<PAGE>

                                 UNITED STATES 
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                  FORM 10-Q


        (X)  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             For the quarterly period ended September 30, 1997

        ( )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             For the transition period from             to 
                                           ------------   -----------


                         Commission File No. 000-22207

                             GUITAR CENTER, INC.
             ------------------------------------------------------------
              (Exact Name of Registrant as Specified in its Charter)

             DELAWARE                             95-4600862
             ------------------------------------------------------------
             (State or other jurisdiction of      (I.R.S. Employer
              incorporation or organization)       Identification Number)

             5155 CLARETON DRIVE
             AGOURA HILLS, CALIFORNIA                    91301
             ------------------------------------------------------------
             (Address of principal executive officer)   (Zip Code)

                                  (818) 735-8800
             ------------------------------------------------------------
                Registrant's telephone number, including area code


Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.

                                       Yes  X       No
                                           ---         ---

As of November 4, 1997, 19,336,785 shares of the registrant's Common Stock, 
$.01 par value, were outstanding.

<PAGE>




                                 GUITAR CENTER, INC.
                                           
                                        INDEX
                                        -----


Part I.  Financial Information

  ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) 

       Condensed Consolidated Balance Sheets - September 30, 1997 and
       December 31, 1996 .....................................................2

       Condensed Consolidated Statements of Operations - Three months
       ended September 30, 1997 and 1996 .....................................3
     
       Condensed Consolidated Statements of Operations - Nine months ended 
       September 30, 1997 and 1996 ...........................................4
        
       Condensed Consolidated Statement of Stockholders' Equity (Deficit)- 
       September 30, 1997 ....................................................5

       Condensed Consolidated Statements of Cash Flows - Nine months ended 
       September 30, 1997 and 1996 ...........................................6

       Notes to Condensed Consolidated Financial Statements ................7-9
       
  ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
          RESULTS OF OPERATIONS ..........................................10-14

Part II. Other Information

         Item 1.  Not Applicable 
       
         Item 2.  Not Applicable

         Item 3.  Not Applicable

         Item 4.  Not Applicable

         Item 5.  Other Information .........................................15

         Item 6.  Exhibits and Reports on Form 8-K ..........................15

                                       1
<PAGE>

                                 GUITAR CENTER, INC.
                        CONDENSED CONSOLIDATED BALANCE SHEETS
                      (Dollars in thousands, except share data)

                                                    SEPTEMBER 30,   DECEMBER 31,
                                                        1997           1996
                                                    -------------   ------------
ASSETS
Current assets:
   Cash and cash equivalents                          $   1,922      $      47
   Accounts receivable                                    5,170          4,062
   Merchandise inventories                               75,522         49,705
   Prepaid expenses and other current assets              2,998          1,455
                                                      ---------      ---------
Total current assets                                     85,612         55,269

Property and equipment, net                              20,672         14,966
Goodwill, net of accumulated amortization                 3,931            432
Other assets                                              3,094          4,182
                                                      ---------      ---------
                                                      $ 113,309      $  74,849
                                                      ---------      ---------
                                                      ---------      ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Accounts payable                                   $  14,542      $  14,005
   Accrued expenses and other current liabilities        14,604         10,292
   Line of credit                                             -          3,536
                                                      ---------      ---------
Total current liabilities                                29,146         27,833
Long term debt                                           66,667        100,000
Other long-term liabilities                                 940            645
Senior preferred stock, aggregate liquidating
  preference of $21,602 at December 31, 1996                  -         15,186
Stockholders' equity (deficit)
  Junior preferred stock; aggregate liquidating
   preference of $144,859 at December 31,                
   1996: authorized 5,000,000 shares of preferred 
   stock at September 30, 1997, none issued and 
   outstanding                                                -        138,610
  Common stock, $0.01 par value, authorized
   55,000,000 shares, issued and outstanding
   19,329,079 at September 30, 1997 and
   3,622,804 at December 31, 1996                           193             36
  Warrants                                                6,500          6,500
  Additional paid in capital                            220,951         (6,966)
  Retained earnings (deficit)                          (211,088)      (206,995)
                                                      ---------      ---------
Total stockholders' equity (deficit)                     16,556        (68,815)
                                                      ---------      ---------

                                                      $ 113,309      $  74,849
                                                      ---------      ---------
                                                      ---------      ---------

              See accompanying notes to condensed financial statements.
                                           
                                       2
<PAGE>

                                 GUITAR CENTER, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands, except per share data)
                                           
                                                    THREE MONTHS ENDED
                                         SEPTEMBER 30, 1997   SEPTEMBER 30, 1996
                                         ------------------   ------------------

Net sales                                     $ 75,948             $54,361
Cost of goods sold, buying and occupancy        55,151              39,088
                                               -------             -------
Gross profit                                    20,797              15,273

Selling, general and administrative             15,363              11,203
                                               -------             -------
Operating income                                 5,434               4,070

Interest expense, net                            1,896               3,059
Transaction expenses                                 -                 305
                                               -------             -------

