Sturm, Ruger & Company, Inc. Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 4, 2023

There are 6 speakers on the call.

Operator

Welcome to the First Quarter 2023 Sturm Ruger Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Killoy, President and Chief Executive Officer, please go ahead.

Speaker 1

Good morning, Welcome to the Sturm, Ruger and Company First Quarter 2023 Conference Call. I'd like to ask Kevin Reed, our General Counsel, to read the caution on forward looking statements. Tom Dean, our Chief Financial Officer, will give an overview of the Q1 2023 financial results, and then I will discuss our operations and the state of the market. After that, we'll get to your questions. Kevin?

Speaker 2

Thanks, Chris. We want to remind everyone that statements made in the course of this meeting that state the company's or management's 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 ks for the year ended December 31, 2022, and of course on the Form 10 Q for the Q1 of 2023, which we filed last night. Copies of these documents may be obtained by contacting the company or the SEC or on the company website atruger.com/corporateorthesecwebsite@sec.gov.

Speaker 2

We do reference non GAAP EBITDA. Please note that the reconciliation of GAAP net income to non GAAP EBITDA can be found in our Form 10 ks for the year ended December 31, 2022 and our Form 10 Q for the Q1 of 2023, both of which also are posted on our website. Furthermore, the company disclaims all responsibility to update forward looking statements. Chris?

Speaker 1

Thank you, Kevin. Now Tom will discuss the company's Q1 2023 results. Tom?

Speaker 3

Thanks, Chris. For the Q1 of 2023, net sales were $149,500,000 and diluted earnings were $0.81 per share. For the corresponding period in 2022, net sales were 166 $600,000 and diluted earnings were $1.70 per share. Decreased consumer demand led to a 10% reduction in 1st quarter sales compared to the prior year. Our profitability declined in the Q1 of 2023 from the Q1 of 2022, as our gross margin decreased from 35% to 26%.

Speaker 3

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 focused on fulfilling demand for products we had undersupplied since early in 20 20 and increased sales promotional costs. Our continued focus on financial discipline and the cultivation of long term shareholder value is evident in our strong debt free balance sheet. At April 1, 2023, our cash and short term investments totaled $130,000,000 Our short term investments are invested in the United States Treasury Bittles and in a money market fund that invests exclusively in the United States Treasury Instruments, which mature within 1 year. At April 1, 2023, our current ratio was 4.3:one and we had no debt. Stockholders' equity was $322,100,000 which equates to a book value of $18.19 per share, of which $7.35 was cash and short term investments.

Speaker 3

In the Q1 of 2023, we generated $5,300,000 of cash from operations. We reinvested $1,700,000 of that back into the company in the form of capital expenditures. We expect our 2023 capital expenditures to total approximately $20,000,000 relating to new product introductions, upgrades to our manufacturing equipment and improvements to our facilities. In the Q1 of 2023, The company returned $96,000,000 to its shareholders through the payment of our normal quarterly dividend and a $5 per share special dividend that was paid in January of 2023. Our Board of Directors declared a $0.32 per share quarterly dividend for shareholders of record as of May 15, 2023, payable on May 31, 2023.

Speaker 3

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 Q1 of 2023. Chris?

Speaker 1

Thanks, Tom. We remain faithful to our long term disciplined approach in the Q1 by targeting a production mix that better align with consumer demand and responsibly managing our overall production levels to reflect market conditions. This resulted in a slight decrease in production, about 4% from the Q4 of 2022. The estimated unit sell through of our products from the independent distributors to retailers in the Q1 of 2023 was essentially flat compared to the Q4 of 2022. Comparatively, NYX background checks as adjusted by the National Shooting Sports Foundation decreased 8% from the 4th quarter following the normal seasonal trend for NICS.

Speaker 1

We were pleased with a slight reduction of 1,000 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. Sales of new products including the MAX 9 pistol, LCP MAX pistol, the Marlin 1895 lever action rifles, the LC Carbine, Small frame autoloading rifle, the Super Wrangler and the Security 3 80 pistol represented $30,000,000 or 21% of firearm sales in the Q1 of 2023. New product sales include only major new products that were introduced in the last 2 years. Our new product development teams are hard at work. So far in 2023, we've introduced the Marlin 336 Classic, an iconic lever action rifle chambered in the popular and timeless thirty-thirty Winchester presented in polished blue alloy steel with a classic American walnut stock and forend.

Speaker 1

The Ruger Super Wrangler, a convertible model of the very popular Wrangler single action revolver delivered with a 22 long rifle and 22 Magnum cylinder built on an alloy steel frame featuring adjustable sights. The new lightweight model of the Ruger SR-nineteen eleven, a full size 5 inches 1911 pistol built on a forged aluminum frame, brought to market fully featured and at a competitive price that our customers will be sure to appreciate. And finally, Ruger made its first foray into the firearms optics market with the introduction of the RediDOT, a patent pending easy to use micro reflex sight system designed to co witness our Ruger's MAX 9 pistol and other compact handjos. Specifically designed for use without any batteries, the Red Dot's fiber illuminated reticle self adjusts to varying light conditions. We are ramping up production of these new products.

