Sturm, Ruger & Company, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 30, 2024; comparisons are with the three months ended April 1, 2023 unless noted. The company primarily designs, manufactures, and sells firearms; firearms accounted for about 99% of sales.
Financial results
| Metric | Q1 2024 | Prior-year period | Change |
|---|---|---|---|
| Total net sales | $136.8 million | $149.5 million | Down 8.5% |
| Firearms sales | $136.0 million | $148.9 million | Down 8.7% |
| Gross profit / margin | $29.4 million / 21.5% | $38.5 million / 25.8% | Profit down 23.6%; margin down 4.3 percentage points |
| Operating income | $7.5 million | $17.0 million | Down 55.8% |
| Net income / diluted EPS | $7.1 million / $0.40 | $14.4 million / $0.81 | Net income down 50.6% |
| EBITDA / EBITDA margin | $13.5 million / 9.9% | $23.8 million / 16.0% | EBITDA down 43.2% |
| Cash provided by operating activities | $7.3 million | $5.3 million | Up $2.1 million |
Management attributed lower gross profit to reduced sales, a mix shift toward lower-margin products, fixed-cost deleveraging from lower production, and inflationary costs; higher pricing partly offset these pressures. Operating expenses rose 1.9% to $21.9 million. The effective tax rate was 21.7%, versus 22.4%.
Liquidity, capital and balance sheet
- Cash and short-term investments totaled $115.3 million at quarter-end, including $75.3 million of U.S. Treasury instruments and $24.2 million in a Treasury-investing money market fund.
- Working capital was $208.5 million after the $65.6 million LIFO reserve; the current ratio was 5.2 to 1. Net inventories fell to $68.5 million from $79.8 million at year-end.
- The company reported no borrowings on its $40 million unsecured revolving credit facility, which expires January 7, 2025. Lease liabilities were $2.6 million.
- Capital expenditures were $1.8 million. The company expects approximately $15 million of 2024 capital expenditures, funded from operations and existing cash, subject to change.
- It paid $4.1 million in dividends and repurchased 75,024 shares for $3.2 million at an average $42.89 per share. About $71.5 million remained authorized for repurchases.
Business trends, outlook and notable items
- Estimated distributor-to-retailer sell-through increased 1% year over year, while adjusted NICS background checks declined 4%. Firearms shipments were 345,400 units versus 384,900; production rose 3% from Q4 2023. Distributor and company inventories both declined during Q1.
- Orders received were $198.2 million, compared with $156.2 million a year earlier; ending backlog was $296.2 million versus $327.3 million. Management says it primarily uses sell-through and inventory levels, rather than orders or backlog, to plan production.
- New products introduced in the prior two years generated $41.8 million, or 32.0%, of firearm sales.
- A reduction in force affecting about 80 employees resulted in $1.5 million of accrued severance expense. Management expects approximately $9 million in annualized cash savings and says it may continue consolidating functions and reducing investment in lower-priority areas.
- No formal full-year revenue or earnings guidance is provided in the supplied filing text. The company’s dividend varies with earnings; it described a practice of paying approximately 40% of net income. A subsequent 16-cent-per-share dividend was authorized for payment June 7, 2024.
- Management cited potential raw-material supply constraints and price inflation, market demand, litigation, and future firearms-control or environmental legislation among uncertainties that could affect results. It said litigation is not expected to materially harm financial position, but could materially affect results in a particular period. The filing reports ten lawsuits and other claims; the new FN Herstal suit alleges trademark infringement. The company disputes the allegations.
Important facts for investors to verify
- Whether lower sales, production-related fixed-cost pressure, product mix, and inflation continue to weigh on gross margin.
- Whether sell-through, distributor inventories, orders, and backlog develop consistently; the filing notes sell-through estimates rely on unverified distributor data and exclude retailer inventory.
- Whether the planned workforce savings are realized and how severance, capital spending, dividends, and share repurchases affect cash.
- Developments in the pending lawsuits, particularly the Mexico, municipal, wrongful-death, data-breach, and trademark matters, and the limits or exclusions of product-liability insurance.
- The company’s $40 million credit facility expires in January 2025; confirm any refinancing or replacement plans.