Fender Financials & Pending IPO -Keeping the boat afloat

Interesting "MarketWatch" article on Fender. It would appear they have far bigger challenges than reinventing the Guild brand. I found the following paragraph pretty interesting:
While Fender’s growth since its foundation has been impressive, its recent life as a corporate has been less so. Its sales are flagging below 2008 levels, its EBITDA margins are consistently sub-10%, and it has oscillated between profit and losses during the past five years. This suggests that it is struggling to convert its brand and pricing power into a premium bottom line. This has much to do with its amplified $248 million debt (of which $200 million needs to be repaid by June 2014) leaving a company with negative net tangible assets. Moreover, its future sales are closely linked to the prospects of its biggest customer, Guitar Center, which Moody’s recently downgraded to junk status, labeling the music retailer of “extremely poor quality.”
Here's a link http://www.marketwatch.com/story/fender ... eid=YAHOOB

Yeah, interesting stuff. The recent CEO change from Bill Mendello to Larry (I used to own Guitar Center) Thomas must certainly have something to do with this perception.

I don't know; does Guitar Center's junk bond status have anything to do wtih Fender as a company? I think that's a reach.

Chazmo said:

I don't know; does Guitar Center's junk bond status have anything to do wtih Fender as a company? I think that's a reach.

Click to expand...

Probably not directly, but if GC can't borrow capital, they might have to cut back on purchases from FMIC, and that would definitely affect Fender.
Brad

I think Brad has it.

Without customers, your business is toast. GC and by extension FMIC would not be the
first provider of non-essential goods (... we can debate that categorization later... )
to go south in an economy where people are losing their homes.

As I think about this, the brick-and-mortar guitar shops that are surviving around here have
a good inventory of used instruments and a smaller inventory of new instruments...
meaning smaller than GC. I think GC (and, of course a manufacturer like FMIC) depends
on the sale of new instruments.

Re-reading the Fender IPO thread from March, the saga of Fender's efforts to move from the doomsday to the happy-days-are-here-again side of the success meter will have its ups and downs. The reason for the IPO was to raise capital. It's a little too early (IMHO) to determine if the infusion of capital from the IPO is making a dent in the debt. Wishing all good things for Fender. As goes Fender, so goes Guild.

When I walk into a guitar store and see all the used guitars for sale I wonder why they're still making them. 98% of this is cheap crap that shouldn't have been produced to begin with and now it's being sold again … boy there's a lot of waste in this world. Hopefully Fender and Guild can survive and continue to concentrate on building quality instruments but it's no surprise that the demand for new guitars has diminished.

Sal, I agree about the "cheap crap" thing. But just to be clear, the shops around here
that are weathering the recession are like Retro Music. Here's a sample of the current
acoustic inventory. See anything you like?

http://www.gbase.com/stores/retromu...x=1&pagesize=25&sf0=7&sd0=0&tf=1&ti0=11&grp=7

Quality used guitars, I would say.

Oh yes Frosty, every one! We have Willies Guitars and a few other good shops here in the cities too. You're right, it's good inventory of fine used instruments and I'm grateful to the shopkeepers and support them as I can. I have an image of Guitar Center in my mind I just can't get rid of it; I see a long, long two-story wall of brand new, made over-seas guitars for sale cheap. Most of it soon to be for sale second hand. And so it goes.

Sal, I envy your proximity to Willies! Their website is bookmarked and visited
frequently. Bought an old Gibson from them, mail order, years ago. My kind
of place.