<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 June 30, 1998

(   )      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 offices)   (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  July 31, 1998, 20,070,018 shares of the registrant's Common Stock, 
$.01 par value, were outstanding.

                                         1
<PAGE>

                         GUITAR CENTER, INC. AND SUBSIDIARY

                                       INDEX
<TABLE>
<S>            <C>                                                                                  <C>
Part I.        Financial Information

               ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

               Condensed Consolidated Balance Sheets - June 30, 1998 and December 31, 1997......... 3

               Condensed Consolidated Statements of Operations - Three months ended June 30, 1998
               and 1997............................................................................ 4

               Condensed Consolidated Statements of Operations - Six months ended June 30,
               1998 and 1997....................................................................... 5

               Condensed Consolidated Statements of Cash Flows - Six months ended
               June 30, 1998 and 1997.............................................................. 6

               Notes to Condensed Consolidated Financial Statements................................ 7

               ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                         RESULTS OF OPERATIONS..................................................... 8

Part II.       Other Information

               Item 1.  Not Applicable

               Item 2.  Not Applicable

               Item 3.  Not Applicable

               Item 4.  Submission of Matters to a Vote of Security Holders........................13

               Item 5.  Not Applicable

               Item 6.  Exhibits and Reports on Form 8-K...........................................14

</TABLE>
                                         2
<PAGE>
                         GUITAR CENTER, INC. AND SUBSIDIARY
                       CONDENSED CONSOLIDATED BALANCE SHEETS
                   (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>
                                                    JUNE 30,      DECEMBER 31,
                                                      1998            1997   
                                                   ----------     ------------
<S>                                                <C>            <C>
ASSETS
Current assets:
   Cash and cash equivalents                       $     108      $   7,755
   Accounts receivable                                 7,237          7,896
   Merchandise inventories                            95,180         78,898
   Prepaid expenses and other current assets           4,884          3,226
                                                   ---------      ---------
Total current assets                                 107,409         97,775
Property and equipment, net                           29,629         22,809
Goodwill, net of accumulated amortization              4,711          4,094
Other assets                                           8,221          7,946
                                                   ---------      ---------
                                                   $ 149,970      $ 132,624
                                                   ---------      ---------
                                                   ---------      ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                $  16,002      $  16,863
   Accrued expenses and other current liabilities     16,541         19,301
   Line of credit                                     11,174              -
                                                   ---------      ---------
Total current liabilities                             43,717         36,164
Other long-term liabilities                            1,221          1,017
Long term debt                                        66,667         66,667
Stockholders' equity
 Preferred stock; authorized 5,000,000 shares at
   June 30, 1998 and December 31, 1997, none issued
   and outstanding                                         -              -

 Common stock, $0.01 par value, authorized
   55,000,000 shares, issued and outstanding
   20,069,735 at June 30, 1998 and 19,338,073
   at December 31, 1997, respectively                    201            193
 Warrants                                                  -          6,500
 Additional paid in capital                          227,519        220,514
 Accumulated deficit                                (189,355)      (198,431)
                                                   ---------      ---------
Total stockholders' equity                            38,365         28,776
                                                   ---------      ---------
                                                   $ 149,970      $ 132,624
                                                   ---------      ---------
                                                   ---------      ---------
</TABLE>

          See accompanying notes to condensed financial statements.


                                         3
<PAGE>

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

<TABLE>
<CAPTION>
                                                     THREE MONTHS ENDED
                                                 JUNE 30, 1998  JUNE 30, 1997
                                                --------------  -------------
<S>                                                <C>             <C>
Net sales                                          $  91,260      $  69,627
Cost of goods sold, buying and occupancy              65,429         50,617
                                                   ---------       -------- 
Gross profit                                          25,831         19,010

Selling, general and administrative                   19,035         13,580
                                                   ---------       -------- 
Operating income                                       6,796          5,430

Interest expense, net                                  2,096          2,127
Gain on sale of assets                                  (324)          (535)
                                                   ---------       -------- 
Income before income taxes and
  extraordinary loss                                   5,024          3,838

Income taxes                                             168          1,630
                                                   ---------       -------- 
Income before extraordinary loss                   $   4,856      $   2,208

