Sturm, Ruger & Company Inc. (NYSE:RGR) estimates sell-through of the company’s products from independent distributors to retailers outpaced criminal background checks more than three-fold during the quarter, clearing the way for a big increase in fourth-quarter shipments tied to the company's 2 Million Gun Challenge.

RGR estimates distributors sold 474,900 units to retailers in the quarter, up 28 percent compared to a year earlier. The National Instant Criminal Background Check System background checks (as adjusted by the National Shooting Sports Foundation) increased 8 percent during the same period.

RGR reported that it shipped 25 percent more units compared with the third quarter of 2014 to meet growing demand from chain-store accounts. Production increased 23 percent, led by new products, including the Ruger Precision Rifle and LC9s pistol. RGR estimates its distributors' ended the quarter with 5.6 percent more inventory compared with a year earlier. The company's own inventory of finished goods grew just 1.4 percent.

RGR has pledged to donate $2 for each new Ruger firearm sold between the 2015 and 2016 NRA Annual Meetings, with the goal of donating $4 million toward the NRA Institute for Legislative Action (NRA-ILA). To reach that goal it offered dealers incentives this summer, that it usually does not make available until the major gun buying shows in January and February.

Higher unit volumes and lower overtime costs helped boost gross margin 390 basis points to 28.1 percent compared with the third quarter ended Sept. 27, 2014. RGR held SG&A at 13.3 percent of net sales, up just 70 basis points. Together, that push operating margins up 470 basis points to 14.9 percent. Earnings grew $5.2 million to $12 million, or 62 cents a share on a $22.6 million increase in revenues, which reach $120.9 million.

While he foresees less discounting of firearms during the holiday period compared with last year, RGR CEO Michael Fifer said that excess capacity at all levels of distribution will keep a lid on prices.

“In particular, the centerfire pistol category is very crowded with products in all the major calibers and all of the major frame sizes for most all of the larger firearms manufacturers,” he said.

Fifer noted that distributors have allocated more of RGR's products to retailers with the strongest balance sheets to mitigate their credit risk.

“Several of them had become decidedly more conservative as their balance sheets have been stressed,” Fifer said.

–Charlie Lunan