Sport Chalet Slashes Q4 Loss, Comps Ahead 5.7%

The comp gain was driven by favorable winter weather experienced in most of the company's markets, improved inventory position from increased fulfillment of orders by vendors and enhanced direct customer marketing through an increase in Action Pass membership, the company's customer relationship program. The same store sales increase was the first quarterly increase since the first quarter of fiscal 2008.

Gross profit as a percent of sales increased to 27.7% compared to 19.8% for the fourth quarter of last year. The increase was primarily a result of decreased markdowns on winter products. Selling, general and administrative expenses (“SG&A”) as a percent of sales decreased to 24.3% from 28.5% in the same period last year, primarily due to savings of $3.2 million from cost containment initiatives, as well as the leverage from increased sales.

Craig Levra, Chairman and CEO, stated, “Although the company has yet to return to profitability, and given that our stores are located in markets hardest hit by unemployment, bankruptcies, home foreclosures and declines in home values, I am pleased that we were able to generate positive same store sales by taking advantage of the favorable weather with adequate inventory levels and increased utilization of our growing Action Pass membership, along with a significantly improved online customer experience at sportchalet.com. At the same time we were able to keep our focus on our cost containment initiatives. After ten consecutive quarters of negative same store sales, we are hopeful that the increase in the fourth quarter reflects the beginning of a change in trends.”

Bank Loan Covenant Compliance

While reporting a loss, the Company continued to exceed the requirements of its bank loan agreement. For the fiscal year, the Company achieved earnings before interest, taxes and depreciation (“EBITDA”) of $9.46 million compared to the minimum requirement of $5.35 million EBITDA contained in the Company's current bank loan agreement. The bank requirement measures cumulative EBITDA on a trailing twelve month basis each month; accordingly, the $4.1 million achieved above the minimum EBITDA requirement in fiscal 2010 can be used to offset any future shortfalls.

Full Year Results

For the fiscal year, sales decreased 5.1% to $353.7 million from $372.7 million for fiscal 2009. The decrease is primarily due to a same store sales decrease of $30.4 million, or 8.4%, as the result of weaker macroeconomic conditions earlier in the year, partially offset by improved sales in the fourth quarter and sales of $18.1 million from four new stores not included in the same store sales calculation.

Gross profit as a percent of sales increased to 26.8% compared to 23.7% for fiscal 2009. The increase was primarily the result of decreases in markdowns, related to improved demand for winter products along with improved inventory control, and reduced rent from successful lease negotiations. SG&A as a percent of sales decreased to 24.3% compared to 28.9% for fiscal 2009, as expenses related to new stores were offset by savings of $24.0 million from cost containment initiatives, primarily from decreases in salaries, advertising, professional fees, repairs and maintenance and utilities.

As previously reported, the company recorded a non-cash impairment charge of $10.9 million for fiscal 2010, compared to a non-cash impairment charge of $10.7 million for fiscal 2009, related to certain stores. In addition, the Company received an income tax benefit of $9.1 million related to the portion of the 2009 net operating loss (NOL) carryback that was recently allowed by legislative changes compared to a tax provision of $5.8 million for fiscal 2009. This $9.1 million refund was received in January 2010.

As a result of decreased SG&A expenses and the income tax refund, partially offset by the reduction in same store sales and the impairment charge, net loss for fiscal 2010 was reduced to $8.3 million, or $0.59 per diluted share, compared to a net loss of $52.2 million or $3.70 per diluted share, for fiscal 2009. Excluding the non-cash impairment charges and the effect of income taxes in fiscal 2010 and 2009, net loss for fiscal 2010 was reduced to $6.5 million, or $0.46 per diluted share, compared to net loss of $35.7 million, or $2.53 per diluted share, for fiscal 2009.

Craig Levra, Chairman and CEO, concluded, “The economic environment in 2009 was very challenging and remains so in our markets. In response, we examined and modified our business model in a manner that made us more efficient, more focused and better able to navigate this difficult environment. Our entire team worked diligently to ensure that our company not only survived, but built a foundation for future prosperity. Working in conjunction with our business partners and our merchandise vendors, we made major strides in our ECommerce initiative as we more fully developed this business to drive branding, as well as generate online and offline sales. We made good progress as we achieved better results in the fourth quarter and positive EBITDA in all four quarters, but we recognize there is more to do and remain focused on continued improvement.”