Income before income taxes                       3,538                 706

Income taxes                                       255                   8
                                               -------             -------
Net income                                     $ 3,283             $   698
                                               -------             -------
                                               -------             -------

Income per share                               $  0.16             $  0.03
                                               -------             -------
                                               -------             -------

Weighted average shares outstanding             20,735              20,420
                                               -------             -------
                                               -------             -------

Pro forma data:
Income before income taxes                     $ 3,538             $   706
Pro forma income tax                             1,344                   -
                                               -------             -------

Pro forma net income                           $ 2,194             $   706

Senior preferred stock dividends                     -              (3,537)
                                               -------             -------
Pro forma net income (loss) applicable to 
   common Stockholders                         $ 2,194             $(2,831)
                                               -------             -------
                                               -------             -------

Pro forma net income (loss) per share
   applicable to common stockholders           $  0.11             $ (0.14)
                                               -------             -------
                                               -------             -------

Weighted average shares outstanding             20,735              20,420
                                               -------             -------
                                               -------             -------


              See accompanying notes to condensed financial statements.

                                       3

<PAGE>

                                  GUITAR CENTER, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                        (In thousands, except per share data)
                                           

                                                      NINE MONTHS ENDED
                                          SEPTEMBER 30, 1997  SEPTEMBER 30, 1996
                                          ------------------  ------------------

Net sales                                     $  205,384          $  145,409
Cost of goods sold, buying and occupancy         149,353             104,337
                                              ----------          ----------
Gross profit                                      56,031              41,072

Selling, general and administrative               40,494              29,521
Deferred compensation expense                          -             69,892
                                              ----------          ----------
Operating income (loss)                           15,537            (58,341)

Interest expense, net                              6,955              9,105
Gain on sale of asset                               (535)                 -
Transaction expenses                                 731              6,481
                                              ----------          ----------

Income before income taxes and 
   extraordinary loss                              8,386            (73,927)

Income taxes                                       1,963                139
                                              ----------          ----------
Income before extraordinary loss                   6,423            (74,066)
Extraordinary loss on early extinguishment
    of debt, net of tax of $1,679                 (2,739)                 -
                                              ----------          ----------
Net income (loss)                             $    3,684         $  (74,066)
                                              ----------          ----------
                                              ----------          ----------
Income (loss) per share                       $     0.18         $    (3.63)
                                              ----------          ----------
                                              ----------          ----------
Weighted average shares outstanding               20,537             20,420
                                              ----------          ----------
                                              ----------          ----------
Pro forma data:
Income (loss) before income taxes             $    3,968         $  (73,927)
Pro forma income taxes                             1,508                  -
                                              ----------          ----------
Pro forma net income (loss)                   $    2,460         $  (73,927)

Senior preferred stock dividends                  (7,747)            (4,499)
                                              ----------          ----------
Pro forma net income (loss) applicable
    to common Stockholders                    $   (5,287)        $  (78,426)
                                              ----------          ----------
                                              ----------          ----------
Pro forma net income (loss) per share
   applicable to common stockholders          $    (0.27)        $    (3.84)
                                              ----------          ----------
                                              ----------          ----------
Weighted average shares outstanding               19,329             20,420
                                              ----------          ----------
                                              ----------          ----------

            See accompanying notes to condensed financial statements.


                                      4

<PAGE>

                               GUITAR CENTER, INC.
                 CONDENSED STATEMENTS STOCKHOLDERS' EQUITY (DEFICIT)
                              (Dollars in thousands)

<TABLE>
<CAPTION>
                                        Junior                               Additional      Retained
                                      Preferred        Common                 Paid in        Earnings
                                        Stock           Stock    Warrants     Capital        (Deficit)       Total
                                       ------------------------------------------------------------------------------
<S>                                    <C>           <C>         <C>         <C>           <C>            <C>
Balance at December 31, 1996           $  138,610    $     36    $  6,500    $  (6,966)    $  (206,995)   $  (68,815)

Sale of equity to management                  307           -           -            3               -           310

Conversion of junior preferred stock     (138,917)         93           -      138,824               -             -

Initial public offering                         -          77           -      107,494               -       107,571

Repurchase of management common
   stock                                        -         (13)          -      (18,404)              -       (18,417)

Senior preferred stock dividends paid           -           -           -            -          (7,777)       (7,777)

Net income                                      -           -           -            -           3,684         3,684
                                       ------------------------------------------------------------------------------
Balance at September 30, 1997          $        -    $    193    $  6,500    $ 220,951     $  (211,088)   $   16,556
                                       ------------------------------------------------------------------------------
                                       ------------------------------------------------------------------------------
</TABLE>
                   See accompanying notes to financial statements.
                                           

                                           5

<PAGE>

                                  GUITAR CENTER, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Dollars in thousands)

