Sport Chalet Q4 Impacted by Winter Slow Down…

Sport Chalet is still feeling the impact of one of the driest winters in California history on its winter sports sales, but the company introduced its spring product earlier than normal this year and was able to capitalize on the shifting seasons to a greater extent during the fiscal fourth quarter instead of the fiscal first quarter of the new year.

Sales in the fiscal fourth quarter, which ended April 1, 2007, increased 9.1% to $97.8 million from $89.7 million. The fourth quarter included sales from five stores opened in fiscal 2007 and one store opened in the fourth quarter of fiscal 2006 contributing $8 million. Comparable sales, on a same-store, same-day basis declined 1.0%. Excluding winter related merchandise, comps increased 2.5% for the period.

Management saw strong results in the general athletic, water sports and women’s apparel categories. Sport Chalet also saw improvements in the cycling department due to merchandising improvements the company incorporated there. In the outdoor categories, management said there was “room to grow,” but hardgoods, footwear and apparel were all ahead of last year.

The company is continuing to expand on its assortment of pro sports merchandise and action sports merchandise. NBA-related apparel showed some success during the quarter as California and Arizona teams showed playoff success. Angels, Padres and Dodgers apparel was strong for the quarter. In action sports, SPCH is now carrying Element, Sessions, Birdhouse and Zoo York.

Sport Chalet Chairman, President and CEO Craig Levra said that they have learned a lot about doing business in Arizona and are seeing improved results in that area. In addition, the company’s expansion into northern California is beginning to pay off and is “on the right track.” Over the next four quarters, Sport Chalet will begin its most aggressive expansion initiative ever. The company plans to spend $16 million to open seven new stores and an addition $2 million to remodel other stores.

Included in these locations, Sport Chalet will be opening a new store in West L.A. near Santa Monica; its fifth Phoenix location; its second Las Vegas location; and its first Utah location in Salt Lake City.

“It is important to keep in mind that while our new store initiatives as well as our systems upgrades will have a moderating effect on our earnings in the near term, they are critical to growing the company,” Levra said during a conference call with analysts.

Fourth quarter gross margins fell 90 basis points to 29.3% of sales compared to 30.2% of sales reported last year. The decline was due to increases in occupancy expenses in new stores that have not reached peak operating efficiency. SG&A expenses increased 70 basis points to 27.7% of sales due to the impact of new store expansion.

Inventories were also up considerably at the end of the year due to winter sports-related merchandise. Management expects this to drop into a range more in-line with historical numbers by the end of fiscal Q1. Management also pointed out that California experienced a large amount of snowfall in March of last year, which brought inventories for the fiscal 2006 fourth quarter down to lower than normal levels.

The decline in margins and increased SG&A impacted the fiscal Q4 bottom line considerably. Net income fell 44.9% to $881,000 compared to $1.6 million last year. Diluted EPS was six cents during the fourth quarter of fiscal 2007 compared to 12 cents last year.