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Guitar Center Cash Flow Up Despite Sales Decline

...earnings before interest, taxes, depreciation, and amortization (EBITDA), advanced 11% to $65.0 million, versus $58.6 million a year ago due to tight cost controls and improved inventory management. For the full year, the parent of Guitar Center stores, Music & Arts, Musicians Friend, and Woodwind & Brasswind posted revenue of $2.19 billion, down 5.5% from last year’s $2.23 billion. Same-store sales for the year were down 5.5%.

Ares Management has made improved inventory management a key part of its  strategy since taking over Guitar Center a year ago. For much of 2014, management liquidated excess and aged inventory at promotional prices. With the clearance efforts reportedly complete, Guitar Center’s gross margins increased to 31.4% for the fourth quarter, compared with 27.6% a year ago. In a recent conference call with bond holders, Guitar Center management said that gross margins would continue to increase in 2016, but at the expense of top line growth.

Guitar Center ended the year with $7.5 million in cash and $210 million under its asset backed lending agreement. Bond holders reacted positively to the financial results. The senior secured notes, due 2019, rose to $92, from $89.5, and the senior unsecured notes, due 2020, rose to $73 from $66.

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