
And on the.
The next purchases they get involved in the shooting sports might be coming back into that rifle now in our long gun. So.
And I think the panic buying really was just around just getting a product so I think whereas.
That.
Maybe has subsided a little bit in February but that again that demand I think is still there the interest in the shooting sports is still there and I just.
Now maybe if I was looking for of hang on I would've bought a rightful just come in the store, but now if I'm looking for a rifle I'm going to wait in the month until you're out of inventory.
Got it and then I think you have long guns.
You talked about at the pump.
Basically double and much better than what the industry the.
Is there any specific item there is the.
The modern sporting rifles.
The net.
I mean, we don't give a whole lot of breakdown and color on that as you know, but I mean, I'll just kind of Directionally point you to the hunting season is over so.
On an arm.
So our mix is going to move towards the categories that we have heavy backlog of that are in demand right now.
Yes that helps.
Yeah.
Okay got it and then just last one.
What's the bigger picture.
Obviously this is very tough to get these days.
For the first time share shoot of that maybe can't get their hands on it does that in any way.
Potentially inhibiting gun demand or our gun retailers, making sure to hold off of some ammunition to to help out of first time share.
Yes, I think it's.
The it's the latter so I think they are holding on to some sort of ammunition I definitely behind I don't think that we know that so a lot of the retailers will hold some ammunition behind the counter so that if you buy of firearm they're able to provide you the ammunition.
That said I do think the of the lack of ammunition, who is probably definitely of factor that played into February. So obviously that ammunition hopefully becomes more available as we go forward. It should it should provide a tailwind for us.
Okay.
Alright, that's all I have thank you. Thanks.
Thanks Scott.
Our next question comes from Steve Dyer with Craig Hallum.
Thanks, Ryan on for Steve.
On a couple of questions for us.
Do you think the industry is at a point of getting closer to balancing supply with demand, where we can restock the channel inventory over the next quarter or two where I guess so.
Currently what's the thought behind not adding more outsource capacity.
Yeah, I can't really answer the first question, just because I would frankly be.
Giving you the speculation.
As I said there is a lot of things of that played into the February of deceleration from January but if you can.
Just keep in mind that.
January February January December and.
In November of all where the in the top five months of the Nix checks ever on record. So I mean, the demand is very strong.
So when that deceleration or when the I guess the quote unquote normalization occurs.
We don't know.
And quite frankly, as we've talked from as we said on the prepared remarks is a whole lot more participants in the industry right now so.
Definitely believe that were out of new normal.
Will.
So.
Let's see where that goes.
Maybe the supply side I guess it sounds like demand remains elevated so I guess why not add more supply.
And as we talked about on the per remarks, we're still.
We're still at one week of supply and distribution.
So so we're cautious because of this is a very cyclical industry to not overload our business with too much fixed overhead we.
We do have flexible manufacturing, but as we've stated we've been managing through the supply chain issues and working working through and have been very very successful at that but.
To try to continue to add at the pace that we added earlier this year.
Would be a difficult thing to maintain particularly with some of the other things that are happening throughout the country, particularly with the weather and whatnot. So we are I think as an industry, where we are not able to meet demand. If we were able to meet demand you'd say lots of.
Fire arms on the shelves and in there there is still not there yet, but we have to be cautious that we don't overload, we manage for the long term and our flexible manufacturing allows us to do that we can capitalize on the growth.
But we can't build to meet.
All of the orders that come in every time. The there is a an increase like there has been over the last you know.
Nine of 10 months.
Yes makes sense.
And then can you just help me balance of the puts and takes for Q4 okay.
There'll be a greater number of days, which I would think would outweigh the supply chain challenges, but I guess without getting too specific here not asking for a point estimate but.
Is it reasonable to assume sequential revenue growth quarter over quarter.
Well I think as Dan mentioned in the prepared remarks, so our capacity.
We put a small capacity increase at the beginning of our third quarter and we are not currently planning for any further capacity increases through the fourth quarter. However, our ability.
To deliver on these when we get into of constrained environments like this it really.
Governed by our by our operating days, which were 56 as you said on the call are versus the $65 60, 56 on our third quarter and 65 on our fourth.
Got it and the.
Then just on Opex.
The commentary kind of on the go forward on the marketing being higher et cetera.
Opex was adjusted Opex was down.
Just shy of $3 million sequentially. Despite the rise in the revenue so really nice cost management, but can you help kind of walk through the puts takes on what you were able to optimize.
Sequentially here.
No I didn't anticipate that question there Brian.
That's the that's an interesting question.
No I don't I don't think I can there's not a lot. We are continuing to manage through we will have less the spin costs because of the further away we get from the spin of.
On the left there is that where we're dealing with there's not anything I think that is it really.
A big number there was a and insurance recovery on bad debt this quarter that pulled the number down.
Just under $1 million net eight or $900000 so that.
That is pulling that that the number down this time, so I think with the combination of those two items with higher spin costs last quarter.
