Guitar Center earnings are music to ears of analysts.

The stock price of Guitar Center Inc. has been hitting more highs and lows than a heavy-metal solo.

The Agoura Hills-based musical instrument retailer traded at just over $25 last week - up from $14 in October, but a far cry from last July's $33 level.

A combination of disappointing third-quarter results and general Wall Street doldrums prompted the stock to nosedive, although analysts generally remain fans.

"The fundamentals today are as sound as they were when the stock was at $33," said Alan Rifkin, a managing director at Piper Jaffray Inc. in Minneapolis. "Of all the stocks in my universe, I only have strong buy recommendations on two companies, and Guitar Center is one of them."

For the third quarter ended Sept. 30, the company posted net income of $4.7 million (22 cents per share), compared with $3.3 million (16 cents) for the like period a year ago.

In the 12 months ended Dec. 31, 1997, net income was $16.3 million (79 cents), compared with a pro-forma net loss of $72.3 million ($3.54) in 1996. That loss, coming on the heels of steadily increasing earnings, was attributed to restructuring associated with the sale of former majority owner Raymond Scherr's controlling interest to several venture capital groups, including Wells Fargo Small Business Investment, Chase Venture Capital Associates and Weston Presidio Capital.

Those venture firms took the company public at $15 per share in March 1997 encouraged by the fact that the company is one of only two chains in the musical-instrument industry that have embraced the "big box" strategy of retailing. Its competitor, Sam Ashe Music, is less than half Guitar Center's size, with 20 stores around the country.

A typical music products store averages 3,200 square feet and generates average annual sales of $600,000. Guitar Center's stores average 12,000 to 15,000 square feet and generate around $8.6 million in sales.

The flagship store in Hollywood is about 30,600 square feet, and with its "Rock Walk" that immortalizes the greats of rock 'n' roll, it has become a tourist attraction is its own right.

"We want it to be a Disneyland for musicians," said Chief Financial Officer Bruce Ross.

Guitar Center specializes in guitars, drums and synthesizers, whose growth rate tends to be higher than other music products. (And with a higher volume, it can offer lower prices that effectively undercut its competitors.) Sales are further boosted by offering higher-margin items, such as vintage instruments - particularly electric guitars - and fashion accessories.

Its greatest strength could be its size, especially in an industry that's still dominated by small and mid-sized retailers. "At the end of the day, they continue to be one of the prime consolidators in that industry," Rifkin said.

The consolidation isn't happening through acquisitions of other stores and chains. Instead, Guitar Center simply opens new outlets that have the effect of shutting down smaller competitors.

When it opens its latest store in New Brunswick, N.J. on Dec. 17, it will have 48 stores nationwide. Another 12 outlets are planned for 1999.

Guitar Center has been retailing guitars since former organ salesman Wayne Mitchell opened the now-famous Sunset Boulevard store in 1964. Scherr acquired a majority stake in the company when Mitchell died in 1983.

Despite rapid growth in recent years, Ross says there is plenty of room for expansion. The company has identified room for at least 150 large-scale Guitar Center stores nationwide - plus 100 smaller stores in smaller cities or towns.

While the company has been looking at opportunities in international cities such as London, and Tokyo, there are currently no plans to expand overseas.

"There are just too many opportunities in the U.S. to have to deal with foreign cultures and currencies," said Ross.

YEAR (Dec. 31)                      1997         1996

Revenue (millions)                $296.7       $213.3
Operating Expenses (millions)      214.3        153.2
Operating Income (millions)         25.4       (53.0)
Net Income (millions)               16.3       (17.3)
Earnings Per Share                 $0.79      ($3.54)

SUMMARY

Business: Retailer of musical instruments Headquarters: Aguora Hills CEO: Larry Thomas Market Cap: $525 million Dividend Yield: N/A(*) Total Liabilities: $103.8 million P/E Ratio: 32.1 Long-Term Debt: $66.7 million

* Guitar Center does not pay dividends.