Sport Chalet Inc. extended its bank line, eliminated jobs and renegotiated contracts to sustain strategic spending initiatives in the wake of a disappointing first fiscal quarter.


The California-based sporting goods chain reported sales of $81.5 million in the quarter ended June 30, down 2.8 percent from the first fiscal quarter of 2013.

 

“Our first quarter sales were lower than expected, which was disappointing following the positive momentum we experienced at the end of fiscal 2013,” said Craig Levra, chairman and CEO. “To stay ahead of this curve, we plan to reduce inventory significantly by the end of September.”


The closing of two underperforming stores accounted for $1.1 million of the $2.3 million decline, while sales declined 31.0 percent at the company’s Team Sales Division in the wake of staff cuts. Most troubling, however, was a 0.7 percent decline in comp store sales. SPCH operates 52 stores in Arizona, California, Nevada and Utah.


 

To stimulate sales, Sport Chalet increased its promotional activity, which pushed down gross margins 160 basis points (bps) to 26.3 percent. SG&A expenses increased 180 bps to 26.5 percent of sales, due large to rising online advertising costs and labor-related expenses. The squeeze resulted in a net loss of $2.8 million, or 20 cent per diluted share, compared to net income of $100,000, or a penny per diluted share, in the first fiscal quarter of 2013.

 

 

By quarter’s end, store inventory had increased 4.1 percent on average and SPCH had drawn down its $65 million bank line by $56.2 million. While that was $2.3 million above the covenant availability requirements, SPCH opted to increase the line to $75 million and extend the term through 2018.
 

 

CFO Howard Kaminsky said he expects the closing of three underperforming stores since January, renegotiated logistics and software contracts and staff cuts at the corporate, distribution center, team sales and store level will reduce annualized operating expenses by $3.2 million.

 

 

Levra said the unexpected dip in sales cloaked progress in several areas, including:

 


  • Team sales: The Team Division’s website has already reached 50 percent of its full fiscal year sales goal and 88 percent of the company’s Team sales reps are beating their year ago numbers.

  • Online sales: Total online sales grew 38 percent in the quarter.

  • Extended assortments: SPCH has brought on 19 new drop ship vendors in recent months, which enables them offer extended assortments both online and from its stores. Employees are having success selling extended assortments of fishing and big-ticket fitness gear at smaller stores that can’t accommodate as many SKUs or departments.


“We have taken significant costs out of our business and continue to evaluate opportunities to reduce our cost structure in a targeted and prudent manner. With our expanded, five-year $75.0 million credit facility, we have ample resources to execute our plan. When our customers return in full-force, we expect that the operating leverage we have built into our business model, and the strategic initiatives we are implementing, will result in improved financial performance.”