Sturm Ruger Sales, Profit Surge Sparked By Gun Boom

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The Black Friday buying spree wasn't confined to e-readers, flat-panel TVs and digital tablets this year. Gun sales also shot up.

Criminal background checks required to buy a gun hit a single-day record of 154,873 on Black Friday, according to the National Shooting Sports Foundation. That was nearly 20% higher than the previous high for checks by the FBI National Instant Criminal Background Check System (NICS), set on Black Friday last year.

Black Friday historically has been among the most active days for firearm sales. This year's new one-day record wasn't unexpected, says the NSSF, given reports of increased gun sales following President Obama's re-election amid fears over tighter gun control laws.

Gun makerSturm Ruger ( RGR ) likely cashed in on the Black Friday fervor. The company makes rifles, shotguns, pistols and revolvers. They're sold through independent wholesale distributors mainly to the commercial sporting market. They're also sold into the military, law enforcement and home defense markets.

Double-Digit Sales

Sturm Ruger's business has been thriving amid a recent surge in gun sales that reaches well beyond the Black Friday frenzy. Sales and profits have climbed by double digits the past six quarters. Gun sales took off in 2012 amid concerns over gun regulations during President Obama's second term and other trends, such as more women buying hand guns, says CL King & Associates analyst Jim Barrett, who owns shares in Sturm Ruger.

Sturm Ruger has participated in the surge in sales, he says, and has probably led it.

It wouldn't be the first time Sturm Ruger led the industry during boom times.

"There was a boom in the years after President Obama first got elected and Sturm Ruger was leading that boom because it's the most skilled in the industry developing new products, primarily small hand guns," Barrett said.

Sturm Ruger's new product development skills have helped it deliver strong sales gains throughout the year. Most recently, in the third quarter, sales popped 47% to $118.2 million, ahead of views by analysts polled by Thomson Reuters. Earnings climbed 57% to 88 cents per share, also besting forecasts. The big increase in earnings was driven by the strong sales gain and the company's ongoing focus on continuous improvement in its operations.

New product introductions have been a major driver of sales growth. In the first nine months of the year, new product sales represented $130.3 million, or 38%, of total sales. New products included the Ruger American Rifle, SR22 pistol, 10/22 Takedown rifle and the Single-Nine revolver.

Demand for its products outpaced the growth in overall industry demand as measured by the NICS background checks (as adjusted by the NSSF) for both the third quarter and nine months.

In the third quarter, estimated Sturm Ruger units sold from distributors to retailers surged 62% vs. a year earlier, while NICS background checks rose 22%. For the nine months, Sturm Ruger units sold rose 60%, while NICS background checks increased 21%.

The company is riding the crest of a trend in gun buying that watchers expect to continue.

"While we do believe some of the market's recent outsized strength is due to political buying on fear of increased firearms regulations, we also believe a larger social shift on firearms ownership has driven many first-time recreational and self-defense owners," said analyst Mike Greene of the Benchmark Co. in a report.

He notes growing social acceptance of firearms for self defense and as a recreational activity.

He expects these new owners to continue as repeat buyers since the first purchase is often the most difficult to draw.

Overall, the appetite for firearms remains strong, adds Piper Jaffray analyst Sean Naughton. While he doesn't follow Sturm Ruger, he does follow other companies that sell firearms, including outdoor equipment retailerCabela's ( CAB ).

He estimates 20% of Cabela's third-quarter sales came from firearms.

More Publicity

He says an increase in TV shows and media coverage on firearms is helping to drive the strong demand for guns, as is a "general sense of fear" on the part the public, whether it's related to the economy or the looming fiscal cliff.

"There's a lot of uncertainty around fiscal responsibility, potential increases in regulation and a slower-than-anticipated economic recovery that is likely causing an increase in demand for firearms," he said.

Followers expect Sturm Ruger to continue on the growth path. Analysts polled by Thomson Reuters expect full-year earnings rising 57% to $3.29 a share. But they see 2013 earnings falling 4% amid tough comparisons.

Still, analysts are upbeat about its prospects.

"We expect strong near-term firearms sales from election-related and holiday-season buying, and we also continue to expect a low double-digit long-term growth rate, with Sturm Ruger outpacing industry growth due to its strong new product development," writes Greene.

In reiterating his "strong buy" rating on Sturm Ruger, Barrett wrote in a report: "We continue to believe President Obama's re-election will be very positive for gun sales in coming months."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: CAB , RGR

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