Guitar Center, Inc. Announces Preliminary Third Quarter 2006 Results

  
    
  
  
    
      Guitar Center, Inc. (NASDAQ:GTRC) today announced preliminary financial 
      results for the third quarter ended September 30, 2006.
    
    
      Consolidated net sales are expected to be approximately $473 million in 
      the third quarter compared to $421 million in the same period of 2005. 
      Net income is expected to be in the range of $10.6 million to $11.3 
      million, or $0.36 to $0.38 per diluted share compared to net income of 
      $14.4 million, or $0.51 per diluted share, in the third quarter of the 
      prior year. Net income in the third quarter of 2006 is expected to 
      include stock-based compensation expense of approximately $1.8 million 
      after-tax, or $0.06 per diluted share. No expense will be recorded in 
      the third quarter for the Company’s long-term 
      incentive plan (LTIP). Third quarter 2006 net income is expected to 
      include a one-time after-tax gain of approximately $1.1 million, or 
      $0.04 per diluted share resulting from the disposition of real estate. 
      Net income in the third quarter of 2005 included stock-based 
      compensation expense under the Company’s LTIP 
      of $883,000 after-tax, or $0.03 per diluted share.
    
    
      The Company’s previous guidance for the third 
      quarter of 2006 had anticipated that consolidated sales would be in the 
      range of $489 million to $501 million with Guitar Center comparable 
      store sales of 3% to 5% and that net income would be at the low end of 
      $12.0 million and $13.8 million, or $0.40 and $0.46 per diluted share. 
      The previous guidance amounts for net income did not anticipate the gain 
      on real estate of $0.04 per diluted share expected to be recorded in the 
      third quarter, and did anticipate an LTIP charge for the quarter of 
      $0.02 to $0.03 per diluted share.
    
    
      Expected Divisional Sales Results
    
    
      Net sales from Guitar Center stores are expected to be approximately 
      $352 million compared to $310.1 million in the third quarter of 2005. 
      Comparable store sales for the Guitar Center stores are expected to have 
      increased approximately 2.9%.
    
    
      Direct response net sales for the quarter are expected to be 
      approximately $87 million compared to $80.8 million in last year’s 
      third quarter.
    
    
      Net sales from our Music & Arts division are expected to be 
      approximately $34 million in the third quarter compared to $30.1 million 
      in the third quarter of 2005.
    
    
      Marty Albertson, Chairman and Chief Executive Officer, stated, “Our 
      performance for the third quarter was not in line with our expectations. 
      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.”
    
    
      Business Outlook
    
    
      We anticipate achieving consolidated net sales for the fourth quarter of 
      2006 in the range of $638 million to $650 million. We anticipate Guitar 
      Center comparable store sales will increase between 4% to 6% for the 
      quarter. Net income for the fourth quarter is expected to be in the 
      range of $34 million to $36 million, or $1.14 to $1.20 per diluted 
      share. This net income guidance includes expected expenses of $0.07 to 
      $0.09 per diluted share related to our LTIP and other stock based 
      compensation.
    
    
      The comments contained in this press release relating to our financial 
      performance for the third and fourth quarters of 2006, including that 
      regarding future financial performance in the immediately preceding 
      paragraph constitute forward-looking statements and are made in express 
      reliance on the safe harbor provisions contained in Section 21E of the 
      Securities Exchange Act of 1934. This information, as well as other 
      forward-looking information provided, should be read in conjunction with 
      the information under the caption “Business 
      Risks and Forward Looking Statements” below.
    
    
      Teleconference and Webcast
    
    
      Guitar Center will host a conference call and webcast today, October 
      5th, at 2:00 p.m. PT (5:00 p.m. ET) to discuss preliminary third quarter 
      financial results. To access the call, please dial 888-791-6347 
      (domestic) or 706-645-9246 (international). The webcast will be 
      available on the Company’s web site at www.guitarcenter.com 
      or at www.earnings.com. A replay 
      of the call will be available through October 12th, 2006 and can be 
      accessed approximately one hour after the end of the call by dialing 
      800-642-1687 (domestic) or 706-645-9291 (international); pin number 
      8254231. A replay of the webcast will be available at www.guitarcenter.com.
    
