In a pandemic, everyone's a prepper, and some of the first things it seems everyone wanted to stock up on were firearms. Sturm, Ruger (NYSE:RGR) reported firearms sales jumped 9% in the first quarter to $123.6 million as sell-through from distributors to retailers surged 37% in the period.

Ruger doesn't sell directly to the public, only to federally-licensed firearms dealers. So there's not always a correlation between its own sales and when there is an uptick in consumer purchases as indicated by the number of background checks performed for gun buyers, as adjusted by the National Shooting Sports Foundation (NSSF).

Yet even Ruger's business was immediately affected by the massive surge in gun purchases witnessed in mid-March after COVID-19 was declared a pandemic.

Three revolvers on coiled rope

The Wrangler revolver has proved to be an exceptionally big seller for the company. Image source: Sturm, Ruger

Aiming for a record year

There was an unprecedented 300% spike in background checks conducted on March 16 alone, and the entire month experienced a staggering 3.7 million checks conducted on gun buyers by the FBI. That's more than the law enforcement agency has processed in any one month since it began keeping such records in 1998.

Even after the NSSF adjusted the data to better reflect potential new purchases, it was still an unprecedented 2.4 million checks, or 80% more than last year. The fervor hasn't abated, either, as there were 1.7 million adjusted background checks conducted in April, up 69% year over year.

Adjusted gun buyer background checks chart

Data source: National Shooting Sports Foundation. Chart by author.

Ruger was unable to keep up with the demand. CEO Chris Killoy had noted its January and February sales were strong, but there was nothing to prepare it for the increase seen in late March.

While that means some sales and profits were left on the table as gun buyers likely turned to other manufacturers, it also bodes well for the coming quarter and possibly beyond, depending upon how long the heightened demand lasts.

Sold out everywhere

Killoy said Ruger doesn't possess deep insight into retail inventory levels, but what it does know is that inventories of Ruger firearms -- and just about every other manufacturer -- have been virtually depleted.

As a result, Ruger has ramped up production and is trying to get back to producing 500,000 firearms a quarter, or two million per year.

The last time it was producing so many firearms was in 2016 as gun buyers were stocking up in anticipation of a different outcome to the presidential election. That was a record year for gun sales with 27.5 million background checks performed by the FBI -- 2020 is running 32% higher, and that's only through April. And we have another presidential election with similar stakes.

It indicates Ruger should be able to maintain optimal performance throughout the year, though it might not be as smooth.

New models to keep producing growth

In the prior period, when there was such excess demand, Ruger's production lines were much narrower, focused on just a few models such as its concealed-carry LCP (or lightweight compact pistol), which was the industry's best-selling gun that year (and the year after); and its 10/22 rifle, the most popular .22-caliber rifle on the market. Now its production lines are much more diverse, covering more types of pistols, revolvers, and rifles.

But that means profits may not be as stellar as expected. Ruger generated earnings of $0.87 per share this quarter, up almost 18% from last year, helping to boost its dividend to $0.35 per share (it is pegged to about 40% of net income, so the payout fluctuates every quarter).

But its Wrangler revolver, a top-selling gun, also carries a lower price point, similar to the new Ruger 57 it unveiled at this year's Shot Show, a gun industry trade show. Ruger said it hasn't seen any ammunition shortages for that model, as there have been with other more common rounds.

While profit margins have been easing for several years now, they did improve across the board this quarter. It's something Sturm, Ruger investors should keep an eye on even as they watch what ought to be a stellar year.