Extraordinary loss on early extinguishment of
  debt, net of tax of $1,679                             -           (2,739)
                                                   ---------       -------- 
Net income (loss)                                  $   4,856      $    (531)
                                                   ---------       -------- 
                                                   ---------       -------- 
Net income (loss) per share
     Basic                                         $    0.25      $   (0.03)
                                                   ---------       -------- 
                                                   ---------       -------- 
     Diluted                                       $    0.23      $   (0.03)
                                                   ---------       -------- 
                                                   ---------       -------- 
Weighted Average Shares Outstanding
     Basic                                            19,550         19,329
                                                   ---------       -------- 
                                                   ---------       -------- 
     Diluted                                          21,138         19,329
                                                   ---------       -------- 
                                                   ---------       -------- 

</TABLE>

          See accompanying notes to condensed financial statements.

                                         4
<PAGE>

              SEE ACCOMPANYING NOTES TO CONDENSED FINANCIAL STATEMENTS.
                         GUITAR CENTER, INC. AND SUBSIDIARY
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                       (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                     SIX MONTHS ENDED
                                               JUNE 30, 1998    JUNE 30, 1997
                                               -------------    -------------
<S>                                             <C>           <C>
Net sales                                          $ 176,476       $129,436
Cost of goods sold, buying and occupancy             127,115         94,202
                                                  ----------      ----------
Gross profit                                          49,361         35,234

Selling, general and administrative                   36,238         25,131
                                                  ----------      ----------
Operating income                                      13,123         10,103

Interest expense, net                                  4,068          5,060
Gain on sale of assets                                  (324)          (535)
Transaction expense                                      -              731
                                                  ----------      ----------
Income before income taxes and
  extraordinary loss                                   9,379          4,847

Income taxes                                             303          1,713
                                                  ----------      ----------
Income before extraordinary loss                   $   9,076       $  3,134

Extraordinary loss on early extinguishment of
  debt, net of tax $1,679                                -           (2,739)
                                                  ----------      ----------
Net income                                         $   9,076       $    395
                                                  ----------      ----------
                                                  ----------      ----------
Net income per share

     Basic                                         $    0.47       $   0.02
                                                  ----------      ----------
                                                  ----------      ----------
     Diluted                                       $    0.43       $   0.02
                                                  ----------      ----------
                                                  ----------      ----------

Weighted average shares outstanding
     Basic                                            19,449         19,329
                                                  ----------      ----------
                                                  ----------      ----------
     Diluted                                          20,952         20,456
                                                  ----------      ----------
                                                  ----------      ----------
</TABLE>

             See accompanying notes to condensed financial statements.

                                         5
<PAGE>


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

<TABLE>
<CAPTION>
                                                    SIX MONTHS ENDED JUNE 30,
                                                       1998           1997
                                                   ------------  ------------
<S>                                                  <C>             <C>
OPERATING ACTIVITIES
Net income                                          $  9,076       $    395
Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
    Depreciation and amortization                      2,088          1,399
    Amortization of deferred financing fees              120          1,242
    Gain on sale of property                            (324)          (535)
    Changes in operating assets and liabilities:
     Accounts receivable                                 659           (591)
     Merchandise inventories                         (16,282)       (15,093)
     Prepaid expenses                                 (1,658)        (1,869)
     Other assets                                     (1,013)          (241)
     Accounts payable                                   (861)         2,673
     Accrued expenses and other current liabilities   (2,253)           208
     Other long term liabilities                         204            194
                                                    --------       --------
Net cash provided by (used in) operating activities  (10,244)       (12,218)

INVESTING ACTIVITIES
Proceeds from sale of property                           733            893
Purchase of property and equipment                    (9,315)        (5,009)
Payment for purchase of Rhythm City, Inc., net of 
cash acquired                                           (507)       (10,300)
                                                    --------       --------
Net cash used in investing activities                 (9,089)       (14,416)

FINANCING ACTIVITIES
Net change in revolving debt facility                 11,174         (3,536)
Redemption of senior notes                               -          (33,333)
Proceeds from sale of stock to management                -              310
Proceeds from initial public offering                    -          107,631
Redemption of management common stock                    -          (18,417)
Redemption of senior preferred stock                     -          (22,963)
Exercise of stock options                                599            -
Warrant underwriting                                     (87)           -
                                                    --------       --------
Net cash provided by financing activities             11,686         29,692

Net increase (decrease) in cash and cash equivalents  (7,647)         3,058
Cash and cash equivalents at beginning of year         7,755             47
                                                    --------       --------
Cash and cash equivalents at end of period          $    108       $  3,105
                                                    --------       --------
                                                    --------       --------
</TABLE>
                   See accompanying notes to financial statements.

