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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report: November 9, 2000
(Date of earliest event reported)
GUITAR CENTER, INC.
(exact name of registrant as specified in its charter)
DELAWARE COMMISSION FILE: 95-4600862
(State or other jurisdiction 000-22207 I.R.S. Employer
of incorporation or Identification No.)
organization)
5155 CLARETON DRIVE
AGOURA HILLS, CALIFORNIA 91301
(Address of Principal executive offices, including zip code)
(818) 735-8800
(Registrant's telephone number, including area code)
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GENERAL NOTE: All information provided in this Current Report on Form 8-K,
whether set forth under the caption of Item 9 or incorporated
therein from the exhibit filed herewith as Exhibit 99.1, is
intended to be "furnished" and not "filed" under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), in accordance with the instructions for Form 8-K and
the applicable provisions of Regulation FD. Accordingly, the
reporting person, Guitar Center, Inc. (the "Company"), hereby
expressly intends that no contents of this Report will be
deemed filed for purposes of Section 18 of the Exchange Act or
otherwise subject to the liabilities of that section unless
subsequent to the date of this Report it incorporates the
contents of this Report into a filing under the Securities Act
of 1933, as amended, or the Exchange Act by an express
reference identifying this particular Report but not in any
event by a generalized incorporation by reference which does
not specifically identify this Report. As also provided for in
the instructions to Form 8-K, the Company expressly disclaims
any admission that the information furnished herein, or any
particular part of such information, is material.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(C) EXHIBITS
99.1 Management Operating Model for 2001 as of November
9, 2000
ITEM 9. REGULATION FD DISCLOSURE
MANAGEMENT DISCUSSION OF BUSINESS OUTLOOK FOR 2001
On November 9, 2000, after the close of the stock market,
senior management of the Company will discuss their outlook for
2001 in a teleconference with interested investors, research analysts and
members of the media. As previously announced by press release on November
2, 2000, the call will be held at 2:00 p.m., Pacific Time,on November
9, 2000. The public can access the teleconference by dialing (800)
633-8137 or visiting the Web cast link at www.streetfusion.com to
listen to the live broadcast on the day of the event. If you are unable to
participate on the conference live, an "instant replay" will be available
until midnight the 16th of November following the call's conclusion.
The public can access this service by dialing (800) 633-8284 or (858)
812-6440 internationally, and entering the passcode "16845390". It usually
takes one hour following the conference to set up the recording.
The principal purpose of the teleconference will be to
provide management's views as to its operating plan for 2001. A summary of
the operating plan which will be discussed on the teleconference is
attached as Exhibit 99.1 and incorporated by reference herein. The contents
of that exhibit and the comments made by management on the teleconference
constitute forward-looking
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statements and were and are made in express reliance on the safe
harbor provisions contained in Section 21E of the Securities Exchange Act of
1934. Such statements include, without limitation, statements relating to
results presently deemed to be achievable by management in 2001, new stores
we expect to open in 2001, trends in gross margin, average order size and
comparative stores sales performance, growth in the Internet business,
investments to be made including with respect to fulfillment and logistics,
and other factors affecting growth in sales and earnings and the capital
requirements of certain projects planned for 2001. Statements regarding new
store openings are based largely on our current expectations and are
necessarily subject to associated business risks related to, among other
things, the timely construction, staffing and merchandising of those stores
and other matters, some of which are outside of our control. The catalog
and Internet businesses were only recently acquired by us and continue to
be subject to significant fluctuations due to the growth of both businesses
and the adaptation of new selling techniques, including third-party credit.
Sales and earnings trends are also affected by many other factors
including, among others, general economic conditions and the effectiveness
of our promotion and merchandising strategies.
The statements furnished in this Report and on the teleconference
must be viewed in context and in light of the risks described above and under
the caption "Risk Factors" below. In light of these risks, there can be no
assurance that the forward-looking statements furnished in this Report or on
the teleconference will in fact be realized. The statements made by our
management and furnished in this Report and on the teleconference speak
as of the date of this Report only, and it should not be assumed that the
statements made herein remain accurate as of any future date. GUITAR CENTER
DOES NOT PRESENTLY INTEND TO UPDATE THESE STATEMENTS AND UNDERTAKES NO
DUTY TO ANY PERSON TO EFFECT ANY SUCH UPDATE UNDER ANY CIRCUMSTANCES.
RISK FACTORS
In evaluating the information furnished in this Report or in the
teleconference, investors should also carefully consider the following risk
factors. There may be additional risks that we do not presently know of or that
we currently consider immaterial. All of these risks could adversely affect our
business, results of operations, liquidity and financial position.
