Earnings Call Transcript - SWBI Q4 2020

Operator, Operator

Good day, everyone and welcome to Smith & Wesson Brands, Inc. Fourth Quarter and Full Year 2020 Financial Results Conference Call. This call is being recorded. At this time, I would like to turn the call over to Liz Sharp, Vice President of Investor Relations, who will give us some information about today's call.

Liz Sharp, Vice President of Investor Relations

Thank you and good afternoon. On behalf of all of us at Smith & Wesson Brands, we hope you all are healthy and safe. Before we begin, please note that in order to socially distance, our team is speaking to you from multiple remote locations. So, please bear with us as we conduct today's call. Our comments today may contain predictions, estimates and other forward-looking statements. Our use of words like anticipate, project, estimate, expect, intend, believe and other similar expressions is intended to identify those forward-looking statements. Forward-looking statements also include statements regarding our product development, focus, objectives, strategies and vision; our strategic evolution; our market share and market demand for our products; market and inventory conditions related to our products and in our industry in general; and growth opportunities and trends. Our forward-looking statements represent our current judgment about the future and they are subject to various risks and uncertainties. Risk factors and other considerations that could cause our actual results to be materially different are described in our securities filings. You can find those documents as well as a replay of today’s call on our website at swbi.com. Today's call contains time-sensitive information that is accurate only as of this time and we assume no obligation to update any forward-looking statements. Our actual results could differ materially from our statements today. I have a few important items to note about our comments on today's call. First, we reference certain non-GAAP financial measures on this call. Our non-GAAP results exclude acquisition-related costs, including amortization, recall-related expenses, compensation-related items related to the separation of our former President and CEO, one-time transition costs, fair value inventory step up, change in contingent consideration, goodwill impairment, COVID-19 expenses and the tax effect related to all of those adjustments. 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 filings as well as today's earnings press release, which are posted on our website. Also, when we reference EPS, we are always referencing fully diluted EPS. As many of you know, we are preparing to spin off our Outdoor Products & Accessories or OP&A business from our Firearms business later this summer. In preparation, on May 29th, we changed our name to Smith & Wesson Brands, Inc. and our ticker symbol to SWBI. The new name and ticker symbol will remain with the Firearms company post spinoff. The spinoff company will be named American Outdoor Brands, Inc. and it will trade under the ticker symbol AOUT. On today's call, we will refer to the spinoff company as AOUT. Now, let me introduce to our speakers today. Mark Smith and Brian Murphy are currently Co-Presidents and Co-CEOs of our Company. Upon completion of the spinoff, Mark will be President and CEO of Smith & Wesson Brands, while Brian will become the President and CEO of AOUT. Jeff Buchanan is our Chief Financial Officer and has been our CFO since 2011. As announced previously, Jeff will be retiring when the spinoff is complete. Deana McPherson is our Controller and Chief Accounting Officer. After the spinoff, Deana will become the CFO for Smith & Wesson Brands. And Andy Fulmer is our Vice President of Financial Planning and Analysis. After the spinoff, Andy will become the CFO for AOUT. On today's call, Mark and Deana will discuss the Firearm segment, after which Brian and Andy will discuss the OP&A segment. Then, Jeff will present some key financial highlights and an update on our spinoff after which we'll open the call up for questions from our analysts. Before I hand it off to Mark, please note that we are currently expecting the spinoff to be completed early in our second fiscal quarter, probably in the August timeframe, barring any unforeseen delays. Therefore, this is likely to be our final earnings call as a combined company. Because the financial results for SWBI will not include the financial results for AOUT from the spinoff date onward, we are not issuing any forward-looking guidance on today's call. And with that, I will turn it over to Mark.

