Sport Chalet Sees Rewards from Diversification…

Sport Chalet, Inc. finished off its 2005-06 fiscal year, which ended on March 31, 2006, with strong results, thanks to late season snow in Southern California, Nevada, and Arizona. While the winter season started out slow for the states west of the Rockies, it finished strong, and Sport Chalet was able to make up any shortfalls experienced in the earlier part of the year. Sales for the company’s fiscal fourth quarter increased 13.3% to $89.7 million from $79.2 million for the same period last year. Comparable store sales for the quarter increased 5.7%.

Sport Chalet continues to diversify its product offering and in turn rely less heavily on winter snowfall to drive solid top-line results. Comparable store sales excluding winter related products increased 5.2% during the fiscal fourth quarter. During a conference call with analysts and the media, Sport Chalet CEO and chairman, Craig Levra said that the company is “pleased” and “right where we want to be,” moving into the summer months with relatively clean winter inventories.

The company was also able to leverage its geographic diversification during the quarter. Sport Chalet opened three new stores on the same day in Arizona earlier this year, and increased their density in Orange County, Calif. with one new store. These four new locations contributed $5.7 million to sales.

Levra said the company has been able to implement several long-term strategic initiatives this year, including its new merchandising system. This will help get the right product into the right stores, help monitor purchasing patterns, and in the long run help reduce markdowns.

Gross profit as a percentage of sales during the fourth quarter decreased 60 basis points to 30.2% from 30.8% in the fourth quarter of last year due to increased markdowns on winter related merchandise. SG&A expenses as a percentage of sales improved by 230 basis points to 27.0% from 29.3% last year. While this is already a considerable improvement, the company said that there is still potential for improvements in SG&A expense reductions.

Net income for the quarter more than doubled with an increase of 126.9% to $1.6 million, or 12 cents per diluted share, compared to $722,000, or 5 cents per diluted share, last year.

Looking forward, SPCH will open five new stores in California and re model two next year. By the end of 2007, 64% of all Sport Chalet stores will be either new, or newly remodeled. Four of the five new locations will be 42,000 square foot prototypes, which will include SCUBA training pools. On the marketing side, SPCH will be looking for improvements in its direct mail business. In addition, the company is looking for a more seamless interface between its Team Sports division and it retail locations.

Mr. Levra also said that the geographic expansion out of Southern California will continue, although he did not say where. New POS cash registers and software will be fully implemented by fall before the Holiday season and the company will make a $4 million capital expenditure to upgrade its internal core computing systems in order to build the infrastructure in advance of future growth. The company is also watching gas prices and their effect on consumer spending very closely. However, management said that it is still too early to see any impact on their summer business.

>>> Moving into Arizona and filling a hole left by Popular Outdoor Outfitters looks like its going to pay off…