Financial reports: Zones, Guitar Center

Zones posts earnings improvement

Renton, WA-based computer reseller Zones (Nasdaq: ZONS) posted a strong bottom line for the quarter ended June 30. Second-quarter profits soared 305%, to $373,000 from $92,000 last year. The growth came despite a 26% decline in net sales, to $107.8 million from $145.2 million last year. “It is becoming increasingly apparent the highly anticipated second-half acceleration in IT spending is being deferred,” president/CEO Firoz Lalji said in a statement.

Sales to small and midsize businesses, enterprise accounts, and the education and government market were up 6%, to $90.7 million in the second quarter, representing 84.1% of total net sales.

Net sales up 31% at Musician’s Friend Westlake Village, CA-based cataloger/retailer Guitar Center (Nasdaq: GTRC), which mails the Musician’s Friend title, reported an 18% increase in second-quarter net sales increase. For the three months ended June 30, sales were $253.9 million, compared with $215.6 million for the second quarter of 2001. Net income for the second quarter was flat at $4.1 million.

Net sales for the direct response division, which includes Musician’s Friend, increased 31%, to $46.5 million from $35.4 million last year, thanks to strong response from the deejay and drum editions. Gross margin for the direct response division was 30.3% for the quarter compared to 28% a year ago.

Net sales from Guitar Center retail stores grew 15% to $207.4 million for the quarter compared to $180.1 million last year.

Guitar Center anticipates third quarter 2002 net sales will be range from $263 million – $267 million, inclusive of the reclassification of approximately $3.0 million in shipping and handling revenue in the direct response division.

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