Ruger 3Q sales, profits plummet

But ‘nothing is broken,’ says CEO
Sturm Ruger CEO Michael Fifer

Sturm, Ruger & Co is sticking to its guns despite quarterly sales falling 42.5 percent, profits plunging 76 percent and market share also going down.

But while other companies might discount its inventory in response to declining sale, Ruger’s doing no such thing.

“Nothing is broken,” CEO Michael Fifer told analysts in a post-earnings conference call.

Ruger, headquartered in Connecticut but with a major facility in Newport, made money during the third quarter that ended Sept. 27: about $6.8 million, or 34 cents a share, with 14 cents a share going to shareholders in the form of a dividend. But that compares to $28.7 million during the same quarter last year.

The main reason for the slide was a drop in demand, as the buying spree stimulated by fears of gun control receded. Ruger’s sales fell from $171 million to $98 million. Part of that was due to the company maintaining its pricing structure, in part due to the fact that it was late to market with new products, which generally boost sales.

“The ongoing decline in demand, exacerbated by an environment of extreme price-cutting by competitors and the company's delayed new product launches, culminated in disappointing quarterly results. However, it's just the quarter. Nothing is broken,” Fifer said.

The company is cutting back on production, mainly by cutting overtime and production bonuses, but it will not cut back on research and development. Indeed, it expects to invest another $40 million in capital expenditures in the last quarter.

Fifer noted that gun sales seem to be stabilizing, and quoted research showing that new and diverse customers are entering the market.

“Many of them will realize just how much fun shooting is,” he said.

Still, don’t expect immediate improvement. There will be some lag before retailers start getting comfortable with their inventory and start purchasing, given the excess capacity that has built up over the course of the year.

“The recovery of the company may take longer than any of us will like,” Fifer warned.

New products would help, but delays have been commonplace, he said. ”We have more projects than we can staff,” Fifer explained. “We’ve got a bunch of great projects in the waiting list, and it’s been a very frustrating experience trying to get them out on schedule. I don’t think I have a project that’s less than a year overdue. I can’t tell you when they’re coming, but boy we have a lot of them.”

And Ruger is betting on those new products.

“Nothing beats a $50 rebate coupon like a brand-new exciting gun,” he said.

Exacerbating the problem next quarter will be the company’s switch from a defined benefit program to a 401(k) plan. The company will have to pay workers a lump sum to buy out their plans, which will cost $8 million in cash, and it will have to expense $40 million, of which about half will be counted against the company’s equity. That will have a major impact on fourth-quarter earnings, though it should save the company money in the long run.

Still Fifer thinks the company’s long-term strategy will work.

“I'm optimistic that Ruger can grow and prosper, but the transformation will take time and progress will not always be smooth,” he said.

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