Speaker 1

In addition, distributor inventories of several product categories remain below pre pandemic levels, including Virtually all of our single action and double action revolvers, the Ruger Precision Rimfire rifle, the Mini-fourteen rifles and our bolt action hunting rifles. Before we get to your questions, I wanted to take a minute to recognize the states that have taken legislative action to prohibit their state agencies from engaging with banks that discriminate against the law abiding and highly regulated businesses in the firearms and ammunition industry. We are hopeful that federal legislation to discourage such practices, including the Firearm Industry Nondiscrimination Act or FIND Act will be enacted to put an end to this unjust treatment of our industry. This bill is currently making its way through both the House and the Senate. In the past 5 years, Ruger has been the target of discriminatory actions by 2 of the nation's largest banks, Bank of America and Wells Fargo.

Speaker 1

Both of these banks decided to change course and terminate their extension of credit to us because of the lawful products Operator, may we have the first question?

Operator

Thank you. One moment for our first question. Our first question will start from the line of Mark Smith from Lake Street. Your line is open.

Speaker 4

Hey guys, this is Jason on for Mark. Thanks for taking my questions. Just curious if you could talk about production and shipments. The products such as Wrangler or other lower priced products make up a larger mix this quarter?

Speaker 1

Hi, Jason. Thanks for your question. There are a few things. You're probably looking at some of the average selling price data And Super Wrangler, for example, is higher priced than the regular Wrangler, but still a relatively lower priced product. Also in the Q1, just a reminder, when you look at the average selling price for incoming orders, that was one of the things we noted was the MAX 9 repositioning where we Got our MAX 9 to a more aggressive price point.

Speaker 1

We did that by having our distributors order at a discounted price to net down their inventory to the new price that basically allows them to sell that MAX 9 at street price of every day about $3.49 on sale 2.9 So that's part of what bias that average selling price data down for both the orders received and the shipments.

Speaker 4

Okay, got you. Really helpful. And what are you seeing today around the promotional environment? Do you think the industry will get back into a race to the bottom on promotions or are your peers being more disciplined?

Speaker 1

Yes, another good question. We are seeing a lot of promotional activity out there. You'll see it at the retail counters, particularly at big box stores, you'll see a lot of rebates that are out there for the consumer. We're seeing some aggressive promotions. We we've done in the past.

Speaker 1

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.

Speaker 4

Okay, great. And then just last one for me and I'll jump back into queue. Lever action seems to still be a nice segment. Are you still seeing strong demand for Marlin rifles?

Speaker 1

Yes, very strong demand. In fact, one of the biggest things I get in terms of the emails that come into me is looking for the availability of the rifles. We're doing our best to get production up of the 1895s and the 336s. And later this summer, we'll be launching the 1894s. The 1894s will have the square bolt configuration and that'll get us it back into the 3.57 and 44 Magnum caliber.

Speaker 1

So we're excited about that and that will allow us to increase overall production of our Marlin business.

Speaker 4

Okay. Appreciate the color guys. Thanks a lot.

Speaker 1

Thank you,

Operator

One moment for our next question. Our next question will come from the line of Rommel Dionisio from Aegis Capital. Your line is open.

Speaker 5

Good morning. Thank you. The Red Dot new product introduction, Obviously very innovative. How do you guys think about that entering that category? I mean optics and lasers is pretty significant potential category.

Speaker 5

Is this something you Was this just kind of one off or is this something you want to kind of dive into as a category?

Speaker 1

Thank you, Rommel. Good question. The RediDOT was actually developed by our R and D team. We've got a small R and D team looking at things like Things like the Red Dot product as well as new materials and things like that, that show promise before they get into an actual product development cycle. So our team put this together, did the initiative on their own.

Speaker 1

And again, we're intrigued about the idea of developing and optic particularly for our MAX 9 and similarly sized pistols that use no batteries and it uses the fiber optic light gathering fiber optic to produce that dot and something we're excited about. I wouldn't call it a full blown entry into Things like red dots and lasers, that's not our intent. So far, we've been very successful partnering with some of our the other vendors out there when we want to do a red dot or a laser optic. But for us for this first attempt, we're very pleased with it. And initial results have been very satisfying both at

Operator

One moment for our next question. Looks like we have a follow-up question from the line of Mark Smith from Lake Street Capital. Your line is open. Mark, your line is open.

Speaker 1

Jason, did you have another question?

Speaker 5

Let me go ahead and

Operator

open this line one more time. Mark Smith from Lake Street. Your line is open.

Speaker 4

Hey guys. Sorry, our questions have been answered. Thank you.

Speaker 1

Okay. Thank you. Thanks, Jason.

Operator

All right. Looks like I don't have any further questions in the queue at this moment. I'd like to turn the call back over to Chris for any closing remarks.

Speaker 1

Well, first off, I'd like to thank all of you for attending this call, especially our shareholders. And I would like to thank our loyal customers and the 1900 hard working members of the Ruger team who design, build and sell rugged, reliable firearms. Our 2023 proxy statement was filed on April 20 and is available at our website and the SEC's website. Shareholders should have received voting and meeting instructions either directly from our transfer agent or from their brokers. I I hope you will be able to join us online for our virtual 2023 Annual Shareholders Meeting, which will be held on Thursday, June 1.

Speaker 1

Thank you once again.

Operator

With that, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a good

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