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GC’s Q4 Results to Miss Expectations

According to a preliminary report, Guitar Center’s fourth quarter top-line results missed expectations.

Consolidated net sales for the quarter, which ended Dec. 31, 2006, increased 11.7 percent to $628.5 million from $562.8 million in the same period last year. Net sales from GC stores were $461.7 million for the fourth quarter, a 12.7-percent bump from $409.9 million reported in the same period last year. Comparable GC store sales increased 1.3 percent for the quarter. Net sales from new stores contributed $46.4 million, representing 89.5 percent of the total increase in GC store net sales.
In the fourth quarter, net sales for Musician’s Friend, GC’s direct-response division, increased 5.4 percent to $121 million from $114.8 million in the fourth quarter of 2005. Net sales from Music & Arts were $45.8 million for the fourth quarter compared to $38.1 million generated in the fourth quarter of 2005. Comparable Music & Arts sales increased 0.2 percent for the quarter.

“We are disappointed that our top-line results for the fourth quarter did not meet our previous expectations, primarily due to softer than anticipated sales in our Guitar Center retail and Musician’s Friend divisions,” said Erick Mason, GC’s executive vice president and chief financial officer. “We experienced success with our limited-edition exclusives, including the Eric Clapton Blackie replica guitars and the Neil Peart drum kits, as well as solid sales in high-tech gear, but continued to see softness in the guitar category.

“We expect that our Guitar Center selling margin will be similar to the fourth quarter of 2005 while our Musician’s Friend selling margin will be improved compared to the prior year period as we maintained our planned promotional programs and did not conduct unusual discounting during the quarter. However, we do anticipate reduced leverage of fixed expenses due to lower-than-expected sales. The performance of our Music & Arts division was generally in line with our expectations for the quarter.”
As a result of the fourth quarter sales results, the company anticipates net income for the fourth quarter will be below its previous guidance range of $34 million to $36 million, or $1.14 to $1.20 per diluted share.
GC plans to release its official fourth quarter and full-year 2006 financial results on Feb. 8.