Gun industry data suggests the multi-year industry slump has shown signs of reversing itself, but the improvements seemed to bypass Sturm, Ruger (RGR +0.59%), which reported fourth-quarter earnings on Feb. 19 showing net revenue fell 13% year over year.
As the biggest pure-play firearms company, the results may seem incongruous since the rising tide of demand should lift all boats, but there were a number of factors working against the company, and they kept Ruger's sales depressed. However, the gunsmith still remains well positioned for when the industry recovery begins in earnest.
Image source: Getty Images.
The high cost of high inventory
Ruger reported net sales of $105.1 million, 13% below the $121.1 million it recorded last year, generating earnings of $0.46 per share, down from $0.69 per share. New products represented $102.0 million, or 26%, of firearms sales in 2019.
Notably, however, Ruger's own inventory shrunk even though production grew during the period, because it shipped more firearms to dealers. The gunmaker doesn't sell directly to the public, only to federally licensed firearms dealers, which can often create a lag between what's showing up in industry demand and what Ruger is reporting.
According to adjusted firearms data from the National Shooting Sports Foundation, there were over four million checks conducted during the fourth quarter, up 35% from the third quarter and 5% higher year over year.
So while Ruger estimated the number of firearms sold from its dealers to retailers declined slightly year over year, they surged over 100,000 units from the previous quarter. Similarly, production and shipments all rose sequentially.
| Metric |
Q4 2019 |
Q3 2019 |
Q4 2018 |
|---|---|---|---|
|
Units ordered |
413,900 |
362,200 |
312,800 |
|
Units produced |
355,000 |
286,500 |
402,400 |
|
Units shipped |
387,500 |
328,400 |
394,800 |
|
Estimated units sold from distributors to retailers |
397,000 |
295,100 |
400,000 |
Data source: Sturm, Ruger SEC filing.
"Reckless" behavior
CEO Chris Killoy was clear in detailing what the problem was, saying in a statement that although there were structural problems in the industry that were still being worked through, Ruger's rivals compounded them "with undisciplined discounting, reckless extension of payment terms, and excessive promotions."
Killoy said Ruger's own promotional efforts were much more moderate by comparison, but the gunmaker was still hurt after United Sporting Companies -- the parent of Ellett Brothers, which had accounted for 12% of Ruger's sales in 2017 -- went bankrupt last year. Three other distributors, although small by comparison, also went under in the back half of the year.
According to Ruger, the combined market disruption from the bankruptcy and the subsequent liquidation of inventory depressed results in 2019.
Better days ahead
Management had warned previously that even though the firearms industry was looking healthier, it was still a buyer's market, and that hasn't changed. It's why, on the surface, Ruger's results make it seem like the company is missing out on the growing prosperity of the industry. Shares of Sturm, Ruger were up over 5% following the earnings news, which suggests the market has taken these industry conditions into consideration and is bullish on the rebound to come.
The gunmaker also reported a dividend of $0.18 per share, though the payout varies every quarter as a percentage of net income, about 40%.
