Q3 2023 Sturm Ruger & Company Inc Earnings Call
Hello, and welcome to the Q3 2023.
Ruger earnings Conference call at this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
It is now my pleasure to introduce president and CEO, Chris <unk>.
Yeah.
Good morning, and welcome to the Sturm Ruger <unk> Company third quarter 2023 conference call.
I'll ask Kevin Reid, our general counsel to read the caution on forward looking statements.
And aid our Chief Financial Officer will then give an overview of the third quarter 2023 financial results and then I will discuss our operations and the market.
After that we'll get to your questions Kevin.
Sure Chris So we want to remind everyone that statements made in the course of this meeting that they had the companys or managements intentions hopes beliefs expectations or predictions of the future are forward looking statements.
It is important to note that the company's actual results could differ materially from those projected in such forward looking statements.
Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained from time to time in the company's SEC filings, including but not limited to the company's reports on Form 10-K for the year ended December 31, 2022 and of course the forms 10-Q.
For the last for the first second and third quarter of 2023, the latter of which we filed last night.
These documents may be obtained by contacting the company or the SEC or on the company website at Ruger Dotcom. Unfortunately corporate of course, the SEC website at SEC Gov. We do reference non-GAAP EBITDA. Please note that the reconciliation of GAAP net income to non-GAAP EBITDA can be found on our Form 10-K for the year ended December 31st of all I can do.
Again, all the forms 10-Q for the first second and third quarters of 2023, all of which are posted to our website.
The company disclaims all responsibility to update forward looking statements Chris.
Thank you Kevin now Tom will discuss the company's third quarter 2023 results Tom.
Thanks, Chris.
For the third quarter of 2023.
Net sales were $129 million and diluted earnings were <unk> 42 cents per share.
For the corresponding period in 2022.
Net sales were $139.4 million and diluted earnings were $1 <unk> per share.
For the nine months ended September 32023, net sales were $413 $2 million.
And diluted earnings were $2 13 per share.
For the corresponding period in 2022, net sales were $446.6 million and diluted earnings diluted earnings were $3 90 per share.
Our profitability declined in the third quarter of 2023 from the third quarter of 2022, as our gross margin decreased from 28% to 20%.
The lower margin was driven by unfavorable deleveraging of fixed costs.
Resulting from decreased production.
Increased sales promotional activity, including the price repositioning of our original LCP models and our security nine pistol.
Our product mix shift toward products and relatively higher demand with relatively lower margins.
And cost increases in materials commodities.
Services wages.
Fuel and transportation.
Our continued focus on financial discipline and long term shareholder value is evident in our strong debt free balance sheet.
At September 32023, our cash and short term investments totaled $120 million.
Our short term investments are invested in the United States Treasury bills.
And in a money market fund that invests exclusively in the United States Treasury instruments, which mature within one year.
At September 32023, our current ratio was four five to one and we had no debt.
Stockholders' equity was $335.5 million, which equates to a book value of $18 92 per share.
$6 77.
Cash and short term investments.
And the first nine months of 2023, we generated $17 $3 million of cash from operations.
We reinvested $11 $6 million of that back into the company in the form of capital expenditures.
We expect our 2023 capital expenditures will approximate.
Total $20 million related to new product introductions.
So our manufacturing equipment and improvements to our facilities.
And the first nine months of 2023, we returned $107 $8 million to our shareholders.
Through the payment of our quarterly dividends and a $5 per share special dividend paid in January 2023.
Our board of directors declared a <unk> 17 per share quarterly dividend for shareholders of record as of November 15th 2023 payable on November 29 2023.
As a reminder, our quarterly dividend is approximately 40% of net income and therefore varies quarter to quarter.
That's the financial update for the quarter Chris.
Our third quarter sales and profitability decreased from last year as overall firearms demand declined creating a challenging promotional rich marketplace.
Estimated unit sell through of our products from the independent distributors to retailers in the first nine months of 2023 decreased 8% compared to the prior year period.
Apparently nick's background checks as adjusted by the National shooting Sports Foundation decreased 7% during the first nine months of 2022.
