Guitar Center Net Income Soars

Musical instruments and products retailer Guitar Center Inc. on Tuesday posted sharply higher third-quarter net income, helped by cost containment and an increase in same-store sales, but the company’s revenue increase was lower than expected.

The Westlake Village-based company posted net income of $4.4 million, or 19 cents a share, compared with $1.4 million, or 6 cents, in the third quarter of 2001. Net sales rose 13% to $257.4 million.

Analysts on average had expected the company to report net income of 18 cents a share and revenue of $262.6 million.

The company reported earnings after the close of markets. Its stock fell $1 in after-hours trading. It had closed at $20, up 25 cents, on Nasdaq.

Although Guitar Center reported a 6% increase in same-store sales, it said that its band instrument and combo products did not sell as well as expected and that its direct response retail operations had softer-than-expected results.

Guitar Center expects fourth-quarter net sales of $327 million to $331 million and earnings per share in the range of 51 cents to 54 cents.

Guitar Center said it has not attempted to forecast the effect of the court-ordered liquidation of its rival Mars Music chain. But analysts said the liquidation should be positive for the company over the long term.

“In the next 30 days, they may be impacted by the liquidation as the Mars stores sell at or below cost, which may put some pressure on [Guitar Center] sales and gross margins in those regions,” said Justin Cable, analyst with B. Riley & Co.

But over the long term, Cable expects the effect to be beneficial.

“They could make up for any near-term losses from the liquidation after the Mars stores are completely closed, given that hopefully these Mars stores are closed by December,” he said.