    
      About Guitar Center
    
    
      Guitar Center is the leading United States retailer of guitars, 
      amplifiers, percussion instruments, keyboards and pro-audio and 
      recording equipment. Our retail store subsidiary presently operates more 
      than 190 Guitar Center stores across the United States. In addition, our 
      Music & Arts division operates more than 90 stores specializing in band 
      instruments for sale and rental, serving teachers, band directors, 
      college professors and students. We are also the largest direct response 
      retailer of musical instruments in the United States through our wholly 
      owned subsidiary, Musician’s Friend, Inc., 
      and its catalog and web site, www.musiciansfriend.com. 
      More information on Guitar Center can be found by visiting the Company’s 
      web site at www.guitarcenter.com.
    
    
      Business Risks and Forward Looking Statements
    
    
      This press release contains forward-looking statements relating to, 
      among other things, actual financial results expected for the third 
      quarter of 2006 and results believed to be achievable by management in 
      2006. The data provided for the third quarter of 2006 is based on 
      preliminary unaudited internal results and are subject to change as we 
      complete the preparation of full consolidated financials statements for 
      the period. As to results presently deemed achievable for the fourth 
      quarter, sales and earnings trends are also affected by many other 
      factors including, among others, world and national political events, 
      general economic conditions, the effectiveness of our promotion and 
      merchandising strategies, our ability to integrate and profitably 
      operate acquired businesses, the efficient operation of our supply 
      chain, including the continued support of our key vendors, our effective 
      management of business risks, including litigation, and competitive 
      factors applicable to our retail and direct response markets. In 
      addition, during the recent past we have experienced greater 
      fluctuations in weekly and monthly operating results than has been our 
      historic experience and this volatility has, and is likely to continue 
      to, reduce the reliability of our future revenue and earnings guidance.
    
    
      In light of these risks, the forward-looking statements contained in 
      this press release are not guarantees of future performance and in fact 
      may not be realized. Our actual results could differ materially and 
      adversely from those expressed in this press release. Further, the 
      statements made by us above represent our views only as of the date of 
      this press release, and it should not be assumed that the statements 
      made herein remain accurate as of any future date. We do not presently 
      intend to update these statements prior to our next quarterly earnings 
      release and undertake no duty to any person to effect any such update 
      under any circumstances.
    
    
      Investors are also urged to review carefully the discussion under the 
      caption “Risk Factors” 
      in our Annual Report on Form 10-K for the year ended December 31, 2005 
      and our Quarterly Reports on Form 10-Q for subsequent quarters, which 
      have been filed with the Securities and Exchange Commission and may be 
      accessed through the EDGAR database maintained by the SEC at www.sec.gov.
    
  
Guitar Center, Inc. (NASDAQ:GTRC) today announced preliminary
financial results for the third quarter ended September 30, 2006.

   Consolidated net sales are expected to be approximately $473
million in the third quarter compared to $421 million in the same
period of 2005. Net income is expected to be in the range of $10.6
million to $11.3 million, or $0.36 to $0.38 per diluted share compared
to net income of $14.4 million, or $0.51 per diluted share, in the
third quarter of the prior year. Net income in the third quarter of
2006 is expected to include stock-based compensation expense of
approximately $1.8 million after-tax, or $0.06 per diluted share. No
expense will be recorded in the third quarter for the Company's
long-term incentive plan (LTIP). Third quarter 2006 net income is
expected to include a one-time after-tax gain of approximately $1.1
million, or $0.04 per diluted share resulting from the disposition of
real estate. Net income in the third quarter of 2005 included
stock-based compensation expense under the Company's LTIP of $883,000
after-tax, or $0.03 per diluted share.

   The Company's previous guidance for the third quarter of 2006 had
anticipated that consolidated sales would be in the range of $489
million to $501 million with Guitar Center comparable store sales of
3% to 5% and that net income would be at the low end of $12.0 million
and $13.8 million, or $0.40 and $0.46 per diluted share. The previous
guidance amounts for net income did not anticipate the gain on real
estate of $0.04 per diluted share expected to be recorded in the third
quarter, and did anticipate an LTIP charge for the quarter of $0.02 to
$0.03 per diluted share.

   Expected Divisional Sales Results

   Net sales from Guitar Center stores are expected to be
approximately $352 million compared to $310.1 million in the third
quarter of 2005. Comparable store sales for the Guitar Center stores
are expected to have increased approximately 2.9%.