                                         6
<PAGE>

                         GUITAR CENTER, INC. AND SUBSIDIARY
                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   General

     In the opinion of management, the accompanying unaudited condensed 
     consolidated financial statements contain all adjustments necessary to 
     present fairly the financial position of Guitar Center, Inc., a Delaware 
     corporation, and subsidiary ("Guitar Center" or the "Company"), as of 
     June 30, 1998, and the results of operations and cash flows for the 
     three and six months ended June 30, 1998 and 1997.  The accompanying 
     consolidated 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, 
     1997.

     The results of operations for the three and six months ended June 30, 
     1998 are not necessarily indicative of the results to be expected for 
     the full year.

2.   Income Taxes

     As a result of the $72.4 million loss incurred in fiscal 1996, the 
     Company had a net operating loss carryforward for federal income taxes 
     of approximately $61.8 million as of  December 31, 1997.  Accordingly, 
     no provision for income taxes has been made in the condensed 
     consolidated statement of operations for the three and six months ended 
     June 30, 1998, except for certain minimum federal and state taxes.

3.   Warrants

     In June 1996, Guitar Center, Inc. issued warrants to purchase an 
     aggregate of 676,325 shares of common stock, par value $0.01 per share, 
     of the Company.  On June 3, 1998, the warrants were exercised and 
     converted into shares of common stock, on a cash-less exercise basis.
     The effect to the Company's total stockholders' equity was immaterial.

4.   Earnings Per Share

     In 1997, the Company adopted SFAS 128, which requires the presentation of
     basic and diluted earnings per share. The difference between the weighted
     average number of shares outstanding for basic and diluted earnings per 
     share represents the dilutive effect of the Company's potential common 
     stock (stock options and warrants outstanding during the applicable 
     periods).

                                         7
<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

3.   OVERVIEW

     Guitar Center operated 42 stores in 23 major markets as of June 30, 
1998. From 1993 to 1997, Guitar Center's net sales and operating income 
before deferred compensation expense grew at compound annual growth rates of 
32.1% and 38.6%, respectively, principally due to comparable store sales 
growth averaging 14.9% 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 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 eight stores in 1997, of which two were purchased by 
the Company and, as of June 30, 1998, the Company had opened six additional 
stores in 1998.  Presently, the Company expects to open an additional four 
stores during the remainder of 1998.  In preparation for these additional 
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 immediate 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 it will initially incur higher 
administrative and promotional costs per store than it currently experiences 
in established markets. Management also expects competition to increase over 
time as other music products retailers attempt to execute growth strategies.

     The following table sets forth certain historical income statement data 
as a percentage of net sales:

<TABLE>
<CAPTION>

                                                   Three Months Ended             Six Months Ended
                                                          June 30,                     June 30,
                                                   1998           1997           1998           1997
                                                -------        --------        -------        -------
<S>                                            <C>            <C>              <C>            <C>
Net sales                                        100.0%         100.0%         100.0%         100.0%
Gross profit                                       28.3           27.3           28.0           27.2
Selling, general, and administrative
   expenses                                        20.9           19.5           20.6           19.4
                                                -------        --------        -------        -------
Operating income                                    7.4            7.8            7.4            7.8
Interest expense, net                               2.3            3.1            2.3            3.9
Gain on sale of assets                             (0.4)          (0.8)          (0.2)          (0.4)
Transaction expenses and other                      -              -              -              0.6
                                                -------        --------        -------        -------
Income before income taxes and
   extraordinary item                               5.5            5.5            5.3            3.7
Income taxes                                        0.2            2.3            0.2            1.3
                                                -------        --------        -------        -------
Net income before extraordinary
   item                                            5.3%           3.2%            5.1%           2.4%
                                                -------        --------        -------        -------

</TABLE>

                                         8
<PAGE>

RESULTS OF OPERATIONS

     THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE MONTHS ENDED JUNE
     30, 1998.

