Sport Chalet Inc. reported a double-digits decline in sales for the third quarter ended December 28, due primarily to the nations economic downturn that led to a much wider net loss for the period.
Third quarter sales declined 10.3% to $104.6 million from $116.6 million in Q3 last year. Eight new stores not included in the same-store sales base contributed $4.7 million in sales for the quarter, or an increase of 4.1%, partially offsetting a 15.4% same-store sales decrease for the period and a decrease of approximately $0.5 million associated with the retailers Action Pass program.
Management reported in an SEC filing that the positive impact on sales from reducing prices was offset by worsening macro-economic conditions as well as unseasonably warm weather in the retailers core markets.
Gross profit as a percent of sales was 22.3% compared to 30.2% for the third quarter of last year. The decline was primarily due to increased promotional activity, which resulted in an additional $5.8 million in markdowns, increased rent as a percent of sales in newer stores and increased use of the companys Action Pass program that lets consumers accumulate points that allow for certain reward certificates to be used toward their purchases.
Selling, general and administrative expenses as a percent of sales increased to 27.8% from 26.2% in the same period last year, reflecting the decrease in comparable store sales, the expenses associated with new stores, which take time to ramp up, and an increase in professional fees. Expense reduction initiatives include $1.9 million in labor savings from stores, corporate office overhead and the distribution center. Additional savings in all other areas such as supplies and maintenance of $1.0 million were partially offset by an increase in professional fees of $0.7 million.
For the quarter, the company recorded a non-cash impairment charge of $10.7 million pre-tax, or 76 cents per diluted share, related to eleven stores with “significantly lower than expected sales volume [that] based on recent trends are not expected to obtain sufficient cash flow over their remaining lease terms to support the net book value of their leasehold improvements and fixtures.” In addition, a tax provision of $11.6 million was recorded for the quarter as there was no valuation allowance on the net deferred tax assets at Sept. 28, 2008. The combined total of the non-cash impairment charge and valuation allowance was $22.3 million, or $1.58 per diluted share.
Excluding the non-cash impairment charge and the affect of the valuation allowance in the third quarter of fiscal 2009 as well as a non-cash impairment charge of $2.1 million pre-tax, or 9 cents per diluted share, recorded in the third quarter of the prior fiscal year, net loss was $10.1 million, or 71 cents per diluted share, compared to net income of $0.6 million, or 4 cents per diluted share, for the third quarter last year. Including the non-cash impairment charge and valuation allowance, net loss for the third quarter of 2009 on a reported basis was $32.4 million, or $2.29 per diluted share, compared to a net loss of $0.7 million, or 5 cents per diluted share, for the third quarter last year.
“During this unprecedented time in the economic history of our country, we continued to experience a challenging retail environment and decreased consumer spending,” stated Chairman and CEO Craig Levra. “This, combined with unseasonably warm weather, negatively impacted our top and bottom line performance. As a result, we accelerated our promotional activity and cost reduction initiatives, which we believe are essential as we navigate through these difficult times. At the same time, our team successfully managed aged inventory to a historical low.''