   Direct response net sales for the quarter are expected to be
approximately $87 million compared to $80.8 million in last year's
third quarter.

   Net sales from our Music & Arts division are expected to be
approximately $34 million in the third quarter compared to $30.1
million in the third quarter of 2005.

   Marty Albertson, Chairman and Chief Executive Officer, stated,
"Our performance for the third quarter was not in line with our
expectations. 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."

   Business Outlook

   We anticipate achieving consolidated net sales for the fourth
quarter of 2006 in the range of $638 million to $650 million. We
anticipate Guitar Center comparable store sales will increase between
4% to 6% for the quarter. Net income for the fourth quarter is
expected to be in the range of $34 million to $36 million, or $1.14 to
$1.20 per diluted share. This net income guidance includes expected
expenses of $0.07 to $0.09 per diluted share related to our LTIP and
other stock based compensation.

   The comments contained in this press release relating to our
financial performance for the third and fourth quarters of 2006,
including that regarding future financial performance in the
immediately preceding paragraph constitute forward-looking statements
and are made in express reliance on the safe harbor provisions
contained in Section 21E of the Securities Exchange Act of 1934. This
information, as well as other forward-looking information provided,
should be read in conjunction with the information under the caption
"Business Risks and Forward Looking Statements" below.

   Teleconference and Webcast

   Guitar Center will host a conference call and webcast today,
October 5th, at 2:00 p.m. PT (5:00 p.m. ET) to discuss preliminary
third quarter financial results. To access the call, please dial
888-791-6347 (domestic) or 706-645-9246 (international). The webcast
will be available on the Company's web site at www.guitarcenter.com or
at www.earnings.com. A replay of the call will be available through
October 12th, 2006 and can be accessed approximately one hour after
the end of the call by dialing 800-642-1687 (domestic) or 706-645-9291
(international); pin number 8254231. A replay of the webcast will be
available at www.guitarcenter.com.

   About Guitar Center

   Guitar Center is the leading United States retailer of guitars,
amplifiers, percussion instruments, keyboards and pro-audio and
recording equipment. Our retail store subsidiary presently operates
more than 190 Guitar Center stores across the United States. In
addition, our Music & Arts division operates more than 90 stores
specializing in band instruments for sale and rental, serving
teachers, band directors, college professors and students. We are also
the largest direct response retailer of musical instruments in the
United States through our wholly owned subsidiary, Musician's Friend,
Inc., and its catalog and web site, www.musiciansfriend.com. More
information on Guitar Center can be found by visiting the Company's
web site at www.guitarcenter.com.

   Business Risks and Forward Looking Statements

   This press release contains forward-looking statements relating
to, among other things, actual financial results expected for the
third quarter of 2006 and results believed to be achievable by
management in 2006. The data provided for the third quarter of 2006 is
based on preliminary unaudited internal results and are subject to
change as we complete the preparation of full consolidated financials
statements for the period. As to results presently deemed achievable
for the fourth quarter, sales and earnings trends are also affected by
many other factors including, among others, world and national
political events, general economic conditions, the effectiveness of
our promotion and merchandising strategies, our ability to integrate
and profitably operate acquired businesses, the efficient operation of
our supply chain, including the continued support of our key vendors,
our effective management of business risks, including litigation, and
competitive factors applicable to our retail and direct response
markets. In addition, during the recent past we have experienced
greater fluctuations in weekly and monthly operating results than has
been our historic experience and this volatility has, and is likely to
continue to, reduce the reliability of our future revenue and earnings
guidance.

   In light of these risks, the forward-looking statements contained
in this press release are not guarantees of future performance and in
fact may not be realized. Our actual results could differ materially
and adversely from those expressed in this press release. Further, the
statements made by us above represent our views only as of the date of
this press release, and it should not be assumed that the statements
made herein remain accurate as of any future date. We do not presently
intend to update these statements prior to our next quarterly earnings
release and undertake no duty to any person to effect any such update
under any circumstances.

   Investors are also urged to review carefully the discussion under
the caption "Risk Factors" in our Annual Report on Form 10-K for the
year ended December 31, 2005 and our Quarterly Reports on Form 10-Q
for subsequent quarters, which have been filed with the Securities and
Exchange Commission and may be accessed through the EDGAR database
maintained by the SEC at www.sec.gov.