By Robert M. Hausman
Ruger Notes, Explains its Sales Decline
For the third quarter of 2014, net sales were $98.3 million and fully diluted earnings were $0.34 a share. For the corresponding period in 2013, net sales were $170.9 million and fully diluted earnings were $1.44 per share. For the first nine months of 2014 net sales were $421.9 million and fully diluted earnings were $2.69 per share.
For the corresponding period in 2013, net sales were $506.4 million and fully diluted earnings were $4.25 per share.
Ruger‘s sales decreased 43% year-over-year and the estimated sell through from the independent distributors to retail decreased 44% year-over-year. During this period, consumer demand appeared to decrease only 3% year-over-year as indicated by NICS background checks. Ruger stated several reasons why the company’s sales and sell through decreased more than NICS checks year-over-year in the third quarter.
With the slowdown in consumer demand, Ruger believes many retailers felt fully stocked and were buying fewer firearms than they were selling in the third quarter in an effort to reduce their inventories and generate cash. By itself, that does not necessarily mean that the company lost any market share.
Many of Ruger‘s competitors were engaging in aggressive price discounting while Ruger says it maintained its price discipline. This continued through the third quarter. Even though many retailers were curtailing their overall purchases some of these discounts were too attractive to ignore and many retailers responded to it.
As in the second quarter, the company maintained price discipline through the third quarter in spite of the continued heavy discounting by competitors. This action very likely resulted in a loss of market share, especially at Ruger’s largest national chain accounts.
New product introductions are an important driver of demand regardless of the political environment with a level of competitors discounting. Early in the third quarter of 2014, Ruger launched the LC9s pistol, an improved striker fire replacement for the popular LC9. The new firearm was well received in the marketplace and initial results were satisfactory with the new firearms stopping the decline in demand for the LC9 platform.
Late in the third quarter, the new AR556 modern sporting rifle was launched. The quantities of AR556 shipped in the third quarter were too small to have much impact on the quarter’s results but the rifle is expected to result in incremental sales for the company going forward.
Ruger’s earnings decreased 76% and its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) decreased 61% from the third quarter of 2013. The biggest driver of reduced operating margins was the significant decrease in sales of both firearms and firearms accessories. The next biggest driver of reduced operating margins was the deleveraging of fixed costs including depreciation, indirect labor, engineering, and product development costs.
A consequence of price discipline is that there is no pressure relief when distributors have sufficient inventory but demand continues to decline. The only relief is to cut production levels. Ruger continued to cut production levels ever more aggressively during the third quarter as it became evident that there was no improvement in demand. In aggregate, Ruger cut total unit production by 36% year-over-year for the third quarter.
Inventory levels of products at the independent distributors and at the company are now said to be adequate and production rates are close to the estimated distributor sell through to retail. At the end of the third quarter, production levels were approximately 5,750 units per day, a rate of about 1.4 million units per year.
Going forward, Ruger‘s strategy is to use new product introductions to spur demand and to adopt lean methodologies throughout the business to enable it to more efficiently fulfill that demand.
Citing Declining Sales, Colt’s May Default on Loan Payments
Weakening demand for its sporting rifles and handguns in the past year have sharply decreased revenues at Colt Defense LLC, and the gun maker reports that it is at risk of defaulting on a $10.9 million loan payment due shortly.
In a filing with the U.S. Securities and Exchange Commission dated Nov. 12, Colt reported that it is seeking an amendment to the loan and is trying to raise cash but without assistance could default on the loan by year’s end.
Operating income for the quarter ending Sept. 28 was down 50 to 60%, according to the filing. Sales were down 25 to 35%.
Delays in sales to the U.S. government, as well as “the timing of certain international sales,” also hurt the company’s revenues, the filing said.
Colt, based in West Hartford, has a grace period for making the Nov. 17 payment through December 15th, but it will be in default if that payment is missed, the filing reports. Even if it does make that payment, though, “it is probable that the company will not be in compliance with the company’s term loan … at Dec. 31.”
Company Future at Risk
“The company does not have sufficient funds to repay all of its debt upon an actual acceleration of maturity,” the filing states. “Lenders would likely take actions to secure their position as creditors and to mitigate their potential risks. These conditions would adversely impact the company’s liquidity, and raise substantial doubt about the company’s ability to continue as a going concern.”
Colt Defense LLC reunited its military and civilian handgun businesses in July 2013 with a $60.5 million acquisition of Colt Manufacturing Co., a decade after they were split apart. At the time of the merger, it was carrying $250 million in debt. Even then, analysts expressed concerns that Colt would have a difficult time meeting the obligations on the debt.
“The commercial business has done better than we thought, so that’ll be a bit of an offset, but still it’s not nearly enough to come up with the money to pay off those notes,” Christopher Denicolo, an analyst at S&P, said at the time.
SAF Supporting California Dealer Lawsuit v. Kamala Harris
The Second Amendment Foundation has joined the Calguns Foundation and California Association of Federal Firearms Licensees in support of a lawsuit filed by four California gun dealers against State Attorney General Kamala Harris, alleging a violation of their First Amendment rights.
