Mr. Killoy made the following observations related to the Company’s second quarter 2022 performance:
· The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 31% in the first half of 2022 compared to the prior year period. For the same period, the National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation) decreased 17%. These decreases are attributable to decreased consumer demand for firearms from the unprecedented levels of the surge that began in 2020 and remained for most of 2021. The second quarter of 2021 had the highest quarterly distributor unit sell-through in the Company’s history, which led to the significant year-over-year decrease in distributor sell-through in the current quarter.
· Sales of new products, including the PC Charger, the MAX-9 pistol, the LCP MAX pistol, and Marlin 1895 lever-action rifles, represented $33.8 million or 11% of firearm sales in the first half of 2022. New product sales include only major new products that were introduced in the past two years. Several popular firearms that were considered new products in 2021, including the Wrangler revolver, the Ruger-5.7 pistol, and the LCP II in .22 LR pistol, have now been in production for over two years and are no longer included in new product sales for the first half of 2022.
· Our profitability declined in the second quarter of 2022 from the second quarter of 2021 as our gross margin decreased from 39% to 31%. In addition to unfavorable deleveraging of fixed costs resulting from decreased production and sales, inflationary cost increases in materials, commodities, services, energy, fuel and transportation, partially offset by increased pricing, resulted in the lower margin.
· During the second quarter of 2022, the Company’s finished goods inventory and distributor inventories of the Company’s products increased 49,300 units and 28,200 units, respectively.
Industry wide trend. Not just Ruger. Year over year comparisons of sales shake out seasonal variations but don't account for anomalies like:
unprecedented levels of the surge that began in 2020 and remained for most of 2021. The second quarter of 2021 had the highest quarterly distributor unit sell-through in the Company’s history, which led to the significant year-over-year decrease in distributor sell-through in the current quarter.
As a matter of personal investment style I prefer much larger size firms that have major structural advantages against competition but have temporarily fallen hard in stock price due to factors that will go away in the long term.
But keeping this on Ruger as a gun forum subject, I think they have accelerated a move toward cheaper and faster, but not necessarily better, just good enough with upgraded features. They produce extremely popular handguns at low prices with excellent customer service responsiveness. Initial quality could be better, as with the case of my LCP MAX which works - but the finish across three (3!) slides/barrels show rust brand new and I cannot get rid of it. This to me is a reduction in quality. But you do get a lot of value for the money even so.
Comparing my 2009 LCP gen 1 (which in all fairness had it's slide replaced due to extraction issues early on) never showed rust, ever. It cost about 350 in 2009 money. I paid the same in 2022 for the LCP MAX, and got dovetailed sights with a tritium front, 10+1, superior trigger, much better extractor, much better serr
As for the revolver line, I find it much better, they work and don't have rust problems.