Sport Chalet Q2 Sales Jump 11.7%; Flips Loss to Profit

Sport Chalet, Inc. saw sales increase 11.7% to $91.3 million for the second quarter from $81.7 million for the same period last year. Six new stores contributed $9.0 million in sales on a same day basis. Same store sales on a same day basis increased 3.0% in the second quarter. Sales for the quarter overall were $1.8 million lower due to the company's calendar change.

Gross profit as a percent of sales increased to 32.2% from 31.8% in the second quarter of last year. The 40 basis point improvement was primarily due to fewer markdowns as a result of continued improvements in inventory management.

Selling, general and administrative expenses as a percent of sales increased to 29.1% from 26.4% last year, excluding expenses from the recapitalization in fiscal 2006. SG&A for the second quarter ended September 30, 2005 included expenses of $8.6 million related to the company's recapitalization. The increase was a result of reduced leverage on modest sales from mature stores as well as increased costs related to Sarbanes Oxley compliance, utilities, infrastructure investments and personnel.

Net income for the second quarter was $1.7 million, or 12 cents per diluted share, compared to a net loss of $5.2 million, or 38 cents per diluted share, for the second quarter last year. Excluding the after-tax charge of $7.8 million related to the company's recapitalization, net income for the quarter ended September 30, 2005 was $2.6 million, or 19 cents per diluted share.

Craig Levra, Chairman and CEO, stated, “Our sales results for the quarter reflect primarily strong sales gains from our newer stores, as our mature store base generated more modest sales increases during the quarter. While we did not achieve the level of sales we had anticipated, we made great progress on our long-term growth initiatives in the second quarter. We made important decisions regarding upgrades to our back office systems which will further strengthen our operations and support our future growth. Additionally, we opened our Vacaville store in August and continue to be on track with our store opening initiatives for the year.”

Six-Month Results

For the six months ended October 1, 2006, sales increased 14.2% to $175.7 million from $153.9 million for the six months ended September 30, 2005. Sales from six new stores contributed $16.0 million of the total sales growth on a same day basis. Same store sales on a same day basis increased 2.8% for the six-month period. Sales for the six-month period ended October 1, 2006 were benefited by $1.3 million due to the shifting of days as a result of the company's calendar change.

Gross profit as a percent of sales increased to 30.8% for the six months ended October 1, 2006 from 30.7% in the same period last year. SG&A as a percent of sales for the six-month period ended October 1, 2006 increased to 28.7% from 27.4% in the comparable period last year, excluding expenses from the recapitalization. SG&A for the six-month period ended September 30, 2005 includes expenses of $8.7 million related to the company's recapitalization.

Net income for the six months ended October 1, 2006 was $2.2 million, or 15 cents per diluted share, compared to a net loss of $4.8 million, or 36 cents per diluted share, for the six months ended September 30, 2005. Excluding the after-tax charge of $7.8 million related to the company's recapitalization, net income for the six months ended September 30, 2005 was $3.1 million, or 22 cents per share.

Craig Levra, Chairman and CEO, concluded, “We remain committed to efficiently executing our growth plans and building strong customer loyalty for the balance of the year. We worked hard during the quarter to reach optimal inventory levels in all product categories and believe we are now in a strong position for the holiday season. Additionally, we are excited about the opening of three new stores in November which will add depth to our core market in Southern California as well as expand our presence in the Northern California market. Our unique merchandise mix and “expert” customer service has enabled us to consistently meet the needs of our customers and will continue to drive our business in the future. We continue to structure for growth and believe that our proven business model and long-term initiatives will enable us to meet our long-term objectives.”

                              SPORT CHALET, INC.

               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (UNAUDITED)

                             Three months ended         Six months ended
                          October 1, September 30,   October 1, September 30,
                             2006         2005          2006          2005

    Net sales            $91,302,660  $81,732,263  $175,720,999  $153,876,658
    Cost of goods sold,
     buying and
     occupancy costs      61,942,265   55,774,032   121,611,761   106,614,791
    Gross profit          29,360,395   25,958,231    54,109,238    47,261,867

    Selling, general and
     administrative
     expenses             26,560,046   30,199,069    50,388,933    50,847,474
    Income (loss) from
     operations            2,800,349   (4,240,838)    3,720,305    (3,585,607)

    Interest expense          22,667       13,149        61,187        15,036
    Income (loss)
     before taxes          2,777,682   (4,253,987)    3,659,118    (3,600,643)

    Income tax provision   1,095,979      909,418     1,447,004     1,173,418
    Net income (loss)     $1,681,703  $(5,163,405)   $2,212,114   $(4,774,061)

    Earnings (loss) per
     share:
        Basic                  $0.12       $(0.38)        $0.16        $(0.36)
        Diluted                $0.12       $(0.38)        $0.15        $(0.36)

    Weighted average
     number of common
     shares outstanding:
        Basic             13,796,374   13,454,298    13,735,804    13,413,332
        Diluted           14,405,180   13,454,298    14,303,114    13,413,332