Guitar Center Amplifies Earnings
Guitar Center Inc. reported a 47% increase in fourth-quarter profit Thursday driven by strong holiday sales at its retail stores as well as continued sales growth from its catalog and website.
The Westlake Village-based retailer of musical instruments and recording equipment said net income rose to $19.7 million, or 78 cents a share, compared with $13.4 million, or 57 cents, in the same period last year, surpassing analysts’ expectations of 72 cents a share. Sales climbed 18.2% in the quarter to $395.8 million.
An improving economy, fragmented competition and an increase in interest in home recording equipment are helping to drive sales, analysts said. The retailer, which operates 124 Guitar Center stores and 19 American Music stores nationwide, opened flagship stores in Manhattan and Nashville during the fourth quarter.
“Their business seems to be operating on pretty strong momentum at the moment,” said Sharon Zackfia, analyst at William H. Blair & Co., who has an “outperform” rating on the stock.
For the full year, Guitar Center’s profit rose 45.9% to $36.9 million, or $1.50 a share, and sales rose 15.8% to $1.28 billion.
“We are extremely pleased with the strong performance we achieved for the quarter and the year,” said Marty Albertson, president and co-chief executive of Guitar Center.
The company’s stock fell 13 cents to $32.75 a share on Nasdaq. The positive results, which were widely expected on Wall Street, were announced after the market closed.
Guitar Center’s stock is approaching the 52-week high of $36.53 it reached Oct. 29. The stock soared 97% last year and is up 226% since the end of 1999.
Jason Cable, an analyst at B. Riley & Co. in Los Angeles, said he expected strong performance from the company for the rest of 2004, noting that the firm had taken market share from rivals such as Sam Ash Music Corp. and other smaller firms.
“Guitar Center is clearly the industry leader now,” Cable said.
Still, some analysts worry that retailing giants such as Wal-Mart Stores Inc. would begin moving into the music instrument business, noting that Wal-Mart recently said it would begin selling band instruments for students.
Guitar Center executives said they were unconcerned, saying they predicted that would push even more customers to their stores, because Wal-Mart was expected to sell mostly low-end quality instruments.
“We think that we lead to a lot more traffic into our stores when people begin looking for higher-quality instruments, rentals and lessons,” company President Marty Albertson said.
Gary Holdsworth, retail analyst with Wedbush Morgan Securities in Los Angeles, who has a “buy” rating on the stock, agreed.
“The Wal-Marts can’t service or offer aftermarket support to the instruments they sell, so I don’t see much threat here to Guitar Center’s business,” he said. “This is a very solid company.”
