Sturm Ruger & Co Inc: Form 10-Q for the period ended Jun 28, 2025

Company Overview

Sturm, Ruger & Company, Inc. (the “Company”) is principally engaged in the design, manufacture, and sale of firearms to domestic customers. Approximately 99% of sales are from firearms. Export sales accounted for approximately 5% of total sales for each of the six month periods ended June 28, 2025 and June 29, 2024. The Company’s design and manufacturing operations are located in the United States and almost all product content is domestic. The Company’s firearms are sold through a select number of independent wholesale distributors, principally to the commercial sporting market.

The Company also manufactures investment castings made from steel alloys and metal injection molding (“MIM”) parts for internal use in its firearms and for sale to unaffiliated, third-party customers. Less than 1% of sales are from the castings segment.

Orders for many models of firearms from the independent distributors tend to be stronger in the first quarter of the year and weaker in the third quarter of the year. This is due in part to the timing of the distributor show season, which occurs during the first quarter.

Results of Operations

During the six months ended June 28, 2025 the Company has undertaken several strategic initiatives to enhance its operational and market positioning. These initiatives include:

• A leadership transition to welcome a new CEO and evolve its leadership structure, along with an organizational realignment designed to improve efficiency and effectiveness,
• An inventory rationalization, in which the Company revised its product strategy for 2025 and beyond and reassessed its raw material, work-in-process and finished goods inventories to identify and reserve for inventory that is now excess, obsolete or ready to be discontinued due to the revised product roadmaps, including legacy models that have run their lifecycle, products that are no longer part of the long-term strategy, and Marlin-related items that are not part of the product roadmap for that brand, and
• A product repositioning to address its product strategy for the future and take a hard look at current market conditions, consumer demand and overall economics to identify areas where it has desirable products, with strong features that need to reach its customers at a better price point.

These initiatives impacted the results of operations for the three month period ending June 28, 2025 as follows, which reduced diluted earnings per share $1.46:

• Sales reduction of $5.7 million related to the sale of 67,000 units of discontinued models
• Increased cost of sales of $17.0 million, reflecting the write-off of inventory and other assets related to the revised product strategy and product roadmap
• Increased general and administrative expenses of $3.7 million related to the leadership transition and organizational realignment

Demand

The estimated unit sell-through of the Company’s products from the independent distributors to retailers decreased 4% in the first half of 2025 compared to the prior year period. For the same period, National Instant Criminal Background Check System (“NICS”) background checks (as adjusted by the National Shooting Sports Foundation (“NSSF”)) decreased 4%. Estimated sell-through from the independent distributors to retailers and total adjusted NICS background checks for the trailing six quarters follow:

(1) The estimates for each period were calculated by taking the beginning inventory at the distributors, plus shipments from the Company to distributors during the period, less the ending inventory at distributors. These estimates are only a proxy for actual market demand as they:

• Rely on data provided by independent distributors that are not verified by the Company,
• Do not consider potential timing issues within the distribution channel, including goods-in-transit, and
• Do not consider fluctuations in inventory at retail.

(2) NICS background checks are performed when the ownership of most firearms, either new or used, is transferred by a Federal Firearms Licensee. NICS background checks are also performed for permit applications, permit renewals, and other administrative reasons.

The adjusted NICS data presented above was derived by the NSSF by subtracting out NICS checks that are not directly related to the sale of a firearm, including checks used for concealed carry (“CCW”) permit application checks, as well as checks on active CCW permit databases. The adjusted NICS checks represent less than half of the total NICS checks.

Adjusted NICS data can be impacted by changes in state laws and regulations and any directives and interpretations issued by governmental agencies.

Orders Received and Ending Backlog

The Company uses the estimated unit sell-through of its products from the independent distributors to retailers, along with inventory levels at the independent distributors and at the Company, as the key metrics for planning production levels. The Company generally does not use the orders received or ending backlog for planning production levels.

The units ordered, value of orders received, average sales price of units ordered, and ending backlog for the trailing six quarters are as follows (dollars in millions, except average sales price):

(All amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns.)

Production

The Company reviews the estimated sell-through from the independent distributors to retailers, as well as inventory levels at the independent distributors and at the Company to plan production levels. The Company’s overall production in the second quarter of 2025 increased 3% from the first quarter of 2025.