Mark Smith, Co-President and Co-CEO

Thank you, Liz. And thanks everyone for joining us. Let me begin by first addressing the coronavirus pandemic and our response over the last several months. I'm speaking now for both Brian and myself as co-CEOs. During our fourth quarter, we were able to keep our factories and distribution center operating, thanks mostly to our operations teams across the Company, who immediately implemented a broad range of safety procedures and cleaning protocols, which remain in place today to significantly reduce the risk of COVID-19 transmission and keep our workforce safe. We want to thank each of our employees for their extraordinary efforts during this time and for their unwavering commitment to safety, servicing our customers and to supporting our communities. As the global outbreak of COVID-19 emerged, we took several rapid and decisive actions to keep our employees and our business healthy and safe. Those actions occurred across all facilities and included travel restrictions, staggered shifts, enhanced cleaning and sanitizing, remote work where possible, social distancing, use of face masks, temperature screening, and many more. In addition to keeping our employees safe, these actions allowed us to continue manufacturing operations, which we immediately leveraged to support our communities. In short order, our engineers repurposed our manufacturing lines to produce face shields, which were in dire need by frontline personnel. To-date, we have donated over 8,000 face shields and 14,000 sets of protective eyewear to over 30 frontline hospitals and first responder organizations. We've also donated funds to multiple food banks and charities in the communities in which we operate. It is evident that COVID-19 continues to plague many communities across our nation and the world. For our part, we will continue to support our frontline heroes and the communities in need, while maintaining the health and safety of our employees and our Company as our top priority. As we do so, we believe that our actions, the dedication of our employees, and the loyalty of our customers position us very well to navigate the future. With that, let me turn to our Firearm segment. Revenue of nearly $530 million in fiscal '20 represents growth of 10% over the prior year. Our growth was driven by strong consumer demand for firearms, as reflected by adjusted mix results, a consumer preference for our innovative products and our ability to keep our employees safe and our facilities operational. Our results were favorably impacted by changes in the timing of our excise tax assessment, as well as strong consumer acceptance of our M&P Shield EZ pistol that helped us drive market share gains in the year. In the fourth quarter, consumer demand for firearms increased dramatically, and our revenue of $193 million represented just over a 37% increase year-on-year. The primary driver of this increase was strong orders from retailers and distributors driven by a sudden and heightened consumer demand for the firearms, which began in March and which is reflected by adjusted mix in the period. Now, turning to the Firearms market trends. As a reminder, adjusted mix background checks are generally considered to be the best available proxy for consumer firearm demand at retail. However, since we transfer firearms only to law enforcement agencies and federally licensed distributors and retailers, not directly to end consumers, mix is a measure of consumer activity and therefore does not directly correlate to our shipments in any given time period. In our fiscal Q4, background checks for handguns increased 66% year-on-year, while our handgun units shipped to distributors and retailers increased by 20.5%. In long guns for the same period, background checks grew 48% year-on-year, while our units shipped to distributors and retailers grew by 42.5%. We believe the difference between our shipments and adjusted mix results in this period is that retailers and distributors were able to address the increased consumer demand in part with their existing inventories, which declined substantially during the quarter. Distributor inventory of our firearms decreased on a sequential basis from 157,000 units at the end of Q3 to 117,000 units at the end of Q4. Since the end of Q4, distributor inventories have further declined and are currently below our eight-week threshold. Our internal inventories allowed us to address a sudden increase in demand in the quarter while we ramped our capacity and implemented our flexible manufacturing model in preparation for ongoing strength that we are seeing in the consumer firearms market. You may recall that we have used this approach in the past to help us capture the benefit of sudden increases in demand without adding costly infrastructure that then is idled when normal demand continues. Turning now to the future. While our flexible manufacturing model has clearly helped us to be responsive in the near term, our longer term growth and prosperity lies in the power of our brands, combined with our ability to innovate, and nothing demonstrates that better than our Shield EZ category of pistols. Several years ago, we identified a significant unmet market need, the existence of a large group of firearms owners that had difficulty operating semiautomatic pistols. Our engineers set out to develop an easy-to-use personal protection pistol that these customers could confidently operate, practice with at the range, and carry for personal protection. That process yielded our exceptionally popular M&P Shield EZ platform, which is easy to rack, easy to load, easy to operate and available in 9 millimeter and 380 caliber versions. These two pistols alone have generated over $19 million in revenue in fiscal '20. This speaks volumes to the power of understanding the consumer and market needs and being able to innovate rapidly. Marketing and innovation are core to our strategy, and I look forward to sharing many more success stories like this with you in the future. When the spinoff of our outdoor products business occurs in August, Smith & Wesson will once again become a standalone firearms company. Going forward, our focus is on just that. Understanding the consumers’ need and combining rapid innovation ability with our impressive brands to drive long-term market share gains, and then returning excess capital to our stockholders. We believe our stockholders will be best served by focusing on that long-term strategy as well, and by understanding the growth drivers in our industry and our business. Therefore, while we look forward to meeting with you to discuss and provide some added visibility into those drivers and our strategy, we do not plan to provide forward-looking guidance as a standalone firearms company. With that, I’ll turn the call over to Deana to cover financial highlights for the Firearms segment. Deana?

