Guitar Center Cuts Its Forecast

Guitar Center Inc. trimmed its first-quarter sales forecast Thursday, the third time this week that the Westlake Village company has rattled investors.

Shares of the nation’s largest guitar retailer fell $3.26, or 6%, to $50.84 on Nasdaq, bringing the stock’s loss over the last three days to 15%.

Guitar Center’s stock began falling Tuesday, a day after the company, in a regulatory filing, outlined operational difficulties at its American Music division. The selling accelerated Wednesday after the company abruptly canceled an investor meeting in New York, fueling speculation that an acquisition was in the works.

On Thursday, the company said first-quarter sales would be at the low end of its previously announced range of $390.6 million to $399 million.

Guitar Center also lowered estimates for sales growth at stores open at least a year to between 3% and 5%, compared with the range of 4% to 6% that the company forecast Feb. 9 and repeated as recently as Monday in its annual 10-K filing with the Securities and Exchange Commission.

But the company, which said it was recording strong sales at its newer stores, said it still expected to meet its earnings forecast for the quarter ending March 31, which is 48 cents to 52 cents a share.

Executives of Guitar Center didn’t return phone calls Thursday requesting comment.

Some analysts think that investors are overreacting, noting that Guitar Center, which operates 141 of its flagship stores, remains on solid footing, having finished 2004 with a 72% increase in net income.

In lowering its sales estimates, the company may be trying to temper the high expectations Wall Street has had for the company, said Joan Storms, a research analyst at Wedbush Morgan Securities.

“Guitar Center has had a fantastic run here of four or five quarters of significantly beating [Wall] Street expectations,” said Storms, who reiterated her “buy” recommendation on the stock. “They are up against very difficult comparisons from last year.”