Financial Reports: Guitar Center, REI

Guitar Center Posts Sales Gains Despite Fourth-Quarter Disappointment
Westlake Village, CA-based Guitar Center reported a 7% rise in annual direct sales, to $391.7 million for the year ended Dec. 31. Consolidated net sales for the cataloger/retailer rose 14%, to $2.03 billion. But net income sunk to $424,000 after reaching $76.7 million in 2005.

Fourth-quarter direct sales increased slightly more than 5%, to $121.0 million. The increase was largely due to sales from the Guitar Center Website, which became commerce-enabled this past June (see ”Guitar Center Sells Online at Last”). But the company’s core catalog and e-commerce brand, Musician’s Friend, suffered from lower- than-expected sales.

Fourth-quarter consolidated net sales increased nearly 12%, to $628.5 million. The company incurred a net loss in the fourth quarter of $40 million, after recording net income of $33.5 million the previous fourth quarter.

“Due to a softer sales environment experienced by our Guitar Center retail and Musician’s Friend divisions, we recently reported that our sales and net income results for the fourth quarter were lower than previously expected,” CEO Erick Mason said in a statement. “While the musical-instruments industry experienced certain challenges in 2006, we continued to increase our market share for musical instruments through sales growth at existing stores, new store openings, the growth of our educational division, and increased visits to our direct response Websites throughout the year.”

REI’s Annual Direct Sales Up 19%
Annual sales for Seattle-based Recreational Equipment Inc. (REI) rose 16%, to $1.18 billion for the year ended Dec. 31. This is the second consecutive year of sales growth of at least 15%. The manufacturer/marketer of outdoor apparel and gear had posted sales of $1.02 billion in 2005. The company’s direct sales increased 19%.

Net income increased 23%, to $40.3 million from $32.7 million in 2005. Same-store sales rose 9.5%.

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