The lawsuit alleges that the California Penal Code violates the First Amendment rights of the plaintiffs by prohibiting them from displaying images of handguns or even the word “handguns” where they would be visible to passersby. However, anti-gun protesters are still allowed to appear with signs that use the words or images, constituting what the lawsuit calls “viewpoint discriminatory.”
“By prohibiting firearms dealers from displaying on-site handgun advertisements, Section 26820 violates the right of firearms dealers to disseminate truthful, non-misleading commercial information about a lawful, constitutionally protected product,” the lawsuit alleges.
Plaintiffs in the lawsuit, which was filed in U.S. District Court for the Eastern District of California, are Tracy Rifle and Pistol, owned by Michael Baryla; Ten Percent Firearms, owned by Wesley Morris; Sacramento Black Rifle, Inc., owned by Robert Adams, and PRK Arms, Inc., owned by Jeffrey Mullen. They are represented by attorneys Bradley A. Benbrook and Stephen Duvernay, Benbrook Law Group, PC, and UCLA Law Professor Eugene Volokh.
In addition to Harris, State Department of Justice Bureau of Firearms chief Stephen Lindley, is named as a co-defendant.
SAF founder and Executive Vice President Alan M. Gottlieb said this case “will serve as a reminder that firearms dealers have First Amendment rights as well as Second Amendment rights, even in California. A state cannot legislate political correctness at the expense of a fundamental, constitutionally-delineated civil right,” Gottlieb said. “SAF is delighted to offer its financial support of this case.”
Russians Can Now Carry for Self-Defense
The Russian government is set to ease restrictions on the carrying of licensed firearms for the purpose of self-defense.
RIA Novosti notes that self-defense is added as a justifiable reason to obtain a firearms license, in addition to hunting or target shooting. Licenses are issued through the Interior Ministry and are renewed every five years. Requirements for foreigners buying guns in Russia have been eased.
License holders are allowed to carry shotguns, handguns, Tasers and tear gas guns. Rifles and certain knives still cannot be carried. Carrying guns in schools, night clubs that serve alcohol and at mass public gatherings will remain prohibited.
Comedian Jay Leno Cancels SHOT Show Appearance
Bowing to anti-gun pressure to the effect that he was “helping to legitimize a crass commercialization which values profit over human lives,” comedian Jay Leno has canceled his upcoming engagement at the S.H.O.T. Show.
Leno reportedly called the National Shooting Sports Foundation (NSSF) and told them he wished to cancel. Leno reportedly then contacted Po Murray, executive director of Newtown Action Alliance, to inform her he had cancelled his S.H.O.T. Show appearance. He allegedly said he “was unaware that the NSSF was a pro-gun lobbying group based in Newtown, CT.” And Leno reportedly told the far left Mother Jones magazine in separate remarks, “I understand its Newtown, and of course I get it. It’s just sometimes, mistakes get made.”
This author observes: Perhaps if NSSF were not situated in Newtown, the site of the Adam Lanza massacre, Leno would have appeared? The anti’s seem to make much of the NSSF being situated in Newtown as if Newtown were some sacred “Mecca” of the anti-gun movement. Leno really was not a suitable speaker as it turns out.
A sort of “petition” was post by the Coalition to Stop Gun Violence, with the theme, “Gun violence is not a joke, Mr. Leno. Cancel your appearance at the 2015 SHOT Show.” The drive was backed by the Campaign to Unload, which pushes for divestment from gun companies, and the Newtown Action Alliance, founded by residents of the Connecticut town who support firearms bans. Moms Demand Action for Gun Sense in America, which has pushed corporate restaurants and retailers to take a stand against open-carry activists in their stores, also launched a social media campaign against Leno.
NSSF Statement on Jay Leno Cancellation of SHOT Show Appearance
The National Shooting Sports Foundation issued the following statement on Leno’s cancellation:
“We are clearly disappointed by Jay Leno’s decision not to perform at the 2015 SHOT Show State of the Industry Dinner. He unilaterally cancelled his promised appearance due to pressure from the anti-gun lobby, which included false statements about our industry and its commitment to genuine firearms safety, which we attempted to personally correct with him, but to no avail.
We are not deterred by their publicity seeking nor are we unfamiliar with the bullying political tactics of the gun control groups that seem to have as little respect for the First Amendment as they continually demonstrate with regard to the Second Amendment.
“We are proud of the many programs that we run that meaningfully contribute to public safety including our long standing Project ChildSafe and Don’t Lie for the Other Guy initiatives in addition to our members everyday work in compliance with comprehensive federal and state laws. We will not allow the lawful commerce in firearms nor our industry to be demonized and we will continue to speak out for the Second Amendment rights of the millions of law-abiding citizens who are our customers.
“Despite Mr. Leno’s cancellation, we look forward to having our biggest and best State of the Industry Dinner to date with a performer that respects the contributions of our industry and the customers it supports.”
The author publishes two of the small arms industry’s most widely read trade newsletters. The International Firearms Trade covers the world firearms scene, and The New Firearms Business covers the domestic market. He may be reached at: FirearmsB@aol.com.
| This article first appeared in Small Arms Review V19N2 (March 2015) and was posted online on January 23, 2015 |