RISKS RELATED TO PROJECTED OPERATING AND FINANCIAL INFORMATION
The projected operating and financial information furnished with this
Report or discussed on our teleconference represents our management's estimates
as of the date of this Report. The projections, which are forward looking
statements, were prepared by our management and are qualified by, and subject
to, the assumptions and the other information contained in this Report or
discussed on the teleconference. The projections were not prepared with a view
toward compliance with published guidelines of the Securities and Exchange
Commission, the American Institute of Certified Public Accountants, any
regulatory or professional agency or body, or generally accepted accounting
principles. In addition, neither our independent public accountants nor any
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other independent expert or outside party has compiled or examined the
projections and, accordingly, no such person has expressed any opinion or any
other form of assurance with respect thereto. Without limiting the generality of
the immediately preceding sentence, our outside auditors expressly disclaim any
association with the information furnished with this Report or on the
teleconference.
The projections are based upon a number of assumptions and
estimates that, while presented with numerical specificity are
inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and
are based upon specific assumptions with respect to future business
decisions, some of which will change. We have stated possible outcomes as
high and low ranges which are intended to provide a sensitivity analysis as
variables are changed but are not intended to represent that actual results
could not fall outside of the suggested ranges. The principal reason
that we release this data is to provide a basis for our management to
discuss our business outlook with analysts and investors. We do not
endorse or otherwise accept any responsibility for any projections or
reports published by any such persons.
Projections are necessarily speculative in nature, and it can
be expected that some or all of the assumptions underlying the projections
being furnished by us will not materialize or will vary significantly
from actual results. Accordingly, the projections are only an estimate of
what management believes is realizable on the date of this Report. Actual
results will vary from the projections and the variations may be material.
Investors should also recognize that the reliability of any forecasted
financial data diminishes the farther in the future that the data is
projected. IN LIGHT OF THE FOREGOING, INVESTORS ARE URGED TO PUT THE
PROJECTIONS IN CONTEXT AND NOT TO PLACE UNDUE RELIANCE ON THEM.
Any failure to successfully implement our operating strategy or
the occurrence of any of the events or circumstances set forth in this
Report could result in the actual operating results being different than the
projections, and such differences may be adverse and material.
WE MAY BE UNABLE TO MEET OUR GROWTH STRATEGY.
Our retail store growth strategy includes opening new stores
and increasing sales at existing locations. We are pursuing an
aggressive expansion strategy by opening additional stores in new and
existing markets. As of September 30, 2000, we operated 80 stores. We
opened 13 stores in 1999 and 16 stores in 1998, and plan to open 14 stores
in 2000 and approximately 11 to 14 stores in 2001, consisting of 8 to 10
large format stores and 3 to 4 smaller format stores. Our expansion plan
depends on a number of factors, including:
- Identification of suitable retail sites;
- Negotiation of acceptable lease terms;
- Hiring, training and retention of skilled personnel;
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- The successful implementation of our strategy to operate
smaller format stores in markets that cannot support our
standard large format unit;
- Sufficient management and financial resources to support the
new locations; and
- Vendor support
We cannot assure you that we will achieve our store expansion goals or
that our new stores will achieve sales or profitability levels similar to our
existing stores. Our expansion strategy includes clustering stores in existing
markets. This has in the past and may in the future result in the transfer of
sales to the new store and a reduction in the profitability of an existing
store. In addition to the factors noted above, expansion to new markets may
present unique competitive and merchandising challenges, including:
- Significant start-up costs, including promotion and advertising;
- Construction, media, freight and other costs which are in
excess of that historically experienced by us (which is the
case, for example, in the Northeast particularly the New York
Tri-State area);
- Management of stores in distant locations; and
- Warehousing future retail locations (we do not currently
warehouse our new locations but may if a unique situation
becomes available).
Historically, we have achieved significant sales growth in existing
stores. Our quarterly comparable stores sales results have fluctuated
significantly in the past and we do not expect comparable store sales to
increase at historical rates. Our present expectation for 2001 is for comparable
store sales increases of 5% to 7% for the full year. Comparable store sales is
an important financial measure and any significant variance from our
expectations could have a material effect on our results of operations.
A variety of factors affect our comparable store sales results,
including:
- Competition;
- Economic conditions;
- Consumer and music trends;
- Changes in our merchandise mix;
- Product distribution;
- Transfer of sales to new locations (I.E., market clustering);
and
- Timing of our promotional events.
We also believe that our expansion may be accelerated by the
acquisition of existing music product retailers or other companies with
businesses complementary to our businesses. In the ordinary course of our
business, we regularly consider, evaluate and enter into negotiations related to
potential acquisition opportunities. We may pay for these acquisitions in cash
or securities (including equity securities), or a combination of both. We cannot
assure that attractive acquisition targets will be available at reasonable
prices or that we will be successful in any such transaction. Acquisitions
involve a number of special risks, including:
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- Diversion of our management's attention;
- Integration of the acquired business with our business; and
- Unanticipated legal liabilities and other circumstances or
events.