Deana McPherson, Controller and Chief Accounting Officer

Thanks, Mark. As Mark noted, our fourth quarter in Firearms was marked by a sudden increase in customer orders that began in March. Because of our strong balance sheet and our dedicated workforce, we were able to quickly ship our customers a significant amount of product from inventory, earning praise for our ability to meet their needs and keep products on their shelves. Meanwhile, our manufacturing facilities swiftly ramped and increased production in the quarter, while carefully adhering to multiple new and very strict safety and cleaning protocols required to combat COVID-19. This commitment to meet the needs of our customers led to a $35.6 million year-over-year increase in Firearms quarterly revenue, excluding federal excise tax. Gross margins for the fourth quarter in the Firearms segment, excluding federal excise tax increased 430 basis points, primarily due to improved absorption related to increased production volumes and, to a lesser extent, increased prices that we implemented on November 1st. Fiscal 2020 operating expenses for the Firearms segment increased $8.5 million over the prior year, primarily due to our new distribution center, which increased operating expenses by $9 million. Of that amount, $5.9 million represented depreciation and approximately $1 million represented shipping costs, which were previously recorded in cost of sales. In addition, COVID-19 pandemic-related costs were offset by pandemic-related cost savings, including trade shows, conventions, travel and entertainment. Firearms operating income of $33.9 million in the fourth quarter was $8.5 million higher than the $25.4 million generated in the year-ago quarter. This strong performance was a direct result of our ability to support customers with the immediate shipment of products and inventory, as well as the flexibility and dedication of our operations team that worked tirelessly through a difficult period to keep us operating and increase product availability. Although we don't provide balance sheet by segment, I would like to point out that although the Firearms inventory values increased slightly year-over-year due to federal excise tax now being included in the carrying value, actual units in inventory decreased 19% from the prior year as we shift to meet the sudden increase in demand. We were also able to delay our April 30th federal excise tax payment until July 31st, which preserved approximately $15 million in cash for three months. With that, I'll hand the call over to Brian and Andy to discuss the Outdoor Products and Accessories segment. Brian?

