Sturm, Ruger & Company posted net sales of $149.5 million for the first quarter of 2023, a 10.3 percent decline from $166.6 million in the year-ago quarter.
The estimated unit sell-through of the company’s products from the independent distributors to retailers decreased 5 percent in the first quarter compared to the prior-year period. For the same period, NICS background checks, as adjusted by the National Shooting Sports Foundation, decreased 1 percent.
Sales of new products, including the MAX-9 pistol, LCP MAX pistol, Marlin 1895 lever-action rifles, LC Carbine, Small-Frame Autoloading Rifle, Super Wrangler, and the Security-380 pistol represented $30.0 million, or 21 percent, of firearm sales in the first quarter of 2023. New product sales include only major new products that were introduced in the past two years.
“Decreased consumer demand led to a 10 percent reduction in first quarter sales compared to the prior year,” shared company CEO Chris Killoy. “We took a disciplined approach, targeted a production mix that better aligned with consumer demand, and continued to responsibly manage our overall production levels to reflect market conditions as we did throughout 2022. This is evidenced by the slight reduction in both our finished goods inventory and the inventory of our products at distributors, which sets us on a solid path for the remainder of the year.”
Diluted EPS was 81 cents per share for the quarter, down 52.3 percent from the $1.70 per diluted share posted in the year-ago quarter.
“Our profitability declined in the first quarter of 2023 from the first quarter of 2022, as our gross margin decreased from 35 percent to 26 percent,” explained company CFO Tom Dineen. “The lower margin was driven by unfavorable deleveraging of fixed costs relating from decreased production and sales — resulting from decreased production and sales, inflationary cost increases in materials, commodities, services, energy, fuel and transportation. And unfavorable product mix shift toward products with relatively lower margins as we focus on fulfilling demand for products we had undersupplied since early in 2020 and increased sales promotional costs.”
Killoy continued, “We remain faithful to our long-term disciplined approach in the first quarter by targeting a production mix and better aligned with consumer demand and responsibly managing our overall production levels to reflect market conditions. This resulted in a slight decrease in production about 4 percent from the fourth quarter of 2022. The estimated unit sell-through of our products from the independent distributors to retailers in the first quarter of 2023 was essentially flat compared to the fourth quarter of 2022.”
The CEO said NICS background checks, as adjusted by the National Shooting Sports Foundation, decreased 8 percent from the fourth quarter, following the normal seasonal trend for NICS. “We were pleased with the slight reduction of 11,000 total units between our finished goods inventory and the inventory of our products at distributors, which sets us on a solid path for the remainder of the year,” he said.
Killoy was asked by an analyst if he thought the industry will get back into a race to the bottom on promotions and the CEO responded that they are seeing a lot of promotional activity in the market.
“You’ll see that the retail counters particularly at big box stores, you’ll see a lot of rebates that are out there for the consumer,” Killoy explained. “We’re seeing some aggressive promotions. We participated with three moderate promotions in the first quarter and had fairly good success but they were not as aggressive as we’ve done in the past. And I expect that’s going to continue in the future as we go into the summer months where typically we see that seasonal slowdown, but I would expect the promotional environment to continue to heat up as we go forward this year.”
Killoy concluded his comments by thanking certain states that have taken legislative action to prohibit their state agencies from engaging with banks that discriminate against businesses in the firearms and ammunition industry. He also highlighted the federal Firearm Industry Nondiscrimination Act or FIND Act that is making its way through the U.S. Senate and U.S. House.
“In the past five years, Ruger has been the target of discriminatory actions by two of the nation’s largest banks: Bank of America and Wells Fargo,” Killoy revealed. “Both of these banks decided to change course and terminate their extension of credit to us, because of the lawful products that are 1,900 dedicated employees design manufacture and sell in our Newport New Hampshire Prescott, Arizona and Mayodan North Carolina factories.”
