The CEO of Sturm Ruger said the company has yet to see any spike in gun sales in wake of last month’s massacre in Las Vegas.
“Really we haven’t seen anything significant,” said Chris Killoy, president and CEO, on its third-quarter conference call with analysts. “Obviously a very tragic event, but certainly nothing that we’ve seen any impact on.”
Killoy noted that the NICS (National Instant Criminal Background Check System) October background checks haven’t come out yet for October that may provide some insights. But he added, “We haven’t seen that reported from our sales force or from our internal channel checks.”
The Las Vegas shooting, which took place on the night of October 1, sparked renewed calls to reopen the overall gun debate.
In the quarter, net profits for Sturm Ruger declined 52.7 percent to $52.8 million, or 53 cents a share. Sales dropped 35.1 percent to $104.8 million.
Results came in short of Wall Street’s consensus targets calling for 60 cents in earnings and $121 million in sales.
Demand for firearms over the summer months and early fall were boosted on expectations that Hillary Clinton would win the presidential election and push for stricter gun ownership laws. But with the surprise election of Donald Trump, demand for firearms have since declined significantly.
“Demand in the third quarter slowed considerably from the prior year,” said Killoy on the call.
The estimated unit sell through of the company’s products from the independent distributors to retailers decreased 25 percent and 16 percent in the three and nine months ended September 30 versus the comparable prior year. For the same period, the NICS background checks as adjusted by the NSSF decreased 16 percent and 10 percent.
He listed four factors driving that decreased sell-through. First, decreased overall consumer demand in 2017 due to stronger than normal demand for most of 2016, likely bolstered by the election. Two, reduced purchasing by retailers in an effort to reduce their inventories and generate cash. Three, aggressive price discounting and lucrative consumer rebates offered by many of competitors. Fourth, increased industry manufacture and capacity that the other factors.
Killoy said the company offered more promotions that were “moderately more aggressive” than last year but didn’t “chase our competitors’ offerings to achieve better short-term results.”
Payment terms remained 2 percent 30 days net 40 days. Said Killoy, “We will continue to take a measured and thoughtful approach to sales promotions and rebate opportunities considering both the short-term benefits and the potential longer term implications both financial and reputational.”
Killoy said new products remain the “key driver of demand” and 30 percent of its firearm sales in the first nine months came from new products, or launches over the past two years. In 2017, new products included the Mark IV pistols, Precision Rifle and the LCP II pistol, “and we have some exciting projects underway,” the CEO said.
Based on ongoing estimated sell-throughs as well as inventory checks of the marketplace, Sturm Ruger decreased its total unit production by 17 percent for the first nine months of 2017 from the first nine months of 2016. The reduced production levels allowed the company’s finished goods inventory to decrease 1,800 units in the third quarter of 2017. Distributor inventories of the firm’s products decreased 12,200 units during the same period. Added Killoy, “The current level of distributor inventories is not excessive or out of line.”
“Remember, unlike most of our competitors, effectively all of our domestic firearm sales go through our distributors. We will continue to manage our production and inventory as we head into the fourth quarter of 2017 and into 2018.
In the Q&A session, Killoy said the summer months saw a “return to a more normal seasonality,” although the third quarter is historically a “pretty weak quarter” and the period was challenged by “some very aggressive promotions, consumer rebates, and it is a tough comp from last year.”
While the start of hunting season has also been impacted by some warmer weather, Killoy believes retailers “are still optimistic that they we’re going to get a decent, maybe not dramatically improved hunting season, but a decent hunting season and one, where people who may be put off that hunting rifle purchase last year are coming back into the store willing to spend their money.”
Photo courtesy Storm Ruger