Summary Unit Data

Firearms unit data for the trailing six quarters are as follows (dollar amounts shown are net of Federal Excise Tax of 10% for handguns and 11% for long guns):

23

Inventories

During the first half of 2025, the Company’s finished goods inventory increased by 35,500 units and distributor inventories of the Company’s products increased by 24,900 units.

Inventory unit data for the trailing six quarters follows:

(1) Distributor ending inventory is provided by the Company’s independent distributors. These numbers do not include goods-in-transit inventory that has been shipped from the Company but not yet received by the distributors.

(2) This total does not include inventory at retailers. The Company does not have access to data on retailer inventories of the Company’s products.

Net Sales, Cost of Products Sold, and Gross Profit

Net sales, cost of products sold, and gross profit data for the three months ended (dollars in millions):

Total consolidated net sales and net firearms sales increased slightly for the three months ended June 28, 2025, despite the $5.7 million reduction related to the close out of 67,000 units of discontinued models. Sales of new products, including the RXM pistol, Super Wrangler revolver, Marlin lever-action rifles, and American Centerfire Rifle Generation II represented $42.2 million or 33.5% of firearm sales in the three months ended June 28, 2025. New product sales include only major new products that were introduced in the past two years.

The decreased gross profit for the three months ended June 28, 2025 is attributable to inventory rationalization write-offs taken during the quarter and the aforementioned sales reductions, partially off-set by favorable leveraging of fixed costs resulting from increased production.

The decrease in gross margin for the three months ended June 28, 2025 is attributable to the aforementioned factors.

Net sales, cost of products sold, and gross profit data for the six months ended (dollars in millions):

Total consolidated net sales and net firearms sales increased slightly for the six months ended June 28, 2025, despite the $5.7 million reduction related to the close out of 67,000 units of discontinued models. Sales of new products, including the RXM pistol, Super Wrangler revolver, Marlin lever-action rifles, and American Centerfire Rifle Generation II, represented $82.6 million or 32.5% of firearm sales in the first half of 2025. New product sales include only major new products that were introduced in the past two years.

The decreased gross profit for the six months ended June 28, 2025 is attributable to inventory rationalization write-offs and the aforementioned sales reductions, partially off-set by favorable deleveraging of fixed costs resulting from increased production.

The decrease in gross margin for the six months ended June 28, 2025 is attributable to the aforementioned factors.

Selling and General and Administrative Expenses

Selling and general and administrative expenses data for the three months ended (dollars in millions):

25

The increase in selling expenses for the three months ended June 28, 2025 was attributable to increases in advertising and several promotional and marketing initiatives, partially offset by decreases in spending on travel costs, industry shows, personnel costs, and shipping expenses.

The increase in general and administrative expenses for the three months ended June 28, 2025 was primarily attributable to expenses incurred due to the Company’s leadership transition and organizational realignment.

Selling and general and administrative expenses data for the six months ended (dollars in millions):

The increase in selling expenses for the six months ended June 28, 2025 was attributable to increases in advertising and several promotional and marketing initiatives, partially offset by decreases in spending on industry shows, personnel costs, and shipping expenses.

The increase in general and administrative expenses for the six months ended June 28, 2025 was primarily attributable to expenses incurred due to the Company’s leadership transition and organizational realignment. This action is part of the Company’s initiatives to reallocate its resources and cost structure into prioritized areas that will drive long-term growth and improve margins. As the Company focuses on these goals, it will continue to pursue opportunities to reduce or eliminate investment in areas of lower focus.

Other Income

Other income data for the three months ended (dollars in millions):

The decrease in other income for the three months ended June 28, 2025 was attributable to decreased interest income.

Other income data for the six months ended (dollars in millions):

The decrease in other income for the six months ended June 28, 2025 was attributable to decreased interest income.

Income Taxes and Net Income

The Company's 2025 and 2024 effective tax rates differ from the statutory federal tax rate due principally to research and development tax credits, state income taxes and the nondeductibility of certain executive compensation. The reduction in 2025 earnings increased the impact of these items, which resulted in effective income tax rates of 11.2% and 1.9% for the three and six months ended June 28, 2025, respectively. The Company’s effective income tax rate was 21.0% and 21.3% for the three and six months ended June 29, 2024, respectively.