                                                NINE MONTHS ENDED SEPTEMBER 30,
                                                     1997            1996
                                                   --------       --------
OPERATING ACTIVITIES
Net income (loss)                                  $  3,684       $(74,066)
Adjustments to reconcile net income (loss) 
  to net cash provided by (used in) 
  operating activities:
    Depreciation and amortization                     2,222          1,551
    Deferred compensation  - repurchase of options        -         49,500
    Amortization and write-off of deferred 
    financing fees                                    1,303            108
    Gain on sale of property                           (535)             -
    Changes in operating assets and liabilities, 
    net of effects from purchase of 
    Rhythm City, Inc.:
       Accounts receivable                           (1,108)        (1,085)
       Merchandise inventories                      (19,517)       (17,183)
       Prepaid expenses                              (1,543)          (937)
       Other assets                                    (214)          (556)
       Accounts payable                                 537         (2,859)
       Accrued expenses and other current 
        liabilities                                   3,512         (6,467)
       Other long term liabilities                      294            301
                                                   --------       --------
Net cash (used in) operating activities             (11,365)       (51,693)

INVESTING ACTIVITIES
Proceeds from sale of property                          893              -
Purchase of property and equipment                   (6,985)        (5,279)
Payment for purchase of Rhythm City, Inc., 
    net of cash acquired                            (10,300)             -
                                                   --------       --------
Net cash (used in) investing activities             (16,392)        (5,279)

FINANCING ACTIVITIES
Deferred financing fees                                   -         (3,585)
Net change in revolving debt facility                (3,536)         9,930
Proceeds from issuance of long-term debt                  -        100,000
Distribution of prior stockholder interests               -       (113,102)
Issuance of common stock                                  -          1,200
Issuance of junior preferred stock                        -         69,300
Issuance of senior preferred stock                        -         13,500
Issuance of warrants                                      -          6,500
Proceeds from sale of stock to management               310              -
Proceeds from initial public offering               107,571              -
Redemption of senior notes                          (33,333)             -
Redemption of management common stock               (18,417)             -
Redemption of senior preferred stock                (22,963)             -
Distributions to stockholder                              -        (28,057)
                                                   --------       --------
Net cash provided by financing activities            29,632         55,686

Net increase (decrease) in cash and cash 
  equivalents                                         1,875         (1,286)
Cash and cash equivalents at beginning of year           47          1,338
                                                   --------       --------
Cash and cash equivalents at end of period         $  1,922       $     52
                                                   --------       --------
                                                   --------       --------
                   See accompanying notes to financial statements.


                                      6

<PAGE>

                                     GUITAR CENTER, INC.
                       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   General

     In the opinion of management, the accompanying condensed consolidated 
     unaudited financial statements contain all adjustments necessary to 
     present fairly the financial position of Guitar Center, Inc., a Delaware 
     corporation, and its subsidiary ("Guitar Center" or the "Company"), as 
     of September 30, 1997, and the results of operations and cash flows for 
     the three and nine months ended September 30, 1997 and 1996.  The 
     accompanying financial statements should be read in conjunction with the 
     audited financial statements and notes thereto contained in the 
     Company's Annual Report on Form 10-K for the year ended December 31, 
     1996.     
               
     The results of operations for the three and nine months ended September 30,
     1997 are not necessarily indicative of the results to be expected for 
     the full year.
               
2.   Initial Public Offering

     On March 19, 1997, the Company completed an initial public offering (the 
     "Offering") of the Company's common stock, $.01 par value ("Common 
     Stock"), pursuant to which it sold 6,750,000 shares of Common Stock and 
     received approximately $94.4 million in net cash proceeds (before 
     deducting expenses associated with the Offering).  On April 15, 1997, 
     the Company sold an additional 1,012,500 shares of Common Stock in the 
     Offering and received an additional $14.1 million in net cash proceeds 
     from the underwriters' exercise in full of their over-allotment option.  
     Upon consummation of the Offering, all of the outstanding shares of the 
     Company's 8% Junior Preferred Stock, $.01 par value ("Junior Preferred 
     Stock"), were automatically converted into shares of Common Stock at a 
     ratio of 6.667 shares of Common Stock for each share of Junior Preferred 
     Stock (the "Junior Preferred Stock Conversion"). No accrued and unpaid 
     dividends were paid on any shares of Junior Preferred Stock.  
     Approximately $23.0 million of the net proceeds from the Offering were 
     used to redeem, at a premium of 3%, all of the outstanding shares of the 
     Company's 14% Senior Preferred Stock, $.01 par value ("Senior Preferred 
     Stock").   As a result, the Company incurred a charge to dividends in 
     the first quarter of 1997 of $7.7 million for the difference between the 
     financial statement value of the Senior Preferred Stock and the face 
     amount thereof, plus premium. Approximately $9.7 million of the net 
     proceeds from the Offering were used to repay all amounts under the 
     Company's then existing bank facility.  In addition, the Company used 
     approximately $18.4 million to redeem approximately 1,317,000 shares of 
     Common Stock from management (the "Management Tax Redemption"). The 
     balance of the net proceeds was retained for general corporate purposes, 
     which has included the acquisition of two musical instrument stores in 
     the Atlanta, Georgia market in April 1997.
               
