Sport Chalet, Inc. reported sales for the third quarter decreased 8.9% to $95.3 million for the third quarter of fiscal 2010 from $104.6 million for the third quarter of fiscal 2009.


The company attributed the decrease primarily to a same store sales decrease of $10.9 million, or 10.8%, primarily the result of continued macro-economic weakness and, to a lesser extent, competitors unusual promotional activity in the Southern California market, partially offset by sales from two new stores and other revenue not included in the same store sales calculation. SPCH said the impact of competitors promotional activity from existing stores is estimated to have caused a 0.7% decline in same store sales.

 

Gross profit as a percent of sales increased to 25.2% compared to 22.3% for the third quarter of last year. The company said the increase was primarily a result of decreased markdowns and rent. Selling, general and administrative expenses as a percent of sales decreased to 23.1% from 27.8% in the same period last year, primarily due to cost containment initiatives which resulted in savings of $7.1 million mainly from decreases in salaries, advertising, professional fees, and utilities.

For the third quarter of fiscal 2010, the company recorded a non-cash impairment charge of $10.9 million, compared to a non-cash impairment charge of $10.7 million for the third quarter of fiscal 2009, related to certain stores. In addition, for the third quarter of fiscal 2010, the company recorded an income tax benefit of $9.1 million related to the portion of the 2009 net operating loss carryback that was recently allowed by legislative changes compared to a tax provision of $11.6 million recorded for the third quarter of fiscal 2009. This $9.1 million refund was received in January 2010.


After the $1.8 million impact of the non-cash impairment charge and tax benefit described above, net loss for the quarter ended December 27, 2009 was $3.8 million, or 27 cents per diluted share. This compares to a net loss of $32.4 million, or $2.29 per diluted share, for the quarter ended December 28, 2008 which includes the $22.3 million non-cash impairment charge and income tax provision recorded in the third quarter of last year.

 

Bank Loan Compliance

 

While reporting a loss, the company said it continued to meet the requirements of its bank loan agreement and has continued to receive support from its vendors and landlords, which was key in its ability to respond to the current weak macro-economics of the markets where it operates. For the first nine months of fiscal 2010, the company achieved earnings before interest, taxes and depreciation of $6.2 million compared to the minimum requirement of $5.6 million EBITDA contained in the company’s current bank loan agreement.

 

The bank requirement measures cumulative EBITDA on a year-to-date basis each month; accordingly, the $0.6 million achieved above the minimum EBITDA requirement in the first nine months of fiscal 2010 can be used to offset any future shortfalls during the remainder of fiscal 2010. As of February 2, 2010 the loan balance amounted to $46.4 million compared to $56.2 million at December 27, 2009.