We remain focused on our long term strategy and adjusted production rates on various product lines to better match demand, which reduced our overall production.
While our decreased production hindered current period profitability, we successfully managed inventory levels during the seasonally slow quarter with only a nominal increase in finished goods in our warehouses and essentially no change in distributor inventories, we are well positioned heading into the fourth quarter.
We stayed disciplined and offered only modest promotions in the third quarter. We ran three retailer promotions one for each of the $2 22, the wrangler and the American Center fire rifle product families to ensure were main maintained our strong presence at retail.
As Tom mentioned earlier in September we also repositioned our pricing on two products, the LCP pistol and the security nine pistol.
This allows retailers to offer these products at competitive prices in the very tight pistol market, while ensuring profitability for all three participants in the distribution channel Ruger distributors and the retailers.
You may recall that we reposition our pricing on the Max nine pistol in the first quarter of 2023.
We are extremely pleased with the results of this price strategy in our results and performance of the Max nine.
As we did with the Max nine we protected the independent distributors inventories of LCP in security nine pistols, which adversely impacted our current margins, but will benefit us going forward as we continue to demonstrate our commitment and appreciation for the investment distributors make in Ruger products.
You can rest assure that their investment in Ruger is sound and profitable.
Our debt free balance sheet and diverse product offerings have us well positioned to capitalize on the firearms market rebounds.
We continue to look for opportunities to enhance our current products and to expand our product portfolio through product innovation and development.
2023 has been a busy year.
Earlier. This week, we introduced a ruger made Marlin dark series lever action rifles, which will appeal to a broad variety of firearms that is interested in a more modern look and features to enhance the rifles classic design.
Other new product introductions in 2023 include two other Marlin lever action rifles.
The amount of $3 36 classic chambered in 30 30 Winchester.
The model <unk> hundred 94 classic lever action rifles chambered in 44 Magnum.
In April we launched the Super Wrangler revolver, which comes with two sellers one for the inexpensive try to long rifle ammunition at once a more powerful 22 bag of ammunition.
As we mentioned last quarter in 2023, we are capitalizing on the opportunity to offer new Ruger pistols in California for the first time in 10 years brought about by some recent changes in the pistol requirements.
To date for Ruger pistols have been added to the California roster of certified handguns and <unk>.
<unk> Mark for the.
<unk> 22, and LCP at a Max nine pistol in the coming months, we look forward to introducing exciting new firearms in both the Ruger and Marlin brands as well as offering additional pistol to the California market.
New product sales, which include only major new products that were introduced in the past two years like the Marlins are Super Wranglers I just mentioned.
And $95 million or 23% of firearm sales in the first nine months of 2023.
This includes the Max nine pistol LCP Max pistol, the LC carvey.
The small frame auto auto rifle security 380 pistol.
And the aforementioned Super Wrangler revolver, and all Mark Marlin rifles.
Last week, we attended the National Association of Sporting goods wholesalers annual Expo better known as the NAF CW show in Columbus, Ohio.
We were honored to be recognized by the independent distributors as Renee and firearms manufacturer of the year and awarded best New Rifle and best New overall product for Marlin model 336. This was a great Testament to our <unk> thousand 800 loyal and hard working associates.
Those are the highlights of the third quarter of 2023.
Operator may we please have the first question.
Hello, Lee as a reminder, ladies and gentlemen to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
A moment please.
And our first question comes from the line of Mark Smith with Lake Street.
Hi, guys a handful of questions here for you this morning.
First one just looking at that mix shift during the quarter.
Did we see it really shift towards lower priced pistols and it sounds like that's kind of what you were promoting during the quarter or was that the biggest part of the mix shift.
Well Mark I'm wondering if potentially youre looking at the say the average selling price on incoming orders or or outbound sales and that's part of that is true, but it's also part of those those repositioning that we mentioned at the lower price point and the.
The price you used to protect distributors' inventory.
That move those numbers down and Thats, where that comes from it.
We're not for that those both those particular metrics would in fact be higher I think by about $70 if I recall.
Okay, Yes.