WE DEPEND ON SUPPLIERS.
We depend significantly on our suppliers for both our existing stores
and direct response unit as well as to meet our expansion goals. We do not have
any long-term contracts with our suppliers, which we believe is customary in our
industry. If we failed to maintain our relationships with our key brand name
vendors, we believe this could have a material adverse effect on our business.
We believe we currently have adequate supply sources; however, we cannot assure
sufficient quantities or the appropriate mix of products will be available in
the future to supply our existing stores and expansion plans. This risk is
especially prevalent in new markets where our vendors have existing agreements
with other dealers and thereby may be unwilling or unable to meet our
requirements. Also, there are instances in which a supplier is unwilling to
provide product to the direct response division even though they supply some or
all of the retail stores, or vice versa.
WE HAVE COMPETITORS.
Our industry is fragmented and highly competitive. We compete with many
different types of retailers, including conventional retailers, as well as other
catalog and e-commerce retailers, who sell many or most of the items we sell. We
anticipate increased competition in our existing markets and planned new markets
as other large format music product retailers execute their announced growth
plans. Additionally, our expansion to new markets will be inhibited by
established competitors in those markets. If our competitors adopt a new,
innovative store format or retail selling method, or if a new competitor with
substantial financial or other resources enters the market place, then we may
fail to achieve market position gains or may lose market share.
WE DEPEND ON KEY PERSONNEL.
Our success depends to a significant extent on the services of Larry
Thomas, our Chairman and Co-CEO, and Marty Albertson, our President and Co-CEO,
as well as our ability to attract and retain additional key personnel with the
skills necessary to manage our existing business and growth plans. The loss of
one or more of these individuals or other key personnel in the retail or direct
response division could have a material adverse effect on our business, results
of operations, liquidity and financial position. In June 1996, we entered into a
five-year employment contract with both Mr. Thomas and Mr. Albertson.
Additionally, we carry key man insurance on the lives of Mr. Thomas and Mr.
Albertson in the amount of $5.0 million and $3.5 million, respectively.
Historically, we have promoted employees from within our organization to fill
senior operation, sales, and store management positions. In order to achieve our
growth plans, we will depend upon
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our ability to retain and promote existing personnel to senior management, and
we must attract and retain new personnel with the skills and expertise to manage
our business. Given our growth rate and high employment levels in the economy,
attracting and retaining the necessary skilled personnel in our retail and
direct response divisions is expected to continue to be a significant management
challenge. If we cannot hire, retain, and promote qualified personnel, our
business, results of operations, financial condition and prospects could be
adversely affected.
MEETING OUR FINANCIAL OBJECTIVES FOR 2001 WILL DEPEND NOT ONLY ON THE CONTINUED
SUCCESSFUL OPERATION OF OUR RETAIL BUSINESS BUT ALSO ON CONTINUED RAPID GROWTH
IN REVENUES AND OPERATING INCOME AT OUR RECENTLY ACQUIRED DIRECT RESPONSE
DIVISION.
Historically we have operated only retail stores and we have no
experience in the catalog or Internet businesses. Our plan contemplates
continued significant improvement in the catalog and Internet businesses due to
growth in the market, increased acceptance of the Internet for electronic
commerce, the availability of adequate capital to pursue business opportunities
available to our direct response unit, completion of integration of the units
without the incurrence of unexpected costs, and the application of merchandising
strategies historically executed by Guitar Center including third party credit.
These may not be correct assumptions.
ECONOMIC CONDITIONS COULD ADVERSELY IMPACT INDUSTRY RESULTS.
Our business is sensitive to consumer spending patterns, which can be
affected by prevailing economic conditions. A downturn in economic conditions in
one or more of our markets could have a material adverse effect on our results
of operations, financial condition, business and prospects. Although we are not
as affected by lower consumer spending as most other retailers, we have
experienced some impact during the third quarter of 2000. We plan to continue to
address current economic conditions through promotional activities in our retail
stores, catalog and at musiciansfriend.com. The level of promotional activity
affects retail selling prices (gross margin) and advertising and other media
costs (selling, general and administrative expenses).
WE MUST MANAGE EFFICIENTLY THE EXPANSION OF OUR WEBSITE AND THE SYSTEMS THAT
PROCESS ORDERS IN OUR DIRECT RESPONSE BUSINESS.
Our direct response business, particularly our e-commerce business,
will require significant investments to respond to anticipated growth and
competitive pressures. If we fail to rapidly upgrade our website in order to
accommodate increased traffic, we may lose customers, which would reduce our net
sales. Furthermore, if we fail to rapidly expand the computer systems and
fulfillment infrastructure that we use to process and ship customer orders and
process payments, we may not be able to successfully distribute customer orders.
