GC profit up 38% , confirms buying Music & Arts chain

[Robman2]

http://www.latimes.com/business/la-fi-guitar9feb09,1,5299189.story?coll=la-headlines-business&ctrack=1&cset=true

 

 

"Guitar Center Inc. plans to buy privately held Music & Arts Center, a retailer of musical instruments to schools and novice musicians, for about $90 million in cash, sources familiar with the deal said Tuesday.

 

The purchase wouldn't be large in dollar terms, but it would be of strategic importance: It would give Westlake Village-based Guitar Center a bigger presence in the sale and rental of instruments to beginners, classrooms and school marching bands.

 

A Guitar Center spokeswoman declined to comment, and executives at Music & Arts Center couldn't be reached late Tuesday. But the sources said an announcement could come as early as today, when Guitar Center releases fourth-quarter financial results.

 

The rapidly growing company is the nation's largest retailer of guitars, amplifiers, drums and other musical instruments, with annual sales exceeding $1.3 billion. Most of that growth has come from its core 138 Guitar Center stores in 33 states.

 

Now the company wants to bolster its small American Music division, which operates 19 stores that sell and rent instruments to students, music teachers and band directors. It would be merged into Music & Arts, and the business would take the Music & Arts name, people familiar with the deal said.

 

Music & Arts, a 53-year-old company based in Frederick, Md., has 60 retail stores and seven educational centers. Most are east of the Rocky Mountains; it doesn't operate in California. Its annual sales are about $80 million.

 

Guitar Center also might use Music & Arts as a springboard for acquiring other retailers in the educational-instruments market, the sources said.

 

That market is highly fragmented with more than 7,000 U.S. stores, most of them small and employing outdated marketing and back-office technologies, they said.

 

Thus, they said, the market is ripe for consolidation by a larger operator like Guitar Center.

 

Guitar Center, which employs about 5,000 people, has been on a roll recently. The company has frequently posted double-digit gains in quarterly revenue, earnings and sales at stores open at least a year.

 

The company's stock has tripled in price over the last two years. It closed Tuesday at $57.25, down 38 cents, on Nasdaq.

 

Much of Guitar Center's success reflects the rapid growth of digital home-recording equipment that has enabled musicians to achieve near-professional recordings at relatively affordable prices. That trend, in turn, has generated more demand for Guitar Center's instruments, analysts have said."

 

http://www.latimes.com/business/la-fi-guitar10feb10,1,3798738.story?coll=la-headlines-business&ctrack=1&cset=true

 

"Strong holiday sales helped Guitar Center Inc., the country's largest retailer of guitars and other musical equipment, post a 38% increase in fourth-quarter profit.

 

The Westlake Village-based company also confirmed that it planned to acquire Frederick, Md.-based Music & Arts Center, a privately held chain of 62 stores that offers music lessons and sells and rents band instruments, for about $90 million.

 

Guitar Center reported net income of $27.1 million, or 95 cents a share, up from $19.7 million, or 78 cents, for the fourth quarter of 2003.

 

Net income included a one-time charge of 4 cents a share related to the retirement of former co-Chief Executive Larry Thomas.

 

The results beat Wall Street's consensus estimate of 94 cents a share, excluding items, and topped the company's forecast of 89 cents to 92 cents.

 

Sales rose 18% to $468.9 million, driven by a 10% jump in same-store sales at its flagship Guitar Center stores, which accounted for about 77% of the company's total sales.

 

CEO Marty Albertson said in a statement that the company's December "Guitar-a-thon" campaign drove sales, while other holiday-season promotions generated more sales in its mail-order division, Musician's Friend.

 

Investors were heartened by the positive earnings and news of the Music & Arts Center acquisition, said Joan Storms, an analyst at Wedbush Morgan Securities.

 

Guitar Center shares rose $1.67 to an all-time high of $58.92 on Nasdaq.

 

Guitar Center expects to complete the Music & Arts acquisition, which was first reported Wednesday by The Times, in April or May and plans to merge those stores with its American Music division, a 19-store chain targeted at much the same market as Music & Arts.

