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Tuesday, March 4, 2014

Ruger CEO on Firearms Sales

We were reading through the latest 2013 Earnings Call Results for Ruger and noted some interesting insights from the company's CEO, Michael Fifer. Most of these were geared toward Ruger's operations, but a couple tidbits extended toward the industry in general giving an interesting view into the industry. Given that Ruger is a publicly traded company, it is easier to get this information given that they have to be more open in discussing the overall picture of their operations. We also value his opinion given the shear magnitude of firearms sales produced by Ruger. 



One of the most interesting insights given is the Ruger CEO's candid viewpoint on their exports, "Export is largely not a factor because essentially the world market for legal civilian gun, particularly hand gun is the United States. However, imports are a huge factor and it stuns me that our congressional leaders allow imports from countries that don’t allow us to send similar products to them. Why the heck would we allow imports from Brazil or Austria when those countries don’t allow us to export firearms to their countries. You think these guys care about American jobs, but it makes me wonder." We are sure there are plenty of counterpoints including jobs provided stateside by those manufacturers that import their firearms, however he definitely drives a good point. 

In regards to ammo shortage he points out,"...we cannot measure directly is the loss sales because consumers get discouraged when they can’t buy Rimfire ammunition. Then they are discouraged and tell us that they are deferring purchases of Rimfire, handguns and Rimfire rifles." This makes perfect sense from a consumer standpoint. If you already have one particular firearm in a caliber and can't find a steady supply of ammo to shoot it regularly, why would you want another firearm in the same caliber just for something different? 

Ruger has a wide product mix with the same breadth in price points, their CEO points out their own principles on pricing. He also goes into depth as to how they properly manage their accounts receivable to make sure that their distributors are not only selling, but also delivery cash in  return. "We give them absolute price discipline, so they know their inventory is non-perishable...The other manufacturers will have so far behaved in a way that they will look for any deal. They often undercut the distributors and the buying groups can buy cheaper than the distributor can buy or they will stuff the channel without hesitation. And so that – my bigger concern frankly is that can provide some cash flow constraints for some of the distributors that they have got too much of the other guys’ inventory or and it’s slow moving. So we frankly – since we treat them in a much better way we demand better performance from them. I don’t frankly care if they pay the other guy. But they will pay us, they will pay us on time or they are go to be fired..."

There has been a lot of buzz in the news about handgun manufacturers falling out of California due to micro-stamping laws. Here is Mr.Fifer's take on it, "It doesn’t work the technology is very, very flawed and California was frankly wrong to put it in place and it was a very politically driven, not technology driven, not factually driven, the damn thing doesn’t work nobody has been able to make it work although I think countless companies have tried. And it’s going to really harm the average citizen at California..." We concur with Mr. Fifer aside from the pure flawed logic from legislators that don't realize there are plenty of ways for criminals to get around any "technology" they concoct. 

Ruger isn't particularly known as a top competitor in the Modern Sporting Rifle, but they are starting to hold their own with some new introductions. In response to its contribution to the bottom line, the CEO states,"... keep in mind MSRs have never been a significant piece of our business." He further expounds on this point by further elaborating on the customer for their Modern Sporting Rifles, "We make a very high end, feature rich products and generally purchased by a really knowledgeable collector and user of those kind of gun...The average customer will buy a gas impingement gun where these are piston operated guns and cost quite a bit more, up to $1,000 more than the gas impingement version. So, it’s really a niche business."

The earnings call had a lot more great information about the new Mayodan, North Carolina factory  as well as details about distributor orders and how company policy evolved to adjust to the recent panic due to threats against our 2nd Amendment rights. No big announcements were made in terms of new product entries, but you can probably expect different calibers for their shotgun line. You can view the complete transcript as provided at Seeking Alpha