The thing was really the ASP on the orders received.
Certainly the lowest that we've seen it in the last year year, and a half or so so.
Yes.
And then similarly similar questions. Your Asps on backlog orders are still really high.
Is this a higher mix of Marlin.
Or other long rifles.
What's kind of driving that and if so.
Would you able to meet some of that demand to get back those those rifles potentially shipped out during October ahead of kind of core hunting season.
Okay.
Good question I mean, certainly the higher price points on the back order includes a lot of Marlin rifles. Both the 18 94 as of recently introduced the $3 36, and even 80 90 fives have been introduced.
Back in December 2021.
We have a significant backlog, we're working very hard to catch up the folks and made and have done a great job adding capacity.
Some of the thoughts you may have heard me talk about that before.
Basically the 18, 95% and $3 36 as are built on one line and we when we added in the 18 94, it basically doubles our capacity the 894, which gives US a 44 magnum and very shortly youll see the $3 57 Magnum.
That helps us double capacity and made them. So I'm optimistic that we'll be able to catch up on that backlog, but it's still a good sign that the the.
The backlog remains intact, new Marlins that we've just introduced the.
The dark series this week.
Again, we're pleased the backlog, we'd likely be shipping more of we want to make sure. We focus on quality first and then we'll gradually eat into that backlog.
Okay.
And then you highlighted and talked a little bit about inventory and it sounds like youre pretty comfortable with the inventory, but as we look at the company's inventory it sounds like in finished goods.
<unk> moved higher and is that kind of at least recent history kind of record highs here.
Comfortable argue.
With the inventory that you guys have in your warehouse.
Yes.
The current inventory is pretty well balanced and there is a couple of categories that we know.
When things accelerate we're glad we have that inventory.
The ability to ramp up quickly.
Is something we wish reveal faster, but one of the reasons, we want to maintain that inventories to ensure that as the market rebounds, we're well positioned for it.
When you look back into 2022 and 2021, certainly some of those inventories were really artificially biased down I mean, you go back to early 2022, I think it was about 50000 units in inventory at very low that's really artificially too low.
As one of our one of my old <unk> remind me the sales business you can't sell from an empty wagon and so we think we've got a good inventory good mix.
We watch it very closely and Thats. The reason frankly, we took production down this quarter as we kind of hit our safety stock levels in certain categories, we move those production rates down.
Sure.
Okay, and then last one for me have you see.
As you talk to your.
Retailers, but really distributor partners and any shift in demand, especially as we think about the last 30 days, we are still kind of waiting on the mixed data, but any updates from your point of view on demand.
We had some very good meetings with all of our wholesale distributors out of the CW show in Columbus, Great meetings talked about.
Confidentially with new products that we have in the works with them that they are very excited about we also ask the exact same question have you seen an uptick or a change in demand in the last couple of weeks and certainly they saw some movement, particularly in the ammunition category.
But when it came to the firearm side is a little bit a little bit, but most of it seem to be focused on.
Products that we don't make which included.
Very low low priced MSR rifles, and so most of what we heard was it hasn't really impacted the primary categories of Ruger operates in may in the future. It remains to be seen I think it was probably it helped move some some inventory out at retail level and that generated some cash I think for <unk>.
Retailers to perhaps fill in some holes in their inventory, which we heard from our wholesale customers. So I think it had a positive effect, but not like we saw say.
Early 2020 and beginning of Covid.
Things like that nothing nothing along those.
Magnitudes.
Okay, I'm IMAX squeeze in one more here just as we looked at the regulatory environment any changes around exports here with some recent shifts.
It could potentially impact your business.
Mark can probably referring to the announcements and the Commerce Department.
Regarding.
Temporary 90 day export ban.
I think the headlines were a little deceptive in that it made it sound like all all firearms for being bad when you look at the companies that were.
Specifically carved out and allowed to continue as normal.
In <unk> case that 90% of our exports when we look back on 2022 and 2023 to date are unaffected so it could be or to the expanded certainly it could be an issue, but right now 90% of our exports are not impacted based on the countries that are specifically.
Allowed by that.
