Ruger(RGR) - 2023 Q4 - Annual Results

Executive Summary & Financial Highlights The section summarizes 2023 financial performance, dividend declarations, and the CEO's commentary on market conditions and future outlook Full Year and Fourth Quarter 2023 Financial Performance Sturm, Ruger & Company, Inc. reported a decline in net sales and diluted earnings per share for both the full year and fourth quarter of 2023 compared to 2022 Key Financial Performance Metrics | Metric | FY 2023 | FY 2022 | Q4 2023 | Q4 2022 | | :----- | :------ | :------ | :------ | :------ | | Net Sales | $543.8 million | $595.8 million | $130.6 million | $149.2 million | | Diluted EPS | $2.71 | $4.96 | $0.58 | $1.06 | Dividend Declaration The Board of Directors declared a quarterly dividend of 23¢ per share for Q4 2023, representing approximately 40% of net income - Quarterly dividend declared at 23¢ per share for Q4 2023, representing approximately 40% of net income[5] CEO Commentary on 2023 Performance and 2024 Outlook CEO Christopher J. Killoy discussed soft consumer demand in 2023, a 9% sales reduction, and the company's disciplined approach, while expressing optimism for 2024 with increased Q4 sales and a strong product pipeline - Consumer demand remained soft in 2023, likely dampened by inflationary pressures and rising interest rates, leading to a 9% reduction in sales from the prior year[6] - The company remained disciplined, reducing production levels and offering modest promotions, resisting the temptation to enhance short-term results at the expense of long-term strategy[6] - Entering 2024 with increased quarterly sales and profitability in the fourth quarter, a strong, debt-free balance sheet, reduced inventories at independent distributors, and a full pipeline of new products[6] Operational Review This section reviews new product introductions, market and sales performance, and strategies for profitability and inventory management Product Introductions and Anniversaries Sturm, Ruger & Company is celebrating its 75th Anniversary in 2024 with commemorative firearms and special limited production editions, alongside recent new product introductions that have received strong demand - Ruger is celebrating its 75th Anniversary in 2024 by offering commemorative firearms engraved with the 75th Anniversary logo and special, limited production editions of other products[6][7] - Recently introduced new products include the Ruger American Rifle Generation II, 60th Anniversary 10/22 Carbine, Mini-14 with side-folding stock, and LC Carbine chambered in .45 Auto, which have been met with strong demand[8] Market and Sales Performance The company experienced a 7% decrease in unit sell-through in 2023, while new product sales significantly increased to 23% of firearm sales - Estimated unit sell-through of the Company's products from independent distributors to retailers decreased 7% in 2023, compared to a 4% decrease in adjusted NICS background checks, possibly due to aggressive competitor promotions[8] New Product Sales Performance (Firearms) | Metric | 2023 | 2022 | Change | | :----- | :--- | :--- | :----- | | New Product Sales (Firearms) | $121.7 million | $78.4 million | +$43.3 million | | % of Firearm Sales | 23% | 14% | +9 percentage points | Profitability and Inventory Management Gross margin decreased from 30% to 25% in 2023 due to various cost pressures and product mix shifts, while finished goods inventory increased and distributor inventories decreased - Gross margin decreased from 30% in 2022 to 25% in 2023, driven by unfavorable deleveraging of fixed costs, inflationary cost increases, a product mix shift toward lower-margin products, and increased promotional costs, partially offset by increased pricing[8] - In 2023, the Company's finished goods inventory increased by 30,700 units, while distributor inventories of the Company's products decreased by 39,100 units[8] Financial Position and Shareholder Returns This section details the company's liquidity, capital resources, capital expenditures, and shareholder return strategies Liquidity and Capital Resources The company generated $33.9 million in cash from operations in 2023, maintaining a strong financial position with $117.7 million in cash and short-term investments and no debt - Cash provided by operations during 2023 was $33.9 million[11] Key Liquidity Metrics (as of Dec 31, 2023) | Metric (as of Dec 31, 2023) | Value | | :-------------------------- | :---- | | Cash and short-term investments | $117.7 million | | Current Ratio | 4.3 to 1 | | Debt | None | Capital Expenditures Capital expenditures totaled $15.8 million in 2023 for new products and equipment, with approximately $15 million anticipated for 2024 - Capital expenditures totaled $15.8 million in 2023, related to new product introductions and upgrades to manufacturing equipment and facilities[11] - The Company expects capital expenditures to approximate $15 million in 2024[11] Shareholder Returns In 2023, the company returned $122.6 million to shareholders through dividends, including a special dividend, and common stock repurchases - In 2023, the Company returned $122.6 million to its shareholders[11] Shareholder Return Components (2023) | Shareholder Return Component | Amount | Details | | :--------------------------- | :----- | :------ | | Dividends Paid | $110.8 million | Includes a $5.00 per share special dividend paid in January 2023 | | Common Stock Repurchases | $11.8 million | 264,062 shares at an average price of $44.71 per share | Stockholders' Equity As of December 31, 2023, stockholders' equity stood at $331.7 million, with a book value of $19.00 per share Stockholders' Equity Metrics (as of Dec 31, 2023) | Metric (as of Dec 31, 2023) | Value | | :-------------------------- | :---- | | Stockholders' Equity | $331.7 million | | Book Value Per Share | $19.00 | | Cash & Short-term Investments Per Share | $6.74 | Company Overview This section provides background on Sturm, Ruger & Co., Inc., its market position, product offerings, corporate philosophy, and a disclaimer on forward-looking statements About Sturm, Ruger & Co., Inc. Sturm, Ruger & Co., Inc. is a leading US firearms manufacturer, celebrating 75 years with a commitment to quality, innovation, and responsible citizenship - Sturm, Ruger & Co., Inc. is a leading US manufacturer of rugged, reliable firearms for the commercial sporting market, offering almost 800 variations of more than 40 product lines across Ruger and Marlin brands[12] - For 75 years, Ruger has been a model of corporate and community responsibility, with its motto 'Arms Makers for Responsible Citizens' reflecting its commitment to quality and innovative firearms[12] Forward-Looking Statements Forward-looking statements are based on current expectations and subject to risks and uncertainties that could cause actual results to differ materially, with no obligation for revision - Forward-looking statements are based on current expectations and are subject to qualifying risks and uncertainties (e.g., market demand, sales levels, litigation, legislation, accounting estimates) that could cause actual results to differ materially[13] - Readers are cautioned not to place undue reliance on these statements, and the Company undertakes no obligation to publish revised forward-looking statements to reflect subsequent events or circumstances[13] Consolidated Financial Statements This section presents the company's consolidated balance sheets, statements of income and comprehensive income, and statements of cash flows Consolidated Balance Sheets Total assets decreased to $398.8 million in 2023, driven by reduced cash and investments, while total liabilities decreased and stockholders' equity increased Consolidated Balance Sheet Summary (in thousands) | Metric (in thousands) | Dec 31, 2023 | Dec 31, 2022 | Change | | :-------------------- | :----------- | :----------- | :----- | | Total Assets | $398,817 | $484,763 | $(85,946) | | Cash and cash equivalents | $15,174 | $65,173 | $(49,999) | | Short-term investments | $102,485 | $159,132 | $(56,647) | | Net inventories | $79,810 | $64,993 | $14,817 | | Total Current Assets | $271,395 | $361,838 | $(90,443) | | Total Liabilities | $67,096 | $168,025 | $(100,929) | | Total Stockholders' Equity | $331,721 | $316,738 | $14,983 | Consolidated Statements of Income and Comprehensive Income The company experienced significant declines in net sales, gross profit, operating income, and net income from 2022 to 2023, with diluted EPS decreasing to $2.71 Consolidated Income Statement Summary (in thousands, except per share) | Metric (in thousands, except per share) | 2023 | 2022 | 2021 | YoY Change (2023 vs 2022) | | :------------------------------------ | :--- | :--- | :--- | :------------------------ | | Total net sales | $543,767 | $595,842 | $730,736 | $(52,075) | | Gross profit | $133,619 | $180,085 | $279,557 | $(46,466) | | Operating income | $52,084 | $103,456 | $203,136 | $(51,372) | | Net income | $48,215 | $88,332 | $155,899 | $(40,117) | | Diluted Earnings Per Share | $2.71 | $4.96 | $8.78 | $(2.25) | | Cash Dividends Per Share | $6.27 | $2.42 | $3.36 | $3.85 | Consolidated Statements of Cash Flows Cash from operations decreased to $33.9 million in 2023, while investing activities shifted to cash usage and financing activities used substantially more cash, resulting in a $49.9 million decrease in cash and cash equivalents Consolidated Cash Flow Summary (in thousands) | Activity (in thousands) | 2023 | 2022 | 2021 | YoY Change (2023 vs 2022) | | :---------------------- | :--- | :--- | :--- | :------------------------ | | Cash provided by operating activities | $33,901 | $77,231 | $172,339 | $(43,330) | | Cash provided by (used for) investing activities | $40,856 | $13,209 | $(107,537) | $27,647 | | Cash used for financing activities | $(124,756) | $(46,311) | $(63,905) | $(78,445) | | (Decrease) increase in cash and cash equivalents | $(49,999) | $44,129 | $897 | $(94,128) | Non-GAAP Financial Measures This section provides a reconciliation of non-GAAP financial measures, specifically EBITDA and EBITDA margin, to GAAP net income for additional operating performance insights EBITDA Reconciliation EBITDA and EBITDA margin are presented as non-GAAP measures to provide additional insights into operating results, with 2023 EBITDA at $75.9 million and a 14.0% margin - EBITDA and EBITDA margin are presented as non-GAAP financial measures to provide useful information to investors regarding operating results and the ongoing performance of the underlying business, indicating ability to meet capital expenditure and working capital requirements and profitability[19] EBITDA Reconciliation (in thousands) | Metric (in thousands) | 2023 | 2022 | YoY Change | | :-------------------- | :--- | :--- | :--------- | | Net income | $48,215 | $88,332 | $(40,117) | | Income tax expense | $10,609 | $19,947 | $(9,338) | | Depreciation and amortization expense | $22,383 | $25,789 | $(3,406) | | Interest expense | $205 | $256 | $(51) | | Interest income | $(5,465) | $(2,552) | $(2,913) | | EBITDA | $75,947 | $131,772 | $(55,825) | | EBITDA margin | 14.0% | 22.1% | -8.1 percentage points |