Guitar Center, Inc. Reports 2006 Fourth Quarter and Full Year Top-Line Sales Results

  
    
  
  
    
      Guitar Center, Inc. (Nasdaq:GTRC) today reported sales for the fourth 
      quarter and year ended December 31, 2006.
    
    
      Consolidated net sales for the quarter ended December 31, 2006 increased 
      11.7% to $628.5 million from $562.8 million in the same period last 
      year. Net sales from Guitar Center stores were $461.7 million for the 
      fourth quarter, a 12.7% increase from $409.9 million reported in the 
      same period last year. Comparable Guitar Center store sales increased 
      1.3% for the quarter. Net sales from new stores contributed $46.4 
      million and represent 89.5% of the total increase in Guitar Center store 
      net sales. In the fourth quarter, Musician’s 
      Friend net sales increased 5.4% to $121.0 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% 
      for the quarter.
    
    
      Erick Mason, Executive Vice President and Chief Financial Officer of 
      Guitar Center, said, “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. 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 hi-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.”
    
    
      Net sales for the year ended December 31, 2006 increased 13.9% to $2.030 
      billion compared with $1.782 billion for 2005. Net sales from Guitar 
      Center stores for 2006 totaled $1.493 billion, a 13.6% increase from 
      $1.314 billion in 2005. Comparable Guitar Center store sales for the 
      full year increased 3.7%. Net sales from new stores contributed $130.9 
      million and represent 73.1% of the total increase in Guitar Center store 
      net sales. Musician’s Friend net sales 
      increased 7.3% to $391.7 million in 2006 from $365.1 million in 2005. 
      Net sales from Music & Arts stores for 2006 totaled $145.0 million 
      compared to $103.1 million in 2005. The 2005 financial information of 
      the Music & Arts division includes the results of Music & Arts from the 
      date of its acquisition on April 15, 2005 through December 31, 2005 as 
      well as the results of American Music Group for the entire 2005 year. 
      Comparable Music & Arts sales for the full year increased 0.7%.
    
    
      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.
    
    
      The information provided in this press release is based on preliminary, 
      unaudited revenue information that is subject to adjustment as we 
      complete our year-end audit process.
    
    
      The Company plans to release its fourth quarter and full year 2006 
      financial results on February 8, 2007 after the close of the day’s 
      trading. Guitar Center will hold a conference call to discuss these 
      results and will provide information to access this call at a later date.
    
    
      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 195 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 website, 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 
      financial results for the fourth quarter and the full fiscal year ended 
      December 31, 2006. The financial data provided is based on preliminary, 
      unaudited internal operating data that is not final and is subject to 
      adjustment. We cannot assure you that there will not be adjustments in 
      such data during our year-end closing and audit procedures or that any 
      such adjustment will not be material.
    
    
      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 earnings release for the 
      fourth quarter 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 “Risks Related to the Business” 
      in our Quarterly Report on Form 10-Q for the quarter ended September 30, 
      2006 and our Annual Report on Form 10-K for 2005, each of which has been 
      filed with the Securities and Exchange Commission and may be accessed 
      through the EDGAR database maintained by the SEC at www.sec.gov.