Sport Chalet Posts Another Solid Performance…

Sport Chalet doubled its earnings in the fiscal fourth quarter March 31, raising the contribution to the bottom line by more than a third for the full year results. The SoCal-based retailer, which has been expanding its reach into NorCal and surrounding states, saw the top line benefit from comparable store sales increases for the quarter and the year as well as the addition of new stores throughout the year.

SPCH said the same-store sales gain for the year was due to “better inventory assortments compared to the same period last year” and increased customer traffic from the “appeal of winter related merchandise.” Sales of winter related products, which SPCH said were “driven by record winter weather conditions” at the resorts frequented by Sport Chalet customers, pushed total comps up for the year. Excluding the impact of winter goods, comps would have risen 4.7% for the year. The fourth quarter felt the impact of the weather as well, although to a lesser extent. Comparable store sales for Q4 increased 4.1% excluding winter related products.

The improvement in winter product sales for the year had a bigger impact on gross margins for the fourth quarter as the retailer liquidated more of the winter-related inventory leading to a reduction in end-of-season markdowns. SPCH also pointed to “increased sales of higher margin apparel” for the GM gain. Full year margins also benefited from the upside in winter goods.

The GM gains more than offset growth in SG&A expenses which increased 50 basis points for the quarter and just 10 basis points for the year. SG&A was impacted by increased litigation reserves and professional fees primarily associated with a recapitalization plan also announced last week, offset a bit by a decline in a decrease in workers' comp expenses.

The recapitalization plan announced by Sport Chalet is expected to effectively “facilitate the orderly transition of control” from SPCH founder Norbert Olberz to the retailer’s senior management, while increasing financial flexibility for SPCH and its stockholders.

The move, already approved by the company’s Board of Directors and slated for a shareholder vote at the annual shareholders meeting in September, would establish two classes of common stock. The company will conduct a 4-for-1 reverse stock split of the outstanding common stock and reclassify each post-split share of common stock into a new share of Class B common stock. SPCH would then issue a non-taxable stock dividend of seven shares of Class A common stock for each one outstanding share of Class B common stock. Each share of Class B common stock would entitle the holder to one vote, and each share of Class A common stock would entitle the holder to 1/20th of one vote.

The plan calls for Mr. Olberz, who is still the company’s principal shareholder, to transfer approximately 973,000 shares of Class B common stock to company chairman and CEO Craig Levra and CFO Howard Kaminsky, giving them approximately 45% of the combined voting interests of Class B and Class A common stock when added to the shares of Sport Chalet stock they currently own.

The proposed recapitalization plan would double the company's total number of shares outstanding from approximately 6,686,368 to 13,372,736, which would result in the same impact on earnings per share as a 2-for-1 stock split. The increase in shares available could lead to more interest from investors who have been essentially shut out of the stock since its IPO.

SPCH is estimating a charge of approximately $1.08 per diluted share based on today's stock price, or approximately 54 cents per diluted share calculated on a post transaction basis.

Nasdaq has already advised Sport Chalet that the recapitalization plan complies with its rules regarding classes of stock with different voting rights.

>>> The team here has done a great job turning this ship around. The rewards are warranted. Nicer guys aren’t easily found in this business either…