Typically our export business as you likely remember it typically goes between 5% to 6% I think year to date this year, maybe around seven but it's not a big part of our business overall, but we do pretty well with it. It's just that at least at our export team is really on top of this and I don't see a major impact from this unless it were to expand based on the <unk>.
We've currently got from the administration.
Perfect. Thank you.
Thank you.
Please for our next question.
And our next question comes from the line of <unk> <unk> with <unk> capital.
Hi, good morning, Thanks for taking my question.
Chris given the next time, we'll chat will be in a few months after shot show I Wonder if you could just preview the environment going into this critical period of the year, where you are you're going to have distributor meetings chat.
Be launching new products could you just talk about the overall receptivity that you think youll be seeing here over the next few months with regards to taking on new products and inventories and just sort of broad picture terms. Thank you.
Thanks Rommel.
Yes.
Like I mentioned, the Aaas GW show was a good meeting we typically we have Tom and I are there we have our wholesales force.
We spend time with every single one of our wholesale partners and there are some great folks that we deal with very candid conversations and one of the things. We recognize this is a very remains a very.
Promotional driven marketplace. So that's one of the things we're asking of our <unk>.
Distributors to see what's working what's not.
We also gave us the opportunity to.
Under the.
Under an NDA. So we'll go through some of the new products are in the worse.
And the reception was great for some of the things that are coming down the Pike now of course, we we.
We never predict exactly when those new products are going to launch, but we've got some great things in the works or distributors were pleased to see that.
They remain a little cautious in terms of their buying patterns just because.
They see retailers being cautious and are watching retailers and the credit situation at retail very closely so I think as we've seen credit tightened up a little bit for some of those retailers as interest rates are.
Have risen.
<unk> ability to credit may have tightened up a little bit it's just something that they watch very closely and that's why even though we sell exclusively to those wholesale part of wholesale distributors, we stay very much in sync with them Tom talks to their cfos just to keep a pulse of what's going on with our credit and retail level. So I think most.
Retailers have been pretty good as far as managing the downturn in demand.
There may be a few that have struggled but for the most part we heard pretty positive.
Reports on accounts receivables on the part of our distributors and I think I think we are in decent shape going into the end of the shot show.
There'll be other new products that will be competing with.
But so far everything we've done has been well received and I think our distributors are looking for us to help drive business in 2024 with additional new products and maintain our commitment to the two step distribution model.
Okay, and maybe a quick follow up.
Obviously, you've got some major new products moving into the California market and the California roster could you just talk about pent up demand I mean, obviously it's been.
A decade, or so that you've been able to offer some of these products in there and yes, I wonder if you could just chat on that thanks.
Yes.
Thanks, Rommel, yes, it's been some pent up demand to be sure for Ruger, but there were still a lot of guns on that roster to be honest. There are still a lot of firearms are on there.
The Max nine in particular has been very successful because of course that got a lot of <unk>.
Lot of hype in the press and in the trade media and things like that when it was launched and continues to do so.
And California.
Your residence weren't able to participate in that but now they are so that's a good example of some near term pent up demand.
Other products like the Mark for any S. A R 22, and LCP model, we have in there.
Think it's been not quite as strong the Max nine is kind of in the <unk>.
Bell of the ball in terms of the California market for Us. So we're very pleased with it and we've got a couple more of they're going to join the California roster here in not too distant future.
Great. Thanks, very much Chris.
Thanks Rommel.
Thank you Hello would.
Please for our next question.
Okay.
And our next question comes from the line of Ryan Hamilton with Morgan Dempsey capital.
Brian Please check your mute button.
Okay.
Pardon me Brian Please on mute your line.
Okay.
Okay.
One moment please for our next question.
Okay.
And our next question comes from the line of Josh Kurzban with.
<unk> capital your line is open hi.
Thank you for the call.
When you met with your distributors what was the date of that meeting was that pre or post the tragic events in the middle East.
Yes that was just last week that was at the.
National associated sporting goods wholesalers Expo in Columbus, So that was the last week the meetings run.
Three days Wednesday, Thursday, and Friday of last week.