     Redemption of Debt
               
     Immediately following the Offering, the Company called for redemption, at 
     a premium of 10%, an aggregate of $33.3 million principal amount of 11% 
     Senior Notes due 2006 (the "Senior Notes"). On April 19, 1997, Company 
     used $37.9 million of the net proceeds from the Offering to redeem such 
     Senior Notes (the "Senior Note Redemption"), including payment of all 
     accrued and unpaid interest with respect to the Senior Notes called for 
     redemption. Accordingly, an extraordinary charge to operations of $4.4 
     million, net of tax of $1.7 million, was incurred in the second quarter 
     of 1997 equal to the premium paid on the Senior Notes plus the write off 
     of one-third of the unamortized deferred financing fees.


                                      7

<PAGE>
               
3.   1997 Credit Facility

     In the third quarter of 1997, the Company terminated its prior credit 
     facility and entered into a new $40 million secured revolving line of 
     credit (the "1997 Credit Facility") which is available through July 1, 
     2004.  The 1997 Credit Facility provides for revolving credit or term 
     loan borrowings up to $40 million in the aggregate.  Borrowings under 
     the 1997 Credit Facility bear interest at either the prime rate or at 
     LIBOR plus 1.5%, at the Company's option, with interest due monthly.  At 
     September 30, 1997, the Company did not have any outstanding borrowings 
     under the 1997 Credit Facility.
               
     Under the terms of the term loan and revolving line of credit 
     agreements, the Company is subject to various financial and other 
     covenants.  The Company was in compliance with such covenants at 
     September 30, 1997.
               
4.   Income Taxes

     Prior to June 5, 1996, the Company elected to be treated as an S 
     corporation for federal and state income tax purposes.  Pro forma 
     information has been provided to reflect the estimated statutory 
     provision for income taxes assuming the Company had been taxed as a C 
     corporation in 1996.
               
     As a result of the $72.4 million loss incurred in fiscal 1996, the 
     Company has a tax net operating loss carryforward for federal income tax 
     purposes aggregating $64.2 million, which will expire if unused in 2011. 
     As of September 30, 1997, the Company had fully reserved the related 
     deferred tax asset of $22.5 million.

5.   Pro Forma Net Income (Loss) Per Share

     Pro Forma Net Income (Loss) Per Share has been computed by dividing pro 
     forma net income (loss) by the weighted average number of shares 
     outstanding during the period.  The pro forma net income (loss) per 
     share gives effect to: (i) the issuance of Common Stock sold in the 
     Offering, including the underwriters' over-allotment option; (ii) the 
     issuance of Common Stock upon the conversion of all outstanding shares 
     of Junior Preferred Stock in connection with the Offering; (iii) the 
     assumed issuance of Common Stock upon the exercise of all outstanding 
     warrants and common stock equivalents; and (iv) the Management Tax 
     Redemption.
               
6.   Adjusted Income Per Share

     If the Offering, including the exercise of the underwriters' 
     over-allotment option, had been consummated on January 1, 1997, adjusted 
     income per share for the nine months ended September 30, 1997 would be 
     as follows (in thousands, except per share amounts):
               

     Income  to common stockholders per financial                $  (5,287)
       statements                                     
                                   
     Reduction of interest on debt assumed repaid, net of tax       (3,399)
     Reduction of Senior Preferred Stock Dividends                  (7,747)

     Adjusted net income                                         $   5,859
                                                                 ---------
                                                                 ---------
     Adjusted net income per share                               $    0.29
                                                                 ---------
                                                                 ---------
     Weighted average shares used in calculation                    20,537
                                                                 ---------
                                                                 ---------


                                      8

<PAGE>
      
     The adjusted income per share presentation set forth above gives effect 
     to the capitalization changes related to the Offering and the 
     application of the proceeds therefrom.  This data does not attempt to 
     give effect to any other pro forma adjustments, including (i) 
     non-recurring transaction expenses of $0.7 million  (or $0.04 per share) 
     related to payroll taxes incurred as a result of the Junior Preferred 
     Stock Conversion; (ii) any pro forma adjustments related to the 
     reduction in the compensation of the Company's former Chairman of the 
     Board subsequent to the Company's recapitalization on June 5, 1996 or 
     any other similar changes in selling, general and administrative 
     expenses; or (iii) any pro forma income taxes at an estimated effective 
     rate of 38%.  The foregoing data is presented solely to facilitate 
     further analysis of the Company based upon the assumptions indicated 
     above.  Such data is not necessarily indicative of the Company's results 
     of operations had the Offering occurred in the earlier period nor the 
     results expected in the future.
               
7.   Acquisition

     On April 16, 1997, the Company acquired Rhythm City, Inc. ("Rhythm 
     City"), the operator of two musical instrument retail stores in the 
     Atlanta, Georgia market.  Purchase consideration consisted of cash of 
     $10.3 million, subject to adjustment based on the actual level of 
     working capital on such date and other matters.  The Company accounted 
     for the acquisition using the purchase method and will amortize the 
     resulting goodwill over twenty years.  The purchase price included the 
     acquisition of the building and improvements of the flagship Rhythm City 
     store in Atlanta.  All of the debt and other liabilities of Rhythm City 
     were either repaid or assumed by the sellers prior to closing.  