And the insurance recovery that we had from of bad debt. The two of those things combined is probably the biggest piece of it now there is a lot of volume related activity that goes on we are accruing for the higher level of profit sharing.
We have of volume related the mix issues between.
Whether it's the strategic retailer or a distributor or a buying group certain of those.
Customers have a higher level of.
Cooperative advertising that are like a percentage base in our SG&A numbers. So nothing that I would say is the driving it from a fixed perspective.
They're doing a great job I think of as Mark said, just managing our cost and keeping them down and capitalizing on as we can.
Absolutely good problem to have for it to be lower.
Exact one final point of clarification did you mention the date that you were doing the virtual event I can book offline, but I didn't see it on the website or is it just much later this month, okay. Thank you and good.
Good luck.
Thanks.
As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question at this time.
Our next question comes from the line of Rommel Dionisio with Aegis capital.
Thanks, I just wanted to inquire about the.
The safety recall you guys had in November.
On the shield EZ line, one of your important lines I didn't see the you called that out on the comments or I didn't see in the 10-Q, sorry, if it's buried in there and I haven't gotten to it yet, but I wonder if you could just quantify.
Was that a meaningful impact on the expense line in the quarter are also on the top line. While you maybe held back production until you fix the problem.
I Wonder if you could just address the filtering into fourth quarter instead of thanks.
Sure.
Obviously, it wasn't a material impact otherwise, we would have and we had to call out on it.
So it was a.
We had a very very small number of firearms that we had an issue with it was actually two of them, but the issue.
We are always very cautious in ensuring that our products meet our meet our standards and our expectations. So we decided to out of it.
A bunch of caution to do of recall there so the impact of the.
To the to the topline was frankly favorable of the reaction from the industry and from our consumer base was Smith <unk> Wesson always stands behind this product is the <unk>.
Actual media feedback was extremely positive, which we always do of course.
So.
And we've we've had at <unk>.
Decent.
Participation or recall right in terms of the number of affected firearms that we've gotten back so far but it's definitely tailed off now I mean, obviously, there's been anytime you do a recall you get initial bump right as soon as you make the announcement and then it kind of tails off and we're very much into that kind of tail off period, it's really nothing material well yeah.
I'd say you know the the recall related costs.
The effect the cost.
Cost of sales line only.
And we as Mark said, we didn't we haven't seen any of them you know negative impact on orders or whatnot for the EZ line.
The really thinking you know two.
$2 million or so of cost for the whole year.
In the probably split between Q2 and Q3.
So not a large amount of not terribly meaningful on the on the overall margin percentage.
Okay perfect. Thanks for clearing that up and congrats on the quarter.
Thank you. Thank you.
As a reminder, ladies and gentlemen that is star then one if you'd like to ask a question at this time.
We have a follow up question from the line of Cai von <unk> with Cowen.
Yes, thanks, so much so.
Obviously, you've got a lot of financial firepower.
You've announced share buyback of 100 100 million.
Through March of <unk>.
Wanted to so.
What's your strategy for buying back stock under what circumstances would we expect two of them.
Here's the whole $100 million right away or how should we think a little bit about that.
Yes.
Obviously kind of would probably not going to answer that question.
In its entirety as well and we'll just talk about the.
The overall, I guess thought process or strategy behind the capital allocation. So as we've talked about before.
On the first priority is to reinvest back in the business.
I think you can see we've done a great job of of over.
Over the last 12 months.
And then after that it's return.
Return the return excess capital to the to the shareholders. So we've done that obviously through the dividend and when we're in a period like this where we are.
We're we're obviously being very successful then we'll take that opportunity that opportunistic opportunity to reduce our share count. So that's the.
Obviously, you can see the work.
Committed to that and.
What that means going forward, obviously, we've talked about before we want.
We've earned the dividend for the long term and we're looking to be of growth dividend.
So we're starting off understandably, a little bit low, but they provide.
Provides us plenty of runway as we go forward and then beyond that we will use any excess capital beyond that too.
As you've just seen to reduce the share of share count.
So some companies when they enter.
So Bob.
You can pretty much set your watch and Thats, the 100 million middle of the 25 million per quarter or close to that number but the fact that youre not as kind of saying I assume you're taking an opportunistic approach on the stock price goes up it goes down we may buy more.
A fair assessment of the it's really opportunistic if you made the other criteria and best in the business et cetera.
Yeah, I think that'd be a fair statement.
Okay, great. Thank you.
And kind of just one last thing.
We did pull up the numbers from last year. It was 57% and 64. So one day shift out of Q3 into Q4 for this year.
Thank you very much.
And ladies and gentlemen that is star then one to ask a question at this time.
Okay.
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.
Thank you Robert and thank you everyone for joining us today once again, just the congratulations to all my fellow Smith <unk> Wesson team members for delivering yet another exceptional quarter.
Please stay safe and look forward to speaking with you next quarter.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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