As a result of the foregoing factors, consolidated net loss was $(17.2) million for the three months ended June 28, 2025, a change of (308.4%) from $8.3 million consolidated net income in the comparable prior year period.

Consolidated net loss was $(9.5) million for the six months ended June 28, 2025, a change of (161.6%) from $15.3 million consolidated net income in the comparable prior year period.

Non-GAAP Financial Measures

In an effort to provide investors with additional information regarding its financial results, the Company refers to various United States generally accepted accounting principles (“GAAP”) financial measures and two non-GAAP financial measures, EBITDA and EBITDA margin, which management believes provides useful information to investors. These non-GAAP financial measures may not be comparable to similarly titled financial measures being disclosed by other companies. In addition, the Company believes that the non-GAAP financial measures should be considered in addition to, and not in lieu of, GAAP financial measures. The Company believes that EBITDA and EBITDA margin are useful to understanding its operating results and the ongoing performance of its underlying business, as EBITDA provides information on the Company’s ability to meet its capital expenditure and working capital requirements, and is also an indicator of profitability. The Company believes that this reporting provides better transparency and comparability to its operating results. The Company uses both GAAP and non-GAAP financial measures to evaluate the Company’s financial performance.

EBITDA is defined as earnings before interest, taxes, and depreciation and amortization. The Company calculates this by adding the amount of interest expense, income tax expense, and depreciation and amortization expenses that have been deducted from net income back into net income, and subtracting the amount of interest income that was included in net income from net income to arrive at EBITDA. The Company’s EBITDA calculation also excludes any one-time non-cash, non-operating expense. The Company calculates EBITDA margin by dividing EBITDA by total net sales.

EBITDA was $2.3 million for the three months ended June 28, 2025, a decrease of 84.4% from $14.5 million in the comparable prior year period.

For the six months ended June 28, 2025 EBITDA was $16.6 million, a decrease of 40.9% from $28.0 million in the comparable prior year period.

Non-GAAP Reconciliation – EBITDA

EBITDA

(Unaudited, dollars in thousands)

Financial Condition

Liquidity and Capital Resources

At the end of the second quarter of 2025, the Company’s cash and short-term investments totaled $101.4 million. Pre-LIFO working capital of $233.7 million, less the LIFO reserve of $68.2 million, resulted in working capital of $165.5 million and a current ratio of 4.0 to 1.

Operations

Cash provided by operating activities was $25.9 million for the six months ended June 28, 2025, compared to $26.1 million for the comparable prior year period. The slight decrease in cash provided in the six months ended June 28, 2025 is primarily attributable to the decrease in net income and the lesser reductions in prepaid expenses and other current assets in the six months ended June 28, 2025, partially offset by the impact of the write-off of inventory related to the Company’s inventory rationalization and the lower net payouts of accrued employee compensation and benefits in the six months ended June 28, 2025.

Third parties supply the Company with various raw materials for its firearms and castings, such as steel, fabricated steel components, walnut, birch, beech, maple and laminated lumber for rifle stocks, wax, ceramic material, metal alloys, various synthetic products and other component parts. A limited supply of these materials in the marketplace can result in increases to purchase prices and adversely affect production levels. If market conditions result in a significant prolonged inflation of certain prices or if adequate quantities of raw materials cannot be obtained, the Company’s manufacturing processes could be interrupted and the Company’s financial condition or results of operations could be materially adversely affected.

Investing and Financing

Capital expenditures for the six months ended June 28, 2025 totaled $6.7 million, a decrease from $10.4 million in the comparable prior year period. The Company expects capital expenditures in the latter half of 2025 to increase from the first half of the year, exclusive of the Anderson purchase, as we invest in new product introductions, expand capacity, upgrade our manufacturing capabilities and strengthen our facility infrastructure. Actual capital expenditures could vary significantly from the projected amounts due to the timing of capital projects. The Company finances, and intends to continue to finance, all of these activities with funds provided by operations and current cash and cash equivalents.

On July 1, 2025 the Company announced the asset purchase of Anderson Manufacturing, a manufacturer of firearms and firearm accessories based in Hebron, Kentucky for $16.4 million. This strategic purchase includes Anderson’s manufacturing facility and machinery and will provide Ruger the opportunity to work with a skilled and experienced workforce, strengthening its production capabilities and expanding its product offerings.