8.   Impact of Recently Issued Pronouncements

     The Financial Accounting Standards Board has recently issued Statement 
     No. 128, "Earnings per share" ("FAS 128"), issued in March 1997 and 
     effective for fiscal years ending after December 15, 1997.  The Company 
     will adopt FAS 128 in 1997.  FAS 128 introduces and requires the 
     presentation of "Basic" earnings per share which represents net earnings 
     divided by the weighted average shares outstanding excluding all common 
     stock equivalents. A dual presentation of "Diluted" earnings per share 
     reflecting the dilutive effects of all common stock equivalents, will 
     also be required.  The Diluted presentation is similar to the current 
     presentation of fully diluted earnings per share.  Management believes 
     the adoption of FAS 128 will not have a material impact on the Company's 
     results of operations.
               
     In June 1997, the FASB issued two additional statements, SFAS 130, 
     "Reporting Comprehensive Income" and Statement No. 131, "Disclosures 
     About Segments of an Enterprise and Related Information."  Both are 
     effective for fiscal years beginning after December 15, 1997.  Adoption 
     of these standards will not impact the financial results of the Company. 
                                   

                                      9

<PAGE>
               
ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS
               
OVERVIEW       

      Guitar Center operated 35 stores in 19 major markets as of September 
30, 1997.  From 1992 to 1996, Guitar Center's net sales and operating income 
before deferred compensation expense grew at compound annual growth rates of 
25.6% and 43.0%, respectively, principally due to comparable store sales 
growth averaging 14.8% per year and the opening of new stores.  The increases 
were principally attributable to increases in unit sales rather than 
increases in prices or changes in product mix. Management believes such 
volume increases are the result of the continued success of the Company's 
implementation of its business strategy, continued strong growth in the music 
products industry and increasing consumer awareness of the Guitar Center 
name.  The Company does not expect comparable store sales to continue to 
increase at historical rates.
               
      The Company opened seven stores in 1996 and, as of September 30, 1997, 
the Company had opened five new stores in 1997.  In April 1997, the Company 
purchased two additional stores and presently expects to open one additional 
store during the remainder of 1997.  In preparation for these new stores, 
management had dedicated a substantial amount of resources over the past 
several years to building the infrastructure necessary to support a large, 
national chain.  Management believes the infrastructure is in place to 
support its needs for the immediately foreseeable future, including its 
present expansion plans. The Company will continue to pursue its strategy of 
clustering stores in major markets to take advantage of operating and 
advertising efficiencies and to build awareness of the Guitar Center name in 
new markets.  In some markets where the Company has pursued its clustering 
strategy, there has been some transfer of sales from certain existing stores 
to new locations.  Generally, however, mature stores have demonstrated net 
sales growth rates consistent with the Company's average.  As the Company 
enters new markets, management expects that its will initially incur higher 
administrative and advertising costs per store than it currently experiences 
in established markets. 

      The following table sets forth certain historical income statement data 
as a percentage of net sales:
               
                                Three Months Ended       Nine Months Ended
                                   September 30,           September 30,
                                  1997      1996         1997        1996
                                --------   -------      -------     -------

Net sales                         100.0%    100.0%       100.0%      100.0%
Gross profit                       27.4      28.1         27.3        28.2
Selling, general, and 
administrative expenses            20.2      20.6         19.7        20.3
                                --------   -------      -------     -------
Operating income before deferred
   compensation expense             7.2       7.5          7.6         7.9
Deferred compensation expense         -         -            -        48.1
                                --------   -------      -------     -------
Operating income (loss)             7.2       7.5          7.6       (40.2)
Interest expense, net               2.5       5.6          3.4         6.3
Gain on sale of asset                 -         -         (0.3)          -
Transaction expenses and other        -       0.6          0.4         4.5
                                --------   -------      -------     -------
Income (loss) before income taxes
   and extraordinary item           4.7       1.3          4.1       (51.0)
Income taxes                        0.3         -          0.1         0.1
                                --------   -------      -------     -------
Net income (loss) before 
  extraordinary item               4.4%      1.3%         4.0%       (51.1)%
                                --------   -------      -------     -------


                                      10

<PAGE>

RESULTS OF OPERATIONS
 
     THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE THREE MONTHS ENDED 
     SEPTEMBER 30, 1996

     Net sales of the Company increased to $75.9 million for the three months 
ended September 30, 1997, from $54.4 million for the comparable prior period, 
a 39.7% increase.  This growth was attributable to an increase of 13.6% in 
comparable store net sales which contributed $7.2 million, or 33.2%, of the 
total increase.  New store net sales accounted for the balance of the 
increase in net store sales.

     Gross profit dollars for the three months ended September 30, 1997 
compared to 1996 increased 36.2% to $20.8 million from $15.3 million.  Gross 
profit as a percentage of net sales for the three months ended September 30, 
1997 and 1996 declined from 28.1% to 27.4%.  The decrease in gross profit 
percentage reflects the impact of operating fourteen stores opened since 
January 1, 1996 (out of the total store base of 35 stores), which typically 
experience lower gross profits than mature stores due to the leveraging of 
occupancy costs.  Comparatively, the third quarter of 1996 included the 
results of eight stores opened since January 1, 1995 (out of the total store 
base of 28 stores).

