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Investors Send Mixed Signals On Guitar Center

...as comparable same-store sales are down and the company struggles to compete with online providers.” The company’s 6.5% notes due 2019 traded between 85.5 and 88.5 that afternoon, up from 84.75. The 9.625% notes due 2020 traded at 60, a reprieve from trades as low as 55.75.

However, in a conference call on December 10, investors were cheered somewhat by a “marginally” optimistic presentation by Guitar Center management. The company’s third-quarter earnings report, which caused bonds to trade down 10 points, included a slight increase in revenue despite a 7% drop in online sales and relatively flat same-store sales compared with last year’s third quarter.

An important element in Guitar Center’s future is the guiding hand of the controlling stakeholder, Ares Capital. Ares co-founder and senior partner David Kaplan touted the new CEO, Darrell Webb, as having an “extraordinary track record of success in growing and leading large specialty retail companies.” Bond holders listening in to the conference call said the new CEO has given some confidence to the turnaround effort, and that management alluded to further changes coming. CFO Tim Martin said that October was good and that the company was optimistic about November and December as it moves forward with an inventory liquidation that would go through to the first quarter. 

Even after the holiday season, a seasonally high borrowing period, the company expects to end the fourth quarter with the same borrowings on the ABL as it had in the fourth quarter last year, management said on the call, according to sources. The company had $188 million drawn on its revolver as of September 30, but availability was down to $34 million, with just $10 million in cash. As of the call, availability was just $31 million.

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