     Net sales of the Company increased to $91.3 million for the three months 
ended June 30, 1998, from $69.6 million for the comparable prior period, a 
31.1% increase.  This growth was attributable to an increase of 14.0% in 
comparable store net sales which contributed $9.6 million, or 44.4%, of the 
total increase. New store net sales accounted for the balance of the increase 
in net store sales. In the opinion of management, the strong comparable store 
sales performance in the second quarter of 1998 reflects the effect of 
successful promotions and the continuing roll out of the Company's Preferred 
Player credit card. Management does not expect this comparable store sales 
trend to continue at this high level.

     Gross profit dollars for the three months ended June 30, 1998 compared 
to 1997 increased 35.9% to $25.8 million from $19.0 million.  Gross profit as 
a percentage of net sales for the three months ended June 30, 1998 compared 
to 1997 increased to 28.3% from 27.3%. The increase in gross profit 
percentage is primarily due to opportunity buys in merchandise and improved 
margins in the pro audio and keyboard segments of the business.

     Selling, general and administrative expenses for the three months ended 
June 30, 1998 compared to 1997 increased 40.2% to $19.0 million from $13.6 
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 1998 as compared to 1997.  As a 
percentage of net sales, selling, general and administrative expenses 
increased to 20.9% from 19.5%.  The change in percentage of sales reflects 
the incremental cost of staffing newly opened and immature stores, which 
typically achieve less leverage than mature stores. In addition, the increase 
reflects additional corporate personnel and management information systems 
expenses associated with the Company's continuing expansion.

     Operating income for the three months ended June 30, 1998 was $6.8 
million compared to operating income of $5.4 million for the same three 
months of 1997, an increase of 25.2%.  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 for the three months ended June 30, 
1998 was 7.4% compared to 7.8% in 1997.   The decrease is principally related 
to the increase in selling, general and administrative expenses, partially 
offset by the increase in gross margin.

     Interest expense, net for the three months ended June 30, 1998 was  $2.1 
million unchanged from  1997.  The interest expense for the second quarter of 
1998 consisted of  interest on the Company's 11% Senior Notes due 2006 (the 
"Senior Notes") and borrowings under the Company's line of credit.  On April 
19, 1997, the Company redeemed, at a premium, $33.3 million principal amount 
of the Senior Notes.

     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 redeemed plus the write-off of one-third of the 
unamortized deferred financing fees.

     Net income (loss) for the three months ended June 30, 1998 increased to 
$4.9 million from a loss of  $(0.5) million for the same period in 1997, 
principally as a result of the effect of the extraordinary charge as 
discussed above, as well as an increase in sales and gross margin, partially 
offset by an increase in selling, general and administrative expenses. See 
"Note 2. Income Taxes".

                                         9
<PAGE>

RESULTS OF OPERATIONS

     SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
     1997

     Net sales of the Company increased to $176.5 million for the six months 
ended June 30, 1998 from $129.4 million for the comparable prior period, a 
36.3% increase.  This growth was attributable to an increase of 15.7% in 
comparable store net sales which contributed $20.0 million, or 42.6% of the 
total increase. New store net sales accounted for the balance of the increase 
in net store sales.

     Gross profit dollars for the six months ended June 30, 1998 compared to 
1997 increased 40.1% to $49.4 million from $35.2 million.  Gross profit as a 
percentage of net sales for six months ended June 30, 1998 compared to 1997 
increased to 28.0% from 27.2% in the six months ended June 30, 1997.  The 
increase in gross profit percentage is primarily due to opportunity buys in 
merchandise and improved margins in the pro audio and keyboard segments of 
the business.