     Selling, general and administrative expenses for the three months ended 
September 30, 1997 compared to 1996 increased 37.1% to $15.4 million from 
$11.2 million.  The increase in total selling, general and administrative 
expenses is a result of certain selling expenses incurred at the store level 
due to an increase in the number of stores in 1997 as compared to 1996.  As a 
percentage of net sales, selling, general and administrative expenses 
decreased to 20.2% from 20.6%.  The change in percentage of sales reflects 
the relatively fixed nature of certain general and administrative expenses 
and the effect of the increase in sales volume.

     Operating income before deferred compensation expense for the three 
months ended September 30, 1997 was $5.4 million compared to operating income 
of $4.1 million for the same three months of 1996, an increase of 33.5%.  The 
increase is principally the result of the increase in sales derived from both 
new and existing stores.  As a percentage of sales, operating income before 
deferred compensation expense for the three months ended September 30, 1997 
was 7.2% compared to 7.5% in 1996.  The decrease is principally related to 
the decreased margins experienced in the third quarter of 1997.
     
     Interest expense, net for the three months ended September 30, 1997 
decreased to $1.9 million from $3.1 million in the same period of 1996.  The 
interest expense for the third quarter of 1996 and 1997 consisted of  
interest on the Company's Senior Notes.  On April 19, 1997, the Company 
redeemed, at a premium, $33.3 million principal amount of the Senior Notes. 

     Net income for the three months ended September 30, 1997 increased to 
$3.3 million from $0.7 million for the same period in 1996, principally as a 
result of the increase in sales and gross margin, partially offset by an 
increase in selling, general and administrative expenses.
     
RESULTS OF OPERATIONS
 
     NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THE NINE MONTHS ENDED 
     SEPTEMBER 30, 1996

     Net sales of the Company increased to $205.4 million for the nine months 
ended September 30, 1997, from $145.4 million for the comparable prior 
period, a 41.3% increase.  This growth was attributable to an increase of 
13.2% in comparable store net sales which contributed $18.9 million, or 
31.4%, of the total increase.  New store net sales accounted for the balance 
of the increase in net store sales.

     Gross profit dollars for the nine months ended September 30, 1997 
compared to 1996 increased 36.4% to $56.0 million from $41.1 million.  Gross 
profit as a percentage of net sales for nine months ended 


                                      11

<PAGE>

September 30, 1997 compared to 1996 decreased to 27.3% from 28.2% in the nine 
months ended September 30, 1996. The decrease in gross profit percentage 
reflects the impact of operating fourteen stores opened since January 1, 1996 
(out of the total store base of 35 stores), which typically experience lower 
gross profits than mature stores due to the leveraging of occupancy costs.  
Comparatively, the third quarter of 1996 included the results of eight stores 
opened since January 1, 1995 (out of the total store base of 28 stores).  In 
addition, there was an increase in the mix of sales of high technology 
products, which historically produce lower margins than low technology 
products.  

     Selling, general and administrative expenses for the nine months ended 
September 30, 1997 compared to 1996 increased 37.2% to $40.5 million from 
$29.5 million.  The increase in total selling, general and administrative 
expenses is a result of certain selling expenses incurred at the store level 
due to an increase in the number of stores in 1997 as compared to 1996.  As a 
percentage of net sales, selling, general and administrative expenses 
decreased to 19.7% from 20.3%.  The change in percentage of sales reflects 
the relatively fixed nature of certain general and administrative expenses 
and the effect of the increase in sales volume.

     Operating income before deferred compensation expense for the nine 
months ended September 30, 1997 was $15.5 million compared to operating 
income of $11.6 million for the same nine months of 1996, an increase of 
34.5%.  The increase is principally the result of the increase in sales 
derived from both new and existing stores.  As a percentage of sales, 
operating income before deferred compensation expense for the nine months 
ended September 30, 1997 was 7.6% compared to 7.9% in 1996.  The decrease is 
principally related to the decrease in gross profit experienced in 1997, 
partially offset by the leveraging of fixed expenses.

     Deferred compensation expense of $69.9 million for the nine months ended 
September 30, 1996 resulted from the purchase and exchange of management 
stock options and the cancellation of the Company's prior stock option 
program.  These expenses were non-recurring and the deferred compensation 
plan has been terminated.
     
     Interest expense, net for the nine months ended September 30, 1997 
decreased to $7.0 million from $9.1 million in the same period of 1996.  The 
interest expense for the nine months ended September 30, 1997 consisted 
principally of  interest on the Company's Senior Notes.  On April 19, 1997, 
the Company redeemed, at a premium, $33.3 million principal amount of the 
Senior Notes.  For the comparable period of 1996, interest included financing 
costs of $4.7 million, $0.9 million of interest related to a bridge loan 
facility which was repaid in full in 1996 and interest on the  Senior Notes.