 

"The one worry in the back of some investors' minds was the [American Music] group," which the company predicted would post a $2.5-million operating loss for 2005, Storms said.

 

The company forecast earnings for the first quarter of 2005 of 48 to 52 cents a share on sales of $390.6 million to $399 million.

 

For all of 2004, the company earned $63.4 million, or $2.36 a share, compared with $36.9 million, or $1.50, in 2003. Sales increased 19% to $1.5 billion."

 

 

Interesting as one of my reps, called me on Monday and was frustrated in tyrying to approach the buyer at M & A, guess we know why now.

 

In the gambit, the dynamics of pre-school to middle school and high school is in flux.

 

Who stands to gain besides GC?

 

Yamaha (Steinberg), Roland (Edirol) and Avid (PT le and M-audio).

 

Gonna be an interesting few years.

 

I'll put my money on Yamaha, as they are the most entrenched in B & O.

 

R

[GTRBass]

This could be a very good thing. I would think that the market is very different for B&O than it is for regular MI.

 

The smartest thing a large enterprise can do is to sponsor programs which promote interest in that market. That's something a well funded corporation like GC could bring to the table here. It is an advantage for them to sponsor music programs for schools to a point. School systems get less and less every academic year for music program funding.

[GY]

Originally posted by Robman2:

Guitar Center, which employs about 5,000 people, has been on a roll recently. The company has frequently posted double-digit gains in quarterly revenue, earnings and sales at stores open at least a year.

 

The company's stock has tripled in price over the last two years. It closed Tuesday at $57.25, down 38 cents, on Nasdaq.

 

R

God! Who would've thought it. I looked at it and didn't think it had a chance in hell!

[Mark Zeger]

GC already owns American Music Supply, a chain of band instrument stores.

 

They also own the Giardinelli name. Many years ago, Giardinelli's was THE store in Manhattan for brass and woodwinds. What a place. All the top players shopped there. Now, GC uses the name as a brand for cheap band instruments and as an e-commerce site for brass/woodwinds.

 

Sad.

[Robman2]

Last year, there was a rumor out that GC was buying Brook Mays, that was not the case.

 

This was instead.

 

Jay Wannamaker, heads up American Music, he's a very sharp person, and the obviated is AMG division will take over M & A but loose the name.

 

Yes, some of the lower tier GC folks themselves, might say as much about not buying the stock when even last year it was in the 30's.

 

R

[hard truth]

"Guitar Center also might use Music & Arts as a springboard for acquiring other retailers in the educational-instruments market, the sources said.

 

That market is highly fragmented with more than 7,000 U.S. stores, most of them small and employing outdated marketing and back-office technologies, they said."

 

Translations: "small and employing outdated marketing"=locally owned, mom & pop stores that are part of their local community.

 

"market is ripe for consolidation by a larger operator like Guitar Center."= these mom & pop stores will soon be wiped out because they will not be able to compete with the discounts that will be offered by GC.

 

Just like Walmart and other chains have virtually eliminated the small drug stores, the small music store is in serious danger of extinction.

[Robman2]

Not the same,the samller markets are not as attractive, we are not talikng milk, butter, eggs and camo gear.

 

The advent of GC has not been the death knell for independent MI stores, those with good marketing and sales staffs do quite well in fact.

 

I do bemoan the loss of the home town feel though...

 

I remember when there was nothing between Tustin and Capistrano but a couple of gas stations and a cafe...

 

Now, it's soild houses and malls..

 

R

[Fendercaster]

My wife works in customer service at the Music and Arts headquarters here in Frederick. She called me this afternoon to tell me they had been bought by GC. Gobble, gobble! I just hope they don't make major changes so she can keep her job. (I can get stuff at great prices through her!) If she understood what was announced today correctly, the Music and Arts stores will continue to operate under that name.

[Robman2]

Fendercaster,

 

they will operate under M & A, also, when they bought American, many of the core folk simply made the transition and the buying continued off campus from Westlake Village (Corporate home of GC). However, GC did not have a central warehouse at that time, and over 80 stores (inclusive of AMG now) could alter that dynamic.

 

No guarantees of course in today's world.