     Selling, general and administrative expenses for the six months ended 
June 30, 1998 compared to 1997 increased 44.2% to $36.2 million from $25.1 
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 1998 as compared to 1997.  As a 
percentage of net sales, selling, general and administrative expenses 
increased to 20.6% from 19.4%. The change in percentage of sales reflects the 
incremental cost of staffing newly opened and immature stores, which 
typically achieve less leverage than mature stores. In addition, the increase 
reflects additional corporate personnel and management information systems 
expenses associated with the Company's continuing expansion.

     Operating income for the six months ended June 30, 1998 was $13.1 
million compared to operating income of $10.1 million for the same six months 
of 1997, an increase of 29.9%.  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 for the six months ended June 30, 1998 was 7.4% 
compared to 7.8% in 1997.  The decrease is related to the increase in 
selling, general and administrative expenses, partially offset by the 
increase in gross margin.

     Interest expense, net for the six months ended June 30, 1998 decreased 
to $4.1 million from $5.1 million in the same period of 1997.  The interest 
expense for the six months ended June 30, 1998 consisted principally of  
interest on the Company's Senior Notes and borrowings under the Company's 
line of credit.  On April 19, 1997, the Company redeemed, at a premium, $33.3 
million principal amount of the Senior Notes.

     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 redeemed plus the write-off of one-third of the 
unamortized deferred financing fees.

     Net income for the six months ended June 30, 1998 increased to $9.1 
million from $0.4 million for the same period in 1997, principally as a 
result of the effect of the extraordinary charge discussed above, as well as 
an increase in sales and gross margin, partially offset by an increase in 
selling, general and administrative expenses. See "Note 2.Income Taxes".

LIQUIDITY AND CAPITAL RESOURCES

     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 
the their final maturity in 2006.  As of June 30, 1998, the Company had $11.2 
million outstanding under its Credit Facility, excluding $0.7 million 
outstanding on standby letters of credit, and had available borrowings under 
the 1997 Credit Facility of approximately $28.1million.  The agreement 
underlying the Credit Facility expires July 1, 2004 and includes certain 
restrictive covenants 

                                         10
<PAGE>

which, among other things, require the Company to maintain certain financial 
ratios. The Company was in compliance with respect to all such requirements 
as of June 30, 1998. 

     For the six months ended June 30, 1998, cash used by operating 
activities was $10.2 million.  Cash used in investing activities totaled $9.1 
million, relating principally to the opening of new stores and remodeling of 
moved stores. Cash provided by financing activities totaled $11.7 million, 
which consisted principally of borrowings under the Credit Facility.

     During the second quarter of 1998, the outstanding warrants were 
exercised and converted to 376,325 shares of common stock, par value $0.01 
per share. The effect to the Company's total stockholders' equity was 
immaterial.

     During the second quarter of 1998, inventory turn for new product in 
mature stores decreased from 3.7 times as of June 30, 1997 to 3.3 times as of 
June 30, 1998. Management believes that the increase in inventory balances 
has reduced store stockouts which benefited comparable and new store sales.

     The Company intends to pursue an aggressive growth strategy by opening 
additional stores in new and existing markets.  During the quarter ended June 
30, 1998, the Company opened four new stores.  Each new store typically has 
required approximately $2.0 million for gross inventory.  Historically, the 
Company's cost of capital improvements for an average new store has been 
approximately $850,000, consisting of leasehold improvements, fixtures and 
equipment.

     The Company also believes that there may be attractive opportunities to 
expand by selectively acquiring existing music products retailers.  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 of the foregoing.  As of the date of this report, the Company had 
no existing agreements or commitments to effect any such acquisition.  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.

     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 at least the next twelve 
months, including its present plans for expansion as described elsewhere 
herein. The Company's capital resources and liquidity are expected to be 
provided by the Company's net cash flow from operations and borrowings under 
the 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.

YEAR 2000

     The Year 2000 problem is the result of computer programs being written 
using two digits rather than four to define the applicable year. In January 
1997, the Company developed a plan to deal with the Year 2000 problem to make 
its systems Year 2000 compliant. The plan has been assigned to a Senior Vice 
President of the Company and provides for the conversion efforts to be 
completed by the end of 1998. The plan includes modifying, upgrading, or 
replacing its internal computer software applications and information 
systems. The Company does not expect that the cost of its year 2000 
compliance program will be material to its business, results of operations or 
financial condition. Although the impact on the Company caused by the failure 
of the Company's significant suppliers to achieve year 2000 compliance in 

                                         11
<PAGE>

a timely manner or effective matter is uncertain, the Company's business and 
results of operations could be materially adversely affected by such a 
failure.