     Non-recurring transaction expenses of $0.7 million for the nine months 
ended September 30, 1997 relate to payroll taxes in connection with the 
closing of the Offering and were incurred as a result of management's 
conversion of their Junior Preferred Stock into shares of  Common Stock, 
compared to non-recurring transaction costs of $6.5 million for the nine 
months of 1996 which related to the June 1996 recapitalization.
     
     In the second quarter of 1997 an extraordinary charge to operations of 
$4.4 million, net of tax of $1.7 million, was incurred equal to the premium 
paid on the Senior Notes plus the write-off of one-third of the unamortized 
deferred financing fees.

     Net income for the nine months ended September 30, 1997 increased to 
$3.7 million from a loss of $74.1 million for the same period in 1996, 
principally as a result of the effect of the deferred compensation expense 
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

     On March 19, 1997, the Company completed the Offering pursuant to which 
it sold 6,750,000 shares of Common Stock and received approximately $94.4 
million in net cash proceeds (before deducting expenses associated with the 
Offering.) On April 15, 1997, the Company sold an additional 1,012,500 shares 
of Common Stock in the Offering and received an additional $14.1 million in 
net cash proceeds from the underwriters' exercise in full of their 
over-allotment option. Upon consummation of the Offering, 


                                      12

<PAGE>

all of the outstanding shares of the Company's Junior Preferred Stock were 
automatically converted into shares of Common Stock at a ratio of 6.667 
shares of Common Stock for each share of Junior Preferred Stock.  No accrued 
and unpaid dividends were paid on any shares of Junior Preferred Stock.  
Approximately $23.0 million of the net proceeds from the Offering were used 
to redeem, at a premium of 3%, all of the outstanding shares of Senior 
Preferred Stock.   As a result, the Company incurred a charge to dividends in 
the nine months ended September 30, 1997 of $7.7 million for the difference 
between the financial statement value of the Senior Preferred Stock and the 
face amount thereof, plus premium.  Approximately $9.7 million of the net 
proceeds from the Offering were used to repay all amounts under the Company's 
former credit facility.  In addition, the Company used approximately $18.4 
million to redeem approximately 1,317,000 shares of Common Stock from 
management in the Management Tax Redemption. Immediately following the 
Offering, the Company called for redemption, at a premium of 10%, an 
aggregate of $33.3 million principal amount of Senior Notes. On April 19, 
1997, Company used $37.9 million of the net proceeds from the Offering to 
redeem such Senior Notes, including payment of all accrued and unpaid 
interest with respect to the Senior Notes called for redemption.  
Accordingly, an extraordinary charge to the Company's results of operations 
was recognized in the second quarter of 1997 equal to the premium paid on the 
Senior Notes plus the write off of one-third of the unamortized deferred 
financing fees.  The balance of the net proceeds was retained for general 
corporate purposes, which has included the acquisition of two musical 
instrument stores in the Atlanta, Georgia market in April 1997.

     Guitar Center's need for liquidity will arise primarily from interest 
payable on its indebtedness and the funding of the Company's capital 
expenditures and working capital requirements, as well as possible 
acquisitions. The Company has historically financed its operations through 
internally generated funds and borrowings under its credit facilities.  The 
Company has no mandatory payments of principal on the Senior Notes prior to 
their final maturity in 2006.  In the third quarter of 1997, the Company 
terminated its prior credit facility and entered into the 1997 Credit 
Facility, which allows for borrowings up to $40 million and expires June 1, 
2004.  The Company currently has no borrowings outstanding under its 1997 
Credit Facility.  The agreement underlying the 1997 Credit Facility includes 
certain restrictive covenants, which, among other things, require the Company 
to maintain certain financial ratios.  The Company was in compliance with 
respect to such requirements as of September 30, 1997. 
     
     As a result of the $72.4 million loss incurred in fiscal 1996, the 
Company has a tax net operating loss carryforward for federal income tax 
purposes aggregating $64.2 million, which will expire if unused in 2011.  As 
of September 30, 1997, the Company had fully reserved the related deferred 
tax asset of $22.5 million.  In future periods, the Company will evaluate the 
need for such reserves based upon actual and projected levels of 
profitability.

     For the nine months ended September 30, 1997, cash used by operating 
activities was $11.4 million.  Cash used in investing activities totaled 
$16.4 million, relating principally to the acquisition of two musical 
instruments stores in Atlanta, Georgia and the construction costs of opening 
new stores. Cash provided by financing activities totaled $29.6 million, 
which consisted principally of proceeds from the Offering of $107.6 million, 
net of the redemption of the Senior Preferred Stock of ($23.0 million), 
redemption of Common Stock in the Management Tax Redemption ($18.4 million), 
redemption of Senior Notes ($33.3) million and repayment of all amounts 
outstanding under the prior credit facility ($3.5 million).
     