Brian Murphy, Co-President and Co-CEO

Thanks, Deana. While fiscal '20 presented challenges that included the impact of increased tariffs and disruptions caused by the global pandemic, our OP&A business saw consistent point-of-sale growth in hunting, shooting and cutlery products with our core brick and mortar customers, as well as strong growth from our newly implemented e-commerce platform. In addition, we achieved several key objectives in OP&A and made significant progress on our preparations to spin off the business as a standalone, publicly traded company in August. During the year, we successfully launched over 300 new products and extensions, some of which represent our entry into completely new product categories, such as meat processing. At a time when consumers are increasingly looking to outdoor activities such as fishing, hunting, shooting sports, camping, and hiking, as a way to address COVID-19 restrictions, we believe our brand lane strategy provides us with an ideal competitive advantage for developing exciting, on-trend, and highly innovative new products that turn new consumers into strong, long-term advocates for our brands. So, how do we do that? We believe our brands are in their infancy and have yet to be fully explored, representing significant runway for long term growth. We developed our brand lane structure as a way to tease out the so-called DNA spark within each brand, which is then fanned by talented teams that specialize in taking brands from niche to known, significantly expanding the revenue potential for each brand. The result is four distinct consumer activity-based lanes within whichever brand has a solid fit. Once docked into its appropriate brand lane, we can then begin to unlock a brand's true potential by leveraging the respective lane's resources, including brand marketing, product development, sourcing, and e-commerce. Perhaps the best example demonstrating the success of this dock and unlock formula is our Bubba brand. When we acquired Bubba Blade in 2017, it was known for its red-handled fillet knives. Seizing an opportunity to recast the brand under our adventure lane, we expanded its potential by dropping 'blade' from the name and positioned it to capture the water-to-plate lifestyle, which was largely overlooked by other fishing brands. Bubba is now among our fastest growing brands. Having entered new product categories such as pliers, nets, gas, gloves, and apparel, where it now has permission to play, reaching a wider audience as it transitions from a niche brand to a known brand. The result is Bubba sales in fiscal '20 grew more than 100% year-over-year. Similarly, our BOG hunting brand, which was known as BOG POD before we repositioned, delivered nearly 200% growth year-over-year. Both Bubba and BOG benefited from our dock and unlock formula. While they comprise a small part of our revenue today on a relative basis, they represent a family of brands with significant runway for growth. We're excited to share more dock and unlock results from our other brands that have benefited from this formula in the quarters to come. Our strengthening e-commerce platform is an important element within our growth strategy. Importantly, it is positively impacting our results in the current environment. We believe our e-commerce platform, which includes both our online customers as well as our own websites, was largely responsible for our consolidated year-over-year fourth quarter revenue growth of 2.4%, as consumers responded to retail store closures by seeking out our popular brands and products online. In the fourth quarter, our e-commerce channel grew 103% compared to the prior year and included a significant increase in direct-to-consumer sales. This increase further validates our decision two years ago to invest in our new e-commerce platform. In fact, our revenue growth in Q4 occurred despite over 1,000 brick-and-mortar locations in our retail network being closed at one point. Turning now to a discussion of our supply chain. As I outlined last quarter, a vast majority of our products in the OP&A segment are sourced from China or rely upon components coming from China. So, we are particularly tuned into the impacts of China-related tariffs and the COVID-19 pandemic. We are pleased that our suppliers in China are all operational. That said, it's important to note that when tariffs began to emerge last year, we immediately embarked on a strategic initiative to diversify our supply base over time. This is a long-term objective that includes establishing dual sourcing partners and it will evolve over an extended period since we are not willing to compromise quality or cost advantages. Lastly, and as Liz explained, this is likely our final earnings call as a combined company, hence we are not providing guidance today. Once we file our Form 10 and have the ability to present our strategy as American Outdoor Brands, Inc., we expect to provide guidance at that time. Now, I'll ask Andy to cover the financial results for the OP&A segment. Andy?

Andy Fulmer, Vice President of Financial Planning and Analysis

Thanks, Brian. Revenue in our OP&A segment for fiscal '20 was $167.5 million, compared to $177.3 million in the prior year, a decrease of 5.5%. The decrease was primarily driven by lower OEM sales of laser sight products, the bankruptcy and financial distress of certain customers, and the unexpected acceleration of one major retailer’s private label strategy relating to camping accessories. Despite the challenges from COVID-19 that Brian discussed, our Q4 revenue was $43.2 million, reflecting growth of 2.4% over the prior year quarter. Increased sales to our online retailers as well as a significant increase in our own direct-to-consumer sales more than offset declines that were driven by retail closures in Q4. We plan to continue investing in our direct-to-consumer platform and marketing strategies, further strengthening our direct engagement with consumers. Our fourth quarter revenue growth is particularly notable because it occurred even though one of our largest customers, a major online retailer, did not place orders with us for a full month as they chose to ship only essential products during that time. We are excited to deliver revenue growth against this backdrop and are pleased to report that this large retailer is back to shipping regularly, and retail stores are beginning to reopen. Gross margin for fiscal '20 was 41.4%, a decrease of 380 basis points from the prior year. The decline was driven primarily by unfavorable manufacturing variances and the increase in tariff costs. The manufacturing variances are related to lower production of Crimson Trace laser sight products, which are made in Oregon. With respect to tariffs, most of our products are sourced from China and therefore subject to tariffs ranging from 7.5% to 25%. Tariff changes in fiscal '20, most of which were increases, negatively impacted our gross margins. Turning to inventory, our OP&A inventory at the end of fiscal '20 was flat to the prior year. Looking ahead to fiscal '21, we are taking steps now to optimize our inventory levels and best position us for the possibility that COVID-19 may be around for some time to come. First, we plan to invest in additional inventory of certain of our high demand products. Second, over time, we plan to launch promotional programs on certain slower moving inventory in order to convert those items back to cash. We believe these actions will help us mitigate supply chain risk while maximizing cash flow for operations. I'm pleased to announce that we have established a bank relationship for AOUT and received a commitment letter for a $50 million senior secured credit facility, which will be immediately available after the spinoff. That facility will be expandable by an additional $15 million under certain conditions and will be an asset-based loan subject to typical provisions. This new credit facility combined with our $25 million of starting cash from SWBI means that we will have $75 million to $90 million in capital available as a new company to support achieving our long-term organic and inorganic goals. Lastly, our team has been hard at work preparing our Form 10, which will provide insight into our business structure and key strategies, as well as audited standalone financial statements from fiscal '18 through fiscal '20. We expect to publicly file the Form 10 soon, after which we look forward to meeting virtually with many of you to discuss our very exciting future. I'll now turn the call over to Jeff.