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

     In April 1998, the AICPA issued Statement of Position 98-5, "REPORTING 
ON THE COSTS OF START-UP ACTIVITIES" (98-5).  The SOP requires that costs 
incurred during start-up activities, including organization costs, be 
expenses as incurred.  SOP 98-5 is effective for financial statements for 
fiscal years beginning after December 15, 1998.  Initial application of the 
SOP should be as of the beginning of the fiscal year in which the SOP is 
first adopted and should be reported as a cumulative effect of a change in 
accounting principle.

     The Company expects to adopt SOP 98-5 in the first quarter of 1999. 
Management estimates that the Company will incur a cumulative effect of a 
change in accounting principle of approximately $1.0 million in the 
consolidated statement of operations for the period ending March 31, 1999 
relative to the adoption of the SOP.

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, the effectiveness of the Company's 
promotion and merchandising strategies, 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 Risks Related to the 
Business" on pages 11 through 13 of the Company's 1997 Annual Report on Form 
10-K.

                                         12
<PAGE>

ITEM 4.        SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS


(a)  The annual meeting of the Company's shareholders (the "Annual Meeting") 
     was held on May 6, 1998.  At that time there were present, in person or 
     by proxy, 17,211,471 shares of the Company's Common Stock.

(b)  At the annual meeting, three items were submitted to a vote of 
     shareholders:  (1) the election of directors; (2) the approval of the 
     Company's 1997 Equity Participation Plan, as amended; and (3) the 
     amendment to the Company's 1996 Performance Stock Option Plan.

(c)  The results of voting for the election of eight directors at the Annual 
     Meeting were as follows:

<TABLE>
<CAPTION>
          Nominee                For             Withheld
          -------                ---             --------
<S>                           <C>                 <C>
          Larry Thomas        17,041,971          169,500
          Marty Albertson     17,041,971          169,500
          Steven Burge        17,041,871          169,600
          David Ferguson      17,041,871          169,600
          Harvey Kibel        17,044,671          166,800
          Michael Lazarus     17,044,571          166,900
          Peter Starrett      17,044,671          166,800
          Jeffrey Walker      17,044,431          167,040
</TABLE>

     The results of voting for the approval of the Company's 1997 Equity
Participation Plan, as amended, were as follows:

<TABLE>
<CAPTION>
                         For       Against          Abstain        Broker Non-Votes
                         ---       -------          -------        ----------------
<S>                  <C>           <C>              <C>            <C>
     1997 EPP        17,148,087     61,170           2,214                0
</TABLE>

     The results of voting for the amendment to the Company's 1996 
Performance Stock Option Plan were as follows:

<TABLE>
<CAPTION>
                        For         Against        Abstain        Broker Non-Votes
                        ---         -------        -------        ----------------
<S>                 <C>             <C>            <C>            <C>
     1996 PSOP      17,139,046      50,666         2,469             19,290
</TABLE>

                                         13
<PAGE>


Part II.  OTHER INFORMATION


     ITEM 6.   EXHIBITS.

     (a)  Exhibits.
          Exhibit 11.    Income (loss) per share.

          Exhibit 27.    Financial Data Schedule.

     (b)  Reports on Form 8-K. The Company filed a Form 8-K dated June 3,
          1998 relating to the conversion of Warrants to purchase 676,566
          shares of Guitar Center, Inc. Common Stock.


                                         14
<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 31st day of July, 1998.

                                   Guitar Center, Inc.

                                   /s/  Bruce L. Ross

                                   Bruce L. Ross, Executive Vice President,
                                   Chief Financial Officer and Secretary

                                   (Duly Authorized Officer and Principal
                                   Financial and Accounting Officer)


                                         15
<PAGE>

Exhibit Index

<TABLE>
<CAPTION>

Exhibit No.         Description
-----------         -----------
<S>                 <C>
11                  Computation of Income (Loss) Per Share

27                  Financial Data Schedule

</TABLE>


                                         16