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GC Misses 3rd Quarter Marks, Stock Suffers

In preliminary financial results released for the third quarter (which ended Sept. 30), Guitar Center revealed that, despite growth in most areas, it has missed its anticipated marks. The lower numbers will also have an effect on fourth quarter estimates.

“Our performance for the third quarter was not in line with our expectations,” said Marty Albertson, chairman and CEO. “We experienced uneven sales in both our Guitar Center and Musician’s Friend divisions. Our Guitar Center comparable store sales were soft in the first two months of the quarter, with trends improving markedly in September. In addition, we had higher marketing and promotional expenses at Guitar Center, which we were not able to leverage due to lower than anticipated sales.”

Share prices fell 10–11 percent in after-hours trading after the announcement was made late on Oct. 5, according to Wall Street news sources like Motley Fool and Stocks closed yesterday at about 45.62; since trading began today, they dipped to 41.29 before stabilizing near 42.00.

Consolidated net sales are expected to be approximately $473 million in the third quarter, compared to $421 million in the same period in 2005. The company has originally anticipated that consolidated sales would be in the range of $489 million to $501 million. It also predicted comparable store sales growth of 3–5 percent; it will be more like 2.9 percent. Net income was predicted to be at the low end of between $12 million and $13.8 million, or 40–46 cents per diluted share. It looks like it will be in the range of $10.6 million to $11.3 million, or 36–38 cents per diluted share. Net income in the third quarter of 2005 was $14.4 million, or 51 cents per diluted share.

Net income in the third quarter of 2006 is expected to include an after-tax, stock-based compensation expense of approximately $1.8 million. No expense will be recorded in the third quarter for the company’s long-term incentive plan (LTIP), but the third quarter will include a one-time, after-tax gain of $1.1 million from the disposition of real estate. The previous guidance amounts for net income did not anticipate the gain on real estate nor an LTIP charge for the quarter of 2–3 cents per diluted share.