Jeff Buchanan, Chief Financial Officer

Thanks, Andy. Since Deana and Andy have provided our P&L information by segment, in the interest of time, I will refer you to our press release for details on our consolidated financial results. I'd like to cover just a few highlights of note. Although we reported a GAAP loss in the quarter and the year because of a Q4 impairment of goodwill and intangibles related to prior acquisitions, overall, we had a very strong fourth quarter, both operationally and on a non-GAAP basis. As a result, in Q4, we generated $120 million of cash flow from operations compared with $36.7 million in the prior year. In fiscal year 2020, we generated $95 million of cash from operations, compared with $57.5 million in the prior year. CapEx spending in fiscal 2020 was $13.9 million, primarily related to new products as compared to $33.9 million in the prior year. On April 30th, at the end of our fiscal year, we had cash of $125.4 million and total bank debt of $160 million for net bank debt of just over $34 million, a reduction of $120 million in just one quarter. We have since paid down another $65 million on the bank debt. Looking forward, our spinoff plan is on track and expected to take place in August. When that happens, AOUT will own all assets relating to our existing OP&A segment. The new company will be well-capitalized, as Andy discussed, and will have no outstanding debt. We expect that the Form 10 detailing AOUT’s business and the prior three-year financials will be made public soon. And with that, operator, please open the call for questions from our analysts.

Operator, Operator

Our first question comes from Cai von Rumohr with Cowen. Your line is now open.

Cai von Rumohr, Analyst

Yes. Thank you very much. So, a housekeeping question. When will the 10-K be out, because you kind of fired those numbers out pretty quickly and they were not in the formal release?

Brian Murphy, Co-President and Co-CEO

Yes. We have quite a bit going on this year, as you can imagine. In addition to our regular audits for Smith & Wesson, we had to do audits for AOUT for '18, '19 and '20. We've also been working on the Form 10. So, the 10-K is not due until the 14th of July, but I think it's going to be filed within the next day or two.

Cai von Rumohr, Analyst

Okay. And then, maybe if you could give us some color. I mean, you mentioned the big gains in outdoor products and Bubba and BOG, but obviously sales were down. So, laser sights was a negative. Can you give us some color on the issues, the laser sights, the private label trending, the bankruptcy? And so, we can get some sense I mean, our sales, you expect them to be up or how should we think about the outdoor products business?

Andy Fulmer, Vice President of Financial Planning and Analysis

Hi, Cai. It's Andy. I’ll address that. Looking ahead, we anticipate that year-over-year comparisons from the private label will improve after our first quarter in fiscal '21. At this stage, we’re not providing any forward-looking figures. However, the bankruptcies have been resolved, and many of the trends we observe in point of sale data are very encouraging. We are optimistic about the upcoming year.