     The Company intends to pursue an aggressive growth strategy by opening 
additional stores in new and existing markets.  The Company also believes 
that there may be attractive opportunities to expand by selectively acquiring 
existing music products retailers.  For example, as discussed above and 
described in previous reports, in April 1997 the Company acquired a music 
products retailer operating two stores in the Atlanta, Georgia market.  The 
Company, in the ordinary course of its business, regularly evaluates and 
enters into negotiations relating to potential acquisition candidates in new 
and existing market areas.  Any such transactions may involve the payment by 
the Company of cash or securities (including equity securities), or a 
combination thereof.  There can be no assurance that the Company will be able 
to identify suitable acquisition candidates available for sale at reasonable 
prices, consummate additional acquisitions or successfully integrate any such 
acquired companies into its operations.


                                      13

<PAGE>
     
     Management believes that the Company has adequate capital resources and 
liquidity to meet its borrowing obligations, fund all required capital 
expenditures and pursue its business strategy for the next twelve months, 
including its present plans for expansion.  The Company's capital resources 
and liquidity are expected to be provided by the Company's net cash flow from 
operations, funds retained from the net proceeds of the Offering and 
borrowings under the 1997 Credit Facility.  Depending upon market conditions, 
the Company may also incur additional indebtedness or issue equity 
securities.  There can be no assurance that such additional capital, if and 
when required, will be available on terms acceptable to the Company, if at 
all.  

SEASONALITY

     The Company's results are not highly seasonal, although, as with most 
retailers, sales in the fourth quarter are typically higher than any other 
quarter.

INFLATION

     The Company believes that the relatively moderate rates of inflation 
experienced in recent years have not had a significant impact on its net 
sales or profitability.
     
IMPACT OF RECENTLY ISSUED PRONOUNCEMENTS
     
     The Financial Accounting Standards Board has recently issued Statement 
No. 128, "Earnings per share" ("FAS 128"), issued in March 1997 and effective 
for fiscal years ending after December 15, 1997.  The Company will adopt FAS 
128 in 1997.  FAS 128 introduces and requires the presentation of "Basic" 
earnings per share which represents net earnings divided by the weighted 
average shares outstanding excluding all common stock equivalents.  A dual 
presentation of "Diluted" earnings per share reflecting the dilutive effects 
of all common stock equivalents, will also be required.  The Diluted 
presentation is similar to the current presentation of fully diluted earnings 
per share.  Management believes the adoption of FAS 128 will not have a 
material impact on the Company's results of operations.

     In June 1997, the FASB issued two additional statements, SFAS 130, 
"Reporting Comprehensive Income" and Statement No. 131, "Disclosures About 
Segments of an Enterprise and Related Information."  Both are effective for 
fiscal years beginning after December 15, 1997.  Adoption of these standards 
will not impact the financial results of the Company.

FORWARD LOOKING STATEMENTS; BUSINESS RISKS

     This Report contains certain forward-looking statements relating to, 
among other things, future results of operations, growth plans, sales, gross 
margin and expense trends, capital requirements and general industry and 
business conditions applicable to the Company.  These forward-looking 
statements are based largely on the Company's current expectations and are 
subject to a number of risks and uncertainties.  Actual results could differ 
materially from these forward-looking statements.  Important factors to 
consider in evaluating such forward-looking statements include changes in 
external competitive market factors, changes in the Company's business 
strategy or an inability to execute its strategy due to unanticipated changes 
in the music products industry or the economy in general, the emergence of 
new or growing specialty retailers of music products and various competitive 
factors that may prevent the Company from competing successfully in existing 
or future markets.  These matters and other business risks to which the 
Company is subject are discussed in the Company's periodic reports and 
registration statements filed from time to time with the Securities and 
Exchange Commission.  In particular, a discussion of such risks in greater 
detail is contained under the caption "Item 1., Business - Business Risks" on 
pages 11 through 13 of the Company's 1996 Annual Report on Form 10-K.


                                      14

<PAGE>

Part II.  OTHER INFORMATION

          
     ITEM 5.   OTHER INFORMATION.
     
          During the third quarter of 1997, Raymond Scherr, the former Chief
     Executive Officer and sole shareholder of the Company, resigned from its
     board of directors.  The Company has no present plans to fill the vacancy.
     
     ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K.
     
          (a)  EXHIBITS.
               
               Exhibit 10.36  Credit Agreement dated August 14, 1997 between
                    Guitar Center, Inc. and Wells Fargo Bank, N.A.
               
               Exhibit 11.    Income (loss) per share.
               
               Exhibit 27.    Financial Data Schedule.

          (b)  REPORTS ON FORM 8-K. 
               
               None.


                                      15

<PAGE>

     Pursuant to the requirements of the Securities and Exchange Act of 1934, 
the registrant has duly caused this report to be signed on its behalf by the 
undersigned thereunto duly authorized as of the 30th day of April, 1997.


                                   Guitar Center, Inc.

                                   /s/  BRUCE L. ROSS
                                   --------------------------------------
                                   Bruce L. Ross, Vice President,
                                   Chief Financial Officer and Secretary

                                   (Duly Authorized Officer and Principal
                                    Financial and Accounting Officer)


                                      16

<PAGE>

Exhibit Index

EXHIBIT NO.         DESCRIPTION

10.36               Wells Fargo Bank Documents

11                  Computation of Income (Loss) Per Share

27                  Financial Data Schedule
                                   
     
                                      17