The Ruger Q4 2012 earning call was particularly enlightening as to the environment gun companies are operating in at the moment. Ruger’s sales have been soaring. NCIS background checks for Q4 rose 41% while Ruger’s sales (from distributors to retails) rose an estimated 73%. This won’t be surprising to anyone who has gone into a gun shop recently and tried to buy a Ruger firearm. Their component suppliers, especially the AR-15 part suppliers, are struggling to keep up with demand. All quotes are of Michael Fifer (President & CEO) unless otherwise stated.
Well, one of the real challenges is getting our suppliers, many of which are very small businesses, to keep up with our rapid growth over the last five years. And so we are reaching out more and more to try to help those guys. In some cases, we will buy equipment and park it at their place. In some cases, we will try to steer them towards lean implementation at their own place. We’re not near as good as I’d like to be in helping our suppliers, and in some cases we outgrow the suppliers. But they’re trying awfully hard to keep up with us.
Ruger’s AR-15 (SR-556) sales are not strong and this has not been helped by the fact they rely on the same component suppliers as everyone else.
Actually, it has probably declined, and the reason I tell you that is because we source a lot of components. For example, we have to get a foraging
for the lower receiver, and we don’t make that ourselves.
So in this kind of environment where you have a limited number of suppliers providing essentially similar component parts to all the manufacturers of these kind of guns, we’re last in line to be able to increase volume.
On the other hand, some of our other rifle products that we make in house that were much more vertically integrated, we are able to ramp up the volume on those. So our overall volume of 556s has not declined at all. But it has probably fallen as a percentage of our overall rifle sales.
And frankly, it wasn’t much to start with.
Ruger has no interest is the so-called “smart guns”. An analyst from Summit Brokerage, who clearly has little clue about the gun culture, asked …
Gentlemen, can you talk a little bit about your smart gun? Obviously, you want to reduce the misuse of guns maybe through this RFID technology or maybe fingerprints? Because I would think if you took the lead that way, with everything that is going on in the political environment, you might look like heroes. Can you talk a little bit about if you are doing anything with that whole concept?
Michael Fifer simply responded “No.”
The last time an “assault” weapons ban was contemplated Mr. William B. Ruger was doing his best to sell out the entire industry in order to keep his Mini-14 off a ban list. He significantly tarnished the brand of the company he founded. I am pleased that Mr.
Fifer is not contemplating a similarly turncoat response to the political situation.
Production at Ruger is up 52%. This has been achieved through efficiency, not capital investment …
… we only increased our capital base by 13%, but we got a 52% increase in production, although there’s a lot of labor efficiency as well … a busy factory is a happy factory. And they are very busy, working very hard, and they kind of enjoy it.
We try, whenever possible, do not get crazy with the over time because then you run the risk of injuries and safety concerns and people just flat get worn out. So we’re running reasonable amounts of over time.
The obvious hole in Ruger’s catalog is a semi-automatic shotgun. An analyst asked about it and Michael responded …
And well, we are hard at work on shotguns, and that’s one of those projects that should have been a year, and now it’s multiple years into the making. But I’m sure we will bring them to market one day soon.
Sounds like a semi-automatic shotgun will be coming to market soon.
On price increases by some retailers Michael said …
Well, we generally do a price increase every January 1, whether it is needed or not, and that has been a practice of the entire industry. In rare
occasions — I think it’s on the order of once every 10 years — there’s also a July 1 price increase. So there is some history for that.
We did not raise prices out of the ordinary, in spite of what was going on at the retail level because, frankly, we think people in the industry have a long memory, and those retailers who are gouging people are probably leaving a significant impression on those consumers.
But remember, we don’t sell to consumers. We sell to independent wholesalers who then sell to the retailers. And perhaps we have left money on the table by not taking advantage of the spike in demand, but I think it’s a better long-term practice. We hope to be in the business for decades to come and not just a quick flash in the pan here. And I think there’s some long memories.
It will be very interesting to see what happens to Ruger’s sales this year. Ruger’s management appear to have been making sensible decisions in the past year. They have been maximizing efficiency to take advantage of the buying frenzy without making large capital commitments that would burden them when demand finally decreases.