Financial Reports: Guitar Center, J.C. Penney, Office Depot

Direct Sales Up 27% at Guitar Center

Westlake Village, CA-based Guitar Center (Nasdaq: GTRC) posted a 21.6% increase in direct response net sales, including revenue from the Musician’s Friend catalog, to $114.8 million, in the fourth quarter ended Dec. 31, up from $94.4 million in the previous fourth quarter. The increase reflects higher advertising costs related to Internet advertising and affiliate fees. Gross margin was lower–28.8% compared to 32.2% last year–reflecting reduced shipping and handling revenue.

Direct response net sales for the full year increased 17.3%, to $365 million, from $311 million in 2004. Fourth-quarter consolidated net sales increased 20%, to $563 million from $469 million, and full-year net sales rose 18%, while fourth-quarter net income increased 24% to $33.5 million. Full-year net income increased 21%, to $76.7 million, from $63.4 million.

Consolidated net sales for the full year increased 17.8%, to $1.8 billion, from $1.5 billion in 2004. Net income increased 23.6% in the fourth quarter to $33.5 million. The core Guitar Center retail chain and the Musician’s Friend catalogs and Website cater primarily to amateur and professional adult and teen musicians.

4Q Direct Sales up 3.7% for J.C. Penney

Direct sales (catalog/Internet) for Plano, TX-based general merchant J.C. Penney Co. increased 3.7% for the fourth quarter ended Jan. 28, down slightly from a 3.9% increase last year. Internet sales increased 22% for the quarter, 28% for the full year, and exceeded the $1 billion plateau. Direct sales increased 3.6% for the full year, up from 3.3%.

The company’s operating profit increased 14.5% and 22.5% for the fourth quarter and full year, respectively. Meanwhile, income from continuing operations increased 39% for the quarter and 49% for the year. Eighteen new stores opened in 2005, the most in eight years, chairman/CEO Myron E. Ullman III said in a statement. Fourth-quarter total department store sales increased 4.2%, to $6.2 billion, from $5.9 billion. Net income for the quarter increased 66%, to $551 million, from $333 million. Full-year net income soared more than 100%, to nearly $1.1 billion, from $524 million. “Over the past year we have made substantial improvements in our merchandise assortments and taken actions to make J.C. Penney an easy and exciting place to shop,” Ullman said.

Sales Up, Profits Down for Office Depot

Total sales for Delray Beach, FL-based Office Depot increased 7%, to $3.7 billion, for the fourth quarter ended Dec. 31, compared to the fourth quarter of 2004. Excluding the 53rd week of 2005, sales for the quarter increased 2% from the same period last year. Net earnings for the quarter were $106 million, compared to $52 million the previous year.

But for the quarter, gross profit as a percentage of sales fell 31%, down from 31.8%. Negative gross margin was attributed to a decline in business from the International Division. Operating profit for the quarter was $137 million, up from $103 million. Chairman/CEO Steve Odland said in a statement: “Our International Division results are still not where we would like them to be. We remain optimistic on the long-term potential of our International business, but cautious regarding expectations of immediate marked improvements in this division’s performance based on modest changes in broad economic conditions in Europe. Our focus remains to improve profitability and grow this business over time.”

Office Depot’s North American Business Solutions division sales, which includes catalogs, increased by 11% in the fourth quarter compared to the same period last year. Operating profit for the division was $130 million for the quarter, up 24% from the prior year. Fourth-quarter 2005 charges negatively impacted operating profit by $7 million, while charges in the fourth quarter of the prior year had a negative $4 million impact on that period’s operating profit. Gross margin for the division was relatively unchanged, with reduced expenses resulting from the integration of the Office Depot and Viking catalog brands.

For the year, total sales hit $14.3 billion, an increase of 5% from the prior year. Net earnings for 2005 were $274 million and operating profit in 2005 was $348 million on an operating margin of 2.4%, compared to an operating profit of $530 million in 2004 on an operating margin of 3.9%.

In other Office Depot news, the company announced that it bought a controlling interest in Best Office, one of the leading South Korean office supply companies. Best Office operates a network of more than 70 franchised and company-owned retail stores, along with a complementary delivery sales channel. The $44 million business is expected to strengthen Office Depot’s global presence.

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