Brian Murphy, Co-President and Co-CEO

When we examine our brands, we discussed in the opening remarks how we integrate them into specific lanes to unlock their potential. We began introducing this idea about a year ago, which marked a significant change for us as we started implementing this new strategy for our brands. Bubba and BOG, with Bubba being our latest acquisition in the traditional outdoor products and accessory sector, have truly impressed us. The results have exceeded our expectations, and we are continuing this approach. We anticipate seeing exciting outcomes from our other brands in the upcoming quarters as we continue to unlock value through brand repositioning and exploring new product categories where we have opportunities. There's a lot to look forward to. However, as Andy mentioned, there are some challenges related to customer issues stemming from retail bankruptcies and private label initiatives.

Cai von Rumohr, Analyst

And e-commerce and Amazon together account for approximately what percentage of sales in the fourth quarter?

Andy Fulmer, Vice President of Financial Planning and Analysis

We can't really get into specifics on those, but all of those rolled up. Again, you'll see some more data when the Form 10 comes out, give you some more color on that. But we, at this point, really can't get into that.

Cai von Rumohr, Analyst

The last part is yours. Please continue.

Brian Murphy, Co-President and Co-CEO

I'd say again until the Form 10 comes out, which will have much more detail, I just don't want to jump ahead of that, is obviously we pointed out for e-commerce, which again includes online retailers and direct-to-consumer for us, is meaningful enough that it's a driver of the business?

Jeff Buchanan, Chief Financial Officer

I just wanted to add, this is a difficult time to do the earnings call, because the Form 10 will be public in a couple of weeks. So, we can't really talk about what's in the Form 10 until it's publicly filed. So, we'll try to give you as much color as we can. But the Form 10 will pretty much answer a lot of the questions that you've had on this call.

Cai von Rumohr, Analyst

So, my last question is Firearms. Obviously, you have an election coming up. I think, in the last election, anticipation of a democratic win tends to bolster demand, you have all these protests. I think that bolsters demand, COVID. So, it would look like the firearms demand, just based on search trends in the past, should be pretty strong. What's your ability to kind of meet it? I think your prior peak was producing 2.1 million units, what's your capacity? Could you produce 2.3, 2.5, how should we think about that?

Mark Smith, Co-President and Co-CEO

We're not going to go into great detail on that question. However, we have discussed our flexible manufacturing capabilities in the past. Our strategy involves utilizing our existing manufacturing facilities along with partnerships with external third parties to address demand surges like the one we are currently experiencing. Our manufacturing footprint is highly adaptable. Directionally, you can look at our previous production levels and conclude that there’s no reason we couldn’t return to that capacity.

Operator, Operator

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

Scott Stember, Analyst

Could you discuss this surge and how it compares to previous surges? Specifically, are there new consumers entering the market who might remain, and does this situation have more potential for longevity than some of the panic buying we've observed in the last five to seven years?

Mark Smith, Co-President and Co-CEO

This is Mark. That's a good question. Yes, this surge is definitely different. There are really two types of surges: one driven by fear of gun control regulation and the other by fear of personal protection. With gun control, we see firearms enthusiasts purchasing more firearms, while the current situation seems largely motivated by concerns for personal safety. This trend is bringing new shooters into the market, increasing the number of second amendment advocates and attracting more individuals to the shooting sports. Recently, a couple of studies from NSSF based on retailer surveys have suggested that as many as 2.5 million new shooters have entered the market in the last six weeks, which is promising for our future.

Scott Stember, Analyst

It obviously under this environment, I imagine the pricing environment is quite favorable for you guys. Is that correct?

Mark Smith, Co-President and Co-CEO

The promotional environment has definitely subsided. Yes.

Scott Stember, Analyst

Okay. Got it. And could you just maybe give us a little more clarity. I know there were some numbers thrown, again, we don't have the 10-K to look at yet. The Firearms, break it out between handguns and long guns?