Dividends of $6.9 million were paid during the six months ended June 28, 2025. The Company has financed its dividends with cash provided by operations and current cash. The quarterly dividend varies every quarter because the Company pays a percentage of earnings rather than a fixed amount per share. The Company’s practice is to pay a dividend of approximately 40% of net income.

On July 25, 2025, the Company’s Board of Directors authorized a dividend of 16¢ per share to shareholders of record on August 15, 2025, payable on August 29, 2025. This dividend is approximately 40% of adjusted diluted earnings of 41¢ per share for the second quarter of 2025. The payment of future dividends depends on many factors, including internal estimates of future performance, then-current cash and short-term investments, and the Company’s need for funds.

As of June 28, 2025, the Company had $55.2 million of United States Treasury instruments which mature within one year. The Company also invests available cash in a bank-managed money market fund that invests exclusively in United States Treasury instruments which mature within one year. At June 28, 2025, the Company’s investment in this money market fund totaled $22.9 million.

During the six months ended June 28, 2025 the Company purchased 443,084 shares of its common stock for $16.1 million in the open market. The average price per share purchased was $36.42. These purchases were funded with cash on hand. As of June 28, 2025, $24.1 million remained authorized for future stock repurchases.

Based on its unencumbered assets, the Company believes it has the ability to raise cash through the issuance of short-term or long-term debt. The Company’s unsecured $40 million credit facility, which expires on January 7, 2028, was unused at June 28, 2025.

Other Operational Matters

In the normal course of its manufacturing operations, the Company is subject to occasional governmental proceedings and orders pertaining to workplace safety, firearms serial number tracking and control, waste disposal, air emissions and water discharges into the environment. The Company believes that it is generally in compliance with applicable Bureau of Alcohol, Tobacco, Firearms & Explosives, environmental, and safety regulations and the outcome of any proceedings or orders will not have a material adverse effect on the financial position or results of operations of the Company. If these regulations become more stringent in the future and the Company is not able to comply with them, such noncompliance could have a material adverse impact on the Company.

The Company has 14 independent distributors that service the domestic commercial market. Additionally, the Company has 44 and 26 distributors servicing the export and law enforcement markets, respectively.

The Company self-insures a significant amount of its product liability, workers’ compensation, medical, and other insurance. It also carries significant deductible amounts on various insurance policies. In September 2024, the Company did not renew its product liability coverage with its incumbent carriers and established a wholly-owned captive insurance company for claims made on or after September 1, 2024.

The Company expects to realize its deferred tax assets through tax deductions against future taxable income.

Adjustments to Critical Accounting Policies

The Company has not made any adjustments to its critical accounting estimates and assumptions described in the Company’s 2024 Annual Report on Form 10-K filed on February 19, 2025, or the judgments affecting the application of those estimates and assumptions.

Forward-Looking Statements and Projections

The Company may, from time to time, make forward-looking statements and projections concerning future expectations. Such statements are based on current expectations and are subject to certain qualifying risks and uncertainties, such as market demand, sales levels of firearms, anticipated castings sales and earnings, the need for external financing for operations or capital expenditures, the results of pending litigation against the Company, the impact of future firearms control and environmental legislation, and accounting estimates, any one or more of which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. The Company undertakes no obligation to publish revised forward-looking statements to reflect events or circumstances after the date such forward-looking statements are made or to reflect the occurrence of subsequent unanticipated events.

The interest rate market risk implicit to the Company at any given time is typically low, as the Company does not have significant exposure to changing interest rates on invested cash. There has been no material change in the Company’s exposure to interest rate risks during the three months ended June 28, 2025.

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (the “Disclosure Controls and Procedures”), as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of June 28, 2025.

Based on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of June 28, 2025, such Disclosure Controls and Procedures are effective to ensure that information required to be disclosed in the Company’s periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding disclosure.

The Company’s Chief Executive Officer and Chief Financial Officer have further concluded that, as of June 28, 2025, there have been no material changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 28, 2025 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

The effectiveness of any system of internal controls and procedures is subject to certain limitations, and, as a result, there can be no assurance that the Disclosure Controls and Procedures will detect all errors or fraud. An internal control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the internal control system will be attained.

During the three months ended June 28, 2025, there were no material changes in the Company’s risk factors from the information provided in Item 1A. Risk Factors included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, and in Part II, Item 1A Risk Factors included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 29, 2025.