Sport Chalet, Inc. reported net income for the third quarter ended Dec. 29 reached $1.5 million, or 10 cents per diluted share, compared to a net loss of $1.9 million, or 13 cents, in the third quarter of last year. Third
quarter 2014 net income represented the highest level of profitability
since 2007, and was driven by higher gross margin coupled with lower
selling, general and administrative expenses.

Sales decreased 2.4 percent to $95.3 million from $97.6 million in the same period last year. The sales decrease is primarily the result of the prior closure of three underperforming stores which contributed $2.4 million in the same period of the prior year. The sales decrease was also due to an 11.9 percent sales decrease in the Team Sales Division due to changes in personnel, and a decrease in comparable store sales. These declines were partially offset by the contribution of one new store opened at the end of the first fiscal quarter of 2014 and an increase in online sales (including mobile).

Comparable store sales decreased 1.3 percent for the third quarter ended Dec. 29, 2013, compared to the same period last year, reflecting an overall soft holiday sales environment that began on a strong note but weakened during the final selling weeks of the year, partially due to a lack of winter weather across the company's markets.

Online sales for the third quarter increased 8.9 percent, compared to the same period last year, with 47.5 percent of sales originating outside the four states where Sport Chalet has stores. For the period from Thanksgiving through Christmas, online and mobile sales increased 22.0 percent and 296.0 percent, respectively, from last year.

Gross profit for the third quarter of 2014 increased $0.8 million, or 3.1 percent, and as a percent of sales increased to 29.1 percent from 27.6 percent, compared to the same period last year. The increase in gross margin primarily reflects a lower level of promotional activity.

SG&A expenses, compared to the same period last year, decreased $2.4 million, or 9.1 percent, due primarily to lower advertising and labor costs to align with sales trends. As a percent of sales, SG&A decreased to 24.9 percent from 26.7 percent in the same period last year.

CEO Commentary

“Sales for the quarter began on an upswing in October and November, followed by a strong start to the holiday selling season as evidenced by our Black Friday Weekend and Cyber Monday sales,” said Craig Levra, Sport Chalet's chairman and CEO. “Despite the strong start, winter weather did not materialize in our core Western markets and continues to present a challenge to our business. That said, I am proud of our team of Experts for executing against a well-defined strategy to help mitigate poor winter conditions, and thus we were able to report our most profitable quarter in the past seven years.

“The third quarter is a good illustration of steps we have taken to improve our store performance and reduce our cost structure. Through the closure of underperforming stores, highly-selective staff reductions to align to current sales levels and the renegotiation of certain ongoing contracts, we have reduced our annualized SG&A expenses by $3.2 million. Those savings are evident in our third quarter results, and we are committed to making sure every asset we have contributes profitably to our business.

“We are pleased with the performance of our award-winning next generation store in downtown Los Angeles and our growing online and mobile business. Online sales grew by 8.9 percent, with 47.5 percent of sales coming from states outside the four where we have stores. This speaks to the growing popularity of the Sport Chalet brand, our online marketing initiatives and our ability to fuse in-store engagement with online and mobile tools for every customer we serve. Mobile also contributed to our online success as sales increased 180.0 percent, albeit off a small base, spurred by the launch of a new mobile platform the week before Thanksgiving.”

Nine-Month 2014 Results

For the first nine months of fiscal 2014, sales decreased 3.4 percent to $263.5 million, from $272.9 million, for the first nine months of the prior fiscal year. Comparable store sales decreased 1.5 percent in the first nine months of 2014.

Gross profit decreased $3.8 million, or 5.0 percent, and as a percent of sales decreased to 27.2 percent from 27.7 percent, for the first nine months of fiscal 2013.

SG&A expenses decreased $0.6 million, or 0.9 percent, for the first nine months of 2014. As a percent of sales, SG&A increased to 25.9 percent from 25.2 percent in the same period last year.

The company's net loss for the first nine months of 2014 was $4.4 million, or $0.31 per diluted share, compared to a net loss of $1.0 million, or $0.07 per diluted share, in the first nine months of fiscal 2013.

Liquidity

On Dec. 29, 2013, the company utilized $50.4 million of its bank facility and had $20.2 million in availability, $13.2 million above the availability requirement of $7.1 million. Availability fluctuates due to seasonal changes in sales and inventory purchases throughout the year.