Deana McPherson, Controller and Chief Accounting Officer

Sure, Scott. Handguns for the year were $390,711,000 and for 2019 were about $336,901,000. Long guns were $101,540,000 and prior year was $107,717,000. Other products and services were $37,361,000 and last year was $36,717,000. So, you've got a 16% increase in handgun revenue, a 5.7% decrease in long gun and a 1.8% increase in other products and services. Keep in mind that this does have the federal excise tax impact. Overall, our units were handguns were up 7.8% for the year, long guns were down 9.8% for the year. The first three quarters in long guns were relatively slow quarters. Things changed around a bit, so we made a lot of ground in the fourth quarter.

Scott Stember, Analyst

So, can I just trouble you, one less thing for the quarter for those same statistics?

Deana McPherson, Controller and Chief Accounting Officer

Sure, one moment. For the quarter handguns were 129.4 million, compared to last year at 105.8 million, long guns were 35.6 million against 25.9 million, and 11.3 million for other products and services, and 9 million for the prior year. Overall, handguns were up 22.3% in the quarter, long guns were up 37.3% for the quarter, and other products and services at 25.8%. The numbers I just gave you were the federal excise tax excluded numbers by the way. So, that's comparable last quarter to this quarter for the quarter only.

Operator, Operator

Our next question comes from Steve Dyer with Craig-Hallum.

Steve Dyer, Analyst

I just want to make sure I got the guidance cadence or lack thereof correct going forward. So, am I right in understanding, no more guidance for Firearms, period, before or after the spin, and guidance on OP&A only after the spin, is that right?

Mark Smith, Co-President and Co-CEO

That is correct.

Brian Murphy, Co-President and Co-CEO

We will be providing guidance after the spin. Once the Form 10 is released and we start the road-show prior to the spin, we will offer guidance.

Steve Dyer, Analyst

Okay, got you, just not for Firearms. I guess with respect to Firearms, just because Q1, your fiscal Q1 is normally meaningfully your softest quarter, I would expect just given the main NICS results and our checks certainly suggesting that that's continuing, is there any reason why your results wouldn't look substantially more like mix rather than a big fall off from Q4?

Brian Murphy, Co-President and Co-CEO

Yes. Again, I mean we're going to be very careful. We are not issuing forward-looking guidance. But I think we talked about the fact that we're implementing our flexible manufacturing strategy and we're increasing capacity. You can look at the NICS results, and I think you can probably draw some pretty accurate conclusions from that.

Steve Dyer, Analyst

Sure. Just within, it looks like your overall inventory is certainly thinner than it was, but I think year-over-year for the entire Company sort of on par with last year. But, are there any particular SKUs that you're finding are really thin right now that are causing you to potentially miss out on sales?

Mark Smith, Co-President and Co-CEO

Yes, all of them. The market is returning to a surge environment that typically begins with the MSRs, then transitions to pistols, revolvers, and essentially any firearm. Currently, we are in the phase where any firearm is likely to sell. Inventory levels in the channel are very low, and our internal inventory is also quite limited. We have entered one of those surge environments that we've experienced before. I believe we are well positioned for this, as we have a flexible manufacturing capability that allows us to ramp up production quickly. I think we are probably in a better position than many of our competitors to take immediate advantage of this situation.

Steve Dyer, Analyst

Got it. Last one for me. Last quarter, we talked about some excess sort of pockets of inventory by retailers who are looking to exit the business and at the time, this was pre-COVID. I think you had thought it was going to take another quarter or quarter and a half to flush that through. Suffice it to say, that's all done at this point and going forward?

Mark Smith, Co-President and Co-CEO

Yes, a lot of changes since we have that call.

Operator, Operator

Our next question comes from Mark Smith with Lake Street Capital Markets. Your line is now open.

Mark Smith, Analyst

Hi, guys. A couple of housekeeping items here. First, Deana, maybe can you talk about post-spin, you guys reporting the federal excise tax, does that go away or will you continue to have that built into the post-spin numbers?

Deana McPherson, Controller and Chief Accounting Officer

It will continue to be built into the post-spin numbers. That is a distribution. As long as we have a distribution facility, we will be subject to reporting federal excise tax in our sales numbers.

