Sturm Ruger reported sales dropped 26.9 percent in the fourth quarter, worsening from the slide of 21.2 percent seen in the year. The company also indicated that it had eliminated about 700 jobs due to a steep downturn in the firearms category since the last presidential election.

The results arrive as a debate over gun control has erupted across the country following the mass shooting at Marjory Stoneman Douglas High School on Wednesday that left 15 students and two teachers dead.

Chris Killoy, president and CEO, said on a conference call with analysts, “Before we take questions, I want to take a moment and reflect upon the recent tragic events in Florida. Although this call is intended to focus on our business, like all Americans, we also struggle with the shock and sadness of these horrible events. We will continue to stand by our model as arms makers for responsible citizens, but we are people too and are impacted when tragedies like this occur in our communities.”

The company generally doesn’t offer projections to the investment community and didn’t discuss the impact of the ongoing debate, although officials appeared confident that the heavy discounting and rebates that have hurt margins in the sector over the last year was lessening.

Under Democratic administrations, mass shootings have sparked industry sales due to fears over stricter gun laws and the industry had been anniversarying particularly strong sales in the year-ago period due to wide expectations that Hillary Clinton would win the 2016 presidential election. Because strong gun control is off the table with Trump supporting the NRA, mass shootings over the last year haven’t jump-started demand.

In the quarter ended December 31, Sturm Ruger’s sales tumbled 26.9 percent to $118.2 million. Earnings per share were down 46.4 percent to 59 cents a share from $1.10. The recently enacted Tax Cuts and Jobs Act positively impacted earnings by 3 cents a share. EBITDA dropped 46.8 percent to $22.6 million.

In the year, earnings tumbled 40.4 percent to $52.1 million, or $2.91 a share. EBITDA dropped 34.7 percent to $112 million.

Revenues in 2017 fell 21.4 percent to $522.3 million. Firearms segment net sales were $517.7 million, a decrease of 21.4 percent while firearms unit shipments decreased 19.0 percent. Casting segment net sales were $4.6 million in 2017, down 22.7 percent.

“2017 was a challenging year for the firearms industry,” remarked Killoy on the call.

For 2017, the estimated sell-through of Sturm Ruger’s products in the independent wholesale distributors to retailers decreased 17 percent from 2016. During the period, the National Instant Criminal Background Check System decreased 11 percent.

Said Killoy, “The decrease in estimated sell-through of the company’s products from the independent distributors to retailers is attributable to one, decreased overall consumer demand in 2017 due to stronger than normal demand during most of 2016, likely bolstered by the political campaigns for the November 2016 election; Two, reduced purchasing by retailers in an effect to reduce their inventories and generate cash; three, aggressive price discounting and lucrative consumer rebates offered by many of our competitors and four, increased industry manufacturing capacity, which exacerbated the above factors.”

Killoy estimated that total unit production was down 24 percent in 2017 compared to 2016. This is based on estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and in own warehouses stock. This allowed the company’s finished goods inventory to decrease by 54,500 units and distributor inventories of its products to stay essentially flat during 2017. Total inventory decreased $12 million, or 12 percent, in 2017.

Said Killoy, “We expect to manage our production to moderate inventory growth and capitalize on opportunities that present themselves in 2018.”

Killoy noted that while Sturm Ruger reduced production in 2017, it also ended all temporary work in the second half of the year assignments and in January 2018, consolidated and eliminated approximately 60 indirect labor positions. In all, from January 1, 2017, to January 31, 2018, the company’s headcount decreased by approximately 700 people, or 28 percent. Added Killoy, “As a result, Ruger is better positioned to succeed in 2018.”

Killoy said the company continues to believe new products are the key drivers of demand. New products represented 27 percent of firearm sales in 2017, compared to 29 percent in 2016.

In 2017, new products included the Precision Rifle, the new IV pistols, the LCP II pistol and the American Pistol. In December 2017, the company introduced the pistol-caliber carbine, the Security-9 Pistol, the EC9s Pistol and the Rimfire Precision rifle.

In the Q&A session, Killoy said the response to the Security 9, the Rimfire Precision and the Pistol Caliber Carbine have all been “very positive.”

He noted that the fall hunting season “was good” for Sturm Ruger, and included a “very strong” Black Friday. The gains, however, were driven by non-standard and newer calibers like the 450 Bushmaster and bolt-action American rifle, as well as the 6.5 Creedmoors rather than the traditional calibers like 30.6s and 270s.

Killoy also feels that since Sturm Ruger’s product lines cover over 40 different product families, the company hasn’t had to use rebates and other incentives to move sales as some other arms makers that rely on a few categories.

He added that while  there are still plenty of deals out there,” he doesn’t believe the rebates are “as aggressive” as it has been and inventories are overall in better shape on the retail side.

“I think, retailers navigated 2017 for the most part pretty well,” said Killoy. “They watch their inventories. Some of them frankly were looking for deals that materialize largely from some of our other competitors and so they were–retailers were–did a much better job than we’ve seen in previous downturns in terms of managing their inventory levels and engaging in smart buying practices. So I think they are probably fairly well positioned for the year depending on how things shake out going forward.”

Killoy also said Sturm Ruger is following the Remington Outdoor bankruptcy closely. He stated, “Remington is a great company. It’s been around since 1816. They’ve got some great brands and great products. We obviously were–going through that process, we are going to monitor and see if there may be some opportunities down the road, we think given our strategy and our capital structure, with no debt and $63 million of cash on hand, may provide some opportunities down the road if they present themselves.”

Photo courtesy Sturm Ruger