As a result, we could lose customers and our net sales could be reduced. We may
experience difficulty in improving and maintaining such systems if our employees
or contractors that develop or maintain our computer systems become
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unavailable to us. We have experienced periodic systems interruptions, which we
believe will continue to occur, while enhancing and expanding these computer
systems.
WE INTEND TO IMPLEMENT A NEW DISTRIBUTION CENTER FOR THE RETAIL STORES WHICH
PRESENTS OPERATIONAL RISKS AND WILL REQUIRE A SIGNIFICANT INVESTMENT.
We intend during 2001 to build a distribution center for our retail
store operations with a view towards the facility commencing operation in early
2002. This change in logistic supply for our retail stores presents an
opportunity to improve our financial performance, but will require significant
upfront costs and presents operational risks as we change some of our historical
operating techniques.
NET SALES OF OUR E-COMMERCE BUSINESS COULD DECREASE IF OUR ONLINE SECURITY
MEASURES FAIL.
Our relationships with our e-commerce customers may be adversely
affected if the security measures that we use to protect their personal
information, such as credit card numbers, are ineffective. If, as a result, we
lose many customers, our net sales could decrease. We rely on security and
authentication technology that we license from third parties. With this
technology, we perform real-time credit card authorization and verification with
our bank. We cannot predict whether events or developments will result in a
compromise or breach of the technology we use to protect a customer's personal
information. Furthermore, our servers may be vulnerable to computer viruses,
physical or electronic break-ins and similar disruptions. We may need to expend
significant additional capital and other resources to protect against a security
breach or to alleviate problems caused by any breaches. We cannot assure that we
can prevent all security breaches.
IF WE DO NOT RESPOND TO RAPID TECHNOLOGICAL CHANGES, OUR SERVICES COULD BECOME
OBSOLETE AND WE COULD LOSE CUSTOMERS.
If we face material delays in introducing new services, products and
enhancements, our e-commerce customers may forego the use of our services and
use those of our competitors. To remain competitive, we must continue to enhance
and improve the functionality and features of our online store. The Internet and
the online commerce industry are rapidly changing. If competitors introduce new
products and services embodying new technologies, or if new industry standards
and practices emerge, our existing website and proprietary technology and
systems may become obsolete. To develop our website and other proprietary
technology entails significant technical and business risks. We may use new
technologies ineffectively or we may fail to adapt our website, our transaction
processing systems and our computer network to meet customer requirements or
emerging industry standards. In addition, the success of e-commerce may result
in greater efficiency and lower prices, which could have an adverse effect on
selling prices and margins in our retail store business and in our catalog
business and generally constrain profitability in the specialty retail business.
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WE MAY NEED TO CHANGE THE MANNER IN WHICH WE CONDUCT OUR BUSINESS IF GOVERNMENT
REGULATION INCREASES.
The adoption or modification of laws or regulations relating to the
Internet could adversely affect the manner in which we currently conduct our
e-commerce business. In addition, the growth and development of the market for
online commerce may lead to more stringent consumer protection laws, both in the
United States and abroad, that may impose additional burdens on us. Laws and
regulations directly applicable to communications or commerce over the Internet
are becoming more prevalent. The law of the Internet, however, remains largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property, consumer privacy, taxation of e-commerce transactions and
the like are interpreted and enforced.
WE HAVE A LIMITED HISTORY OF TRADING ON THE NASDAQ NATIONAL MARKET; OUR STOCK
PRICE COULD BE VOLATILE.
We began trading on the Nasdaq National Market on March 14, 1997. The
market price of our shares of common stock has been subject to significant
fluctuations in response to our operating results and other factors, including
announcements by our competitors, and those fluctuations will likely continue in
the future. In addition, the stock market in recent years has experienced
significant price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of particular companies. These
fluctuations, as well as a shortfall in sales or earnings compared to public
market analysts' expectations, changes in analysts' recommendations or
projections, and general economic and market conditions, may adversely affect
the market price of our common stock.
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The statements made by our management and furnished in this Report
and on the teleconference speak as of the date of this Report only, and it
should not be assumed that the statements made herein remain accurate as of
any future date. GUITAR CENTER DOES NOT PRESENTLY INTEND TO UPDATE
THESE STATEMENTS AND UNDERTAKES NO DUTY TO ANY PERSON TO EFFECT ANY SUCH
UPDATE UNDER ANY CIRCUMSTANCES. Accordingly, investors are urged not to
place undue reliance on the forward-looking data furnished in this Report or
on the teleconference.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized,
GUITAR CENTER, INC.
Date: November 9, 2000 By /S/ BRUCE ROSS
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NAME: Bruce Ross
TITLE: Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
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SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
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99.1 Management Operating Model for
2001 as of November 9, 2000
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