Mark Smith, Analyst

Okay… Could you discuss the demand for long guns during the quarter? It's difficult to determine the ratio of new firearm owners in the modern sporting rifle category compared to the historical surge buyers who are purchasing their second or fifth AR? It's somewhat challenging for us to pinpoint exactly where the new buyers have gone and what specific products they have purchased. However, we're currently monitoring some trends and receiving feedback, along with data from the NSSF estimating there are approximately 2.5 million new buyers in the market. There are certainly many firearms enthusiasts purchasing additional guns, but there is also a significant influx of new shooters entering the market. We are uncertain if they are gravitating towards MSRs, polymer-frame pistols, or revolvers. Okay. This might be a better question for Jeff, but anybody who wants to take it. As we look at selling and marketing expense, is it safe to assume that you maybe didn't have to and maybe you're looking forward, don't have to be as aggressive in marketing on the Firearms side? And given the surge in e-commerce, do we see a little bit more spending on the AOUT side?

Jeff Buchanan, Chief Financial Officer

Actually, I'll let Deana answer for Firearms and Andy answer for AOUT. Deana?

Deana McPherson, Controller and Chief Accounting Officer

Yes. I think Mark sort of indicated in the previous answer that we are likely not doing as many promotions as we are, so that affects our price; it also affects how the margins operate. Regarding general advertising and marketing expenses, I don't think those will change significantly. We do some percentage-based co-op advertising with some of our bigger customers. I don't think that the marketing line will change all that much, other than if we're not able to have certain shows based on the COVID environment. From a general perspective, I would say the sales and marketing line won't change significantly. But what we'll see is the benefit of not running the promotions, which will affect the top line and the margin line as well.

Andy Fulmer, Vice President of Financial Planning and Analysis

Hey, Mark. This is Andy. I'll answer on the OP&A side. So, we didn't really have any decrease per se in that type of spending. We essentially spent on to plan, really consistent with our ongoing investment in e-commerce and marketing initiatives. In fact, I mean, we're seeing with our POS data that we're looking at and the results for Q4, consumers are finding us. So, it's been a very good investment and we expect to continue that.

Mark Smith, Analyst

Okay. And then, a couple of more questions just on the AOUT side. Can you guys talk a little bit about the cadence of sales during the quarter, how maybe within e-commerce if that grew later in the quarter? And then, maybe how much of what we saw in revenue for the quarter really came late as we saw people migrate to outdoor activities and some retailers reopen in April?

Andy Fulmer, Vice President of Financial Planning and Analysis

Yes. I can't really comment on the month-by-month, but we were very happy with how Q4 ended up, especially on the e-commerce side, we saw a lot of growth both with our online retailers and our direct-to-consumer. Again, we're looking forward to continued growth in the future on that.

Brian Murphy, Co-President and Co-CEO

Yes, this is Brian. I would like to add that at one point, we were tracking over 1,000 closed doors using a spreadsheet. Throughout the quarter, this number fluctuated frequently. However, consumers continued to visit our sites and other online retailers to purchase products. Overall, it was a very strong quarter.

Mark Smith, Co-President and Co-CEO

Okay. And then, the last one for me. Brian, if you want to talk just a little bit about the meat product and rolling that out. I know it's still early, but maybe initial successes or what you're seeing there that kind of maybe changes any thought process that you have in acquisition versus building out your own brands?

Brian Murphy, Co-President and Co-CEO

Yes, it's a great question. We're very pleased with how meat has performed. We intentionally launched it outside of the typical timeframe that folks would be doing their meat processing, which for us we're really targeting in the fall. The reason for that is to build up that fan base and our ambassador network. But with everything going on with COVID, I think some folks are just increasing meat processing on their own, well ahead of the fall; people getting into it, new entrants, which we have benefited from. We're very pleased with the results and so far it's exceeding our expectations and proving out the dock and unlock formula that we put into place.

Operator, Operator

That concludes today's question-and-answer session. I'd like to turn the call back to Liz Sharp for closing remarks.

Liz Sharp, Vice President of Investor Relations

Thank you, operator, and thank you everyone for joining us today. Please stay safe. We look forward to speaking with you next quarter as two separate and very exciting companies. Thanks for joining us.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.