MAY 7 | GUITAR CENTER | FINANCE
GC Net Up 13.5 Percent for First Quarter
Guitar Center’s first-quarter consolidated net sales increased 13.5 percent to $534.5 million, as compared to $470.7 million in the prior year period. Net income in the first quarter was $17.2 million, or $0.57 per diluted share, versus net income of $15.7 million, or $0.55 per diluted share, in the prior year period.
Net income in the first quarter of 2007 included stock-based compensation expense under the company's long-term incentive plans (LTIP) of $0.3 million after-tax, or $0.01 per diluted share. Net income in the prior year period included stock-based compensation expense under the LTIP of $2.0 million after-tax, or $0.07 per diluted share, as well as a charge of $0.9 million after-tax, or $0.03 per diluted share, resulting from the retirement of the
company’s previous chief financial officer.
“We are pleased with our results for the quarter, which exceeded our expectations,” said GC’s Executive Vice President and Chief Financial Officer Erick Mason. “Our Guitar Center retail division generated solid sales and operating income, with new stores largely driving our growth in this division. We continued to execute on our store expansion plans with the opening of 12 new Guitar Center stores, including the acquisition of the former Victor's House of Music location in Paramus, New Jersey.
“In our direct response division, we achieved better than expected sales from guitarcenter.com, which continues to generate strong results and enhance Guitar Center's brand equity. In addition, both the integration of Woodwind and Brasswind, as well as the new direct response fulfillment center, are proceeding in line with our plans.”
During the quarter, the company opened five primary format GC stores. Net sales from GC stores increased 11.6 percent to $378.5 million from $339.3 million in the first quarter 2006, with sales from new stores contributing $37 million and representing 94.4 percent of the total increase.
Comparable store sales for the GC stores increased 0.7 percent. Gross profit was 27.1 percent in the first quarter compared to 27.2 percent in the same period last year. The decrease primarily reflects higher occupancy costs partially offset by a higher selling margin. Selling, general and administrative expenses for the GC stores were 21 percent of net sales, compared to 21.1 percent of net sales in the first quarter of 2006.
Direct response net sales for the quarter increased 18.4 percent to $116.4 million from $98.3 million in last year's first quarter. Net sales of the existing direct response business increased 9.1 percent over 2006, representing 49 percent of the year-over-year sales increase. Woodwind and Brasswind, which was acquired on February 9, 2007, contributed 51 percent of the increase in direct response net sales.
Gross profit improved to 29.9 percent for the quarter compared to 29.2 percent in the prior year period, reflecting a higher selling margin. Selling, general and administrative expenses for the first quarter were 23.4 percent of net sales compared to 22.9 percent in the same period last year. The increase primarily reflects the effects of the Woodwind and Brasswind acquisition.
Net sales from the company's Music & Arts division increased 19.3 percent to $39.6 million in the first quarter from $33.2 million in the first quarter of 2006. Comparable sales for the Music & Arts division increased 2.6 percent in the quarter. First quarter gross profit for Music & Arts was 42.9 percent compared to 46.5 percent in the same period last year. Selling, general and administrative expenses were reduced to 43.3 percent of net sales compared to 45.1 percent in the first quarter of 2006, primarily reflecting reduced intangibles amortization and lower expense under the LTIP.