Theres been lots of talk both anecdotal and in the media about the surge in gun sales.
Three core <unk> quarter over quarter.
I know you don't give explicit guidance, but would it be safe to assume that.
Other than normal seasonality, given those tragic events and the opening.
The firearm market two brands market to participants.
Participants that would never.
Considered owning firearms attack.
Well I think one of the things is that in the current quarter. So we typically don't talk about current quarters or future events from a financial standpoint.
Yes, we are seeing the same media reports like like I mentioned, our distributors and manufacturers in the two step model, where a little bit removed from it we've seen reports of increased sales at retail.
But at least as of last week, we hadn't seen a lot of that moving back upstream to the manufacturers, but there are still a lot of goods in inventories, particularly at the retail level of wholesale level to work through so yes, there may be some good demand signals coming for all of our reasons, perhaps but.
We're watching that very closely and our sales force.
As in the field every day every week.
In store sales. So we've got a pretty good read from them, what's moving and what's not so.
I think we'll be well positioned to capitalize on any increase bump in sales.
When that occurs.
Would you expect that.
That increase to be more enduring.
What happened in the wake of Covid given that this is a new population and a related question to that and this is more.
Yeah radical.
Obviously the left has been.
Yes exactly.
Quite a while.
Would you expect some of those people too.
Eat less adverse to protect.
Protective measures being taken by families. Do you think the political pressure is going to be turned down a bit.
That's a hard one that hard one to say we saw with.
With Covid and some of the things going on in 2000 22021.
It did bring a lot of new customers into the fold and Thats always helpful in terms of.
The ability to get those new customers to go from being at a one gun purchase to a potentially multi gone purchase and try to get into segments of the shooting sports that they can enjoy long term for example, using our $10 22, a rifle or a mark for family of pistols.
<unk> really taken off in a range and enjoy it.
And so our goal is always when we get the opportunity to get new shooters into the business.
To try to welcome them with open arms of course, and then also to get them to understand that.
How broad and deep the firearms community is and how much enjoyment. They could have out of the range taken a family out and learning how to sheet safely.
And as far as they're changing their political views, it's hard to say I don't think.
Adequately comment that I'd like to think.
It wakes people up to the idea that.
While they may not have considered a firearm purchase in the past now that they have and they realize that the second amendment rights are worth supporting and maybe they do reconsider some of their previous political beliefs.
When would you get the background check data for October.
Pretty quickly I would expect probably.
Maybe maybe late today or tomorrow.
It's been fairly fast turnaround these days as far as seeing that and then.
Shooting Sports Foundation turned around pretty quickly with there are adjustments that they make to it to account for permits and things of that nature.
What are your expectations on that.
For the month of October to be candid I don't I don't recall, where October last year was so okay.
I wouldn't hazard hazard a guess.
Okay.
Alright.
Appreciate it thank you.
Thank you.
Thank you one moment please for our next question.
And our next question comes from the line of Ryan Hamilton with Morgan Dempsey Capital. Your line is now open.
It looks like Brian it seems to be having some technical difficulties so with that I'll now hand, the call back over to President and CEO, Chris <unk> for any closing remarks.
Okay.
Yeah.
I'd like to thank all of you for attending this call today, especially our shareholders as we head towards the end of the year I want to mention two important dates next week.
Next tuesday's election days, the defining event in any democracy as we head into an uncertain global political and economic future. Your voice at the polls is of tremendous importance. Please.
Please educate yourself on the issues that are important to you learn about the candidates and most importantly vote.
And next Saturday November 11th is veterans day.
Without the sacrifice of those who serve our great country, we wouldn't have the ability to exercise, our many freedoms, including our right to vote.
Please take a moment and say a prayer of thanks to all of the various servicemen and Servicewomen, who fly to obtain and protect these rights for all of us.
We think all veterans, especially the veteran members of the Ruger family for their service and sacrifice to our country. We look forward to our next quarterly call in February.
Ladies and gentlemen, thank you for participating this concludes today's program and you may now disconnect.
Okay.
Okay.
Yes.
Okay.