 

Also, the vendor relationships which GC has, becaeme the go to's preferred, however, since they are not B & O in the GC stores, many of those also, remained intact.

 

Try to not focus on the worrisome aspects as far as her tenure is concerned.

 

The skillsets from M & A 's crew is obviuosley part of the fabric O purchase.

 

FWIW, IMHO.

 

R

[Felix_dup1]

GC hasn't had much success with American Musical. It has been the poorest-performing division for years. I'm not sure that the success will change with this new acquisition, though it will certainly buy GC some time with their shareholders, because if the numbers aren't there, they can blame it on transitional issues for a while.

 

The B&O business is very, very different from GC-style MI. Relationships with Band Directors, School Districts, etc don't happen overnight, and there may be B&O manufacturers that aren't ready to get in bed with GC.

 

Time will tell. It's a bit discouraging that the 900 pound gorilla just gained some more weight. I guess the challenge is out there for someone else to come along and do it better.

[winston smith]

It will destroy the mom and pop band rental business. Some will hang on for awhile, but eventually they'll die off.

 

The bigger the chains get the worse the product/service ends up becoming. Music and Arts sells/rents some crap junk, and just like WalMart is now selling their own branded junk guitars, large scale retail isn't going to help the band and orchestra market, either.

 

It will be cheaper - for awhile, then as the competition dies off the stuff they rent will become marginal, prices will sneak up. "Service" will be made to appear to be personalized as it is now, I know they've already got people crossing territories as reps going to the schools - short-cutting local businesses that have have had relationships with said schools for decades.

 

Once they've done their thing and wiped out the independents, they'll no doubt integrate with the school systems some how, and you'll effectively have what the Soviets had: state run/controlled everything.

 

But it will be cheap, and that's what counts.

[Robman2]

Yes and no,

 

The emeritus CEO, Larry Thomas, is very focused on musicial education.

 

Yes the B & O is a world away from MI, but expect the technology prone youth to have their appetites whetted with entry level, cobo/computer gear.

 

Anything more serious will be shunted to the nearest GC store.

 

Brook Mays still imports more offshore brass then anyone, except perhaps Yamaha.

 

So that segment is out there.

 

R

[Felix_dup1]

Originally posted by Robman2:

Yes and no,

 

The emeritus CEO, Larry Thomas, is very focused on musicial education.

From my personal experiences at GC, I don't get that at all.

 

Yes the B & O is a world away from MI, but expect the technology prone youth to have their appetites whetted with entry level, combo/computer gear.

 

Anything more serious will be shunted to the nearest GC store.

So you're assuming that they're going to use these B&O stores to plant GC seeds in the form of entry-level combo gear? Seems like that would go against the B&O store's core business plan (B&O, rental, repairs). Seems GC would want a B&O division to succeed as a B&O division.

 

Brook Mays still imports more offshore brass then anyone, except perhaps Yamaha.

Until Wal-Mart passes them up (via First Act brand).

 

I just don't see what's great about this acquisition. Seems that GC will have no choice but to consolidate the administrative offices of these two companies (American Musical and Music & Arts), and people will end up losing their jobs.

 

"The grabbing hands, grab all they can... everything counts in large amounts" - depeche mode

[Robman2]

The entry level B & O is solid ...Johnny's learning Clarinet but Suzy wants to rock out?

 

An 8 foot wall of Combo, period is all they would need.

 

Selling USB to Midi, basic software, a four by mixer, Squire pack, and a few cables, that's what they'll more then likely do.

 

As far as Wal Mart is concerned, servicing the schools like Yamaha does, will be a very hard nut to crack.

 

There is a level of gear, which Woodwinds and Brasswinds, more or less owns, internationally and nationally, out of South Bend, which nither GC, Mays or Walton's family, will even begin to approach.

 

As far as Larry and Mr. Wanammaker, Larry is about giving back to the community, so I'll reserve judgement on that and Wnmk'r is steeped in the lore and apparently has met the challenge so far, as AMG will now be M & A but the consolidation may cost some jobs I agree.

 

It remains to be seen as to whether it's upstate NY or pastoral Maryland.

 

R