Sport Chalet Sees Signs of a Rebound After Disappointing Q3

The Los Angeles-based retailer, which is seeking investors to finance its growth plans, reported sales decreased 5.2 percent to $86.7 million in the quarter ended Sept. 29 compared with $91.5 million in the second fiscal quarter of 2012.

 

Sales were lower due primarily to a 2.5 percent comparable store sales decline, the loss of $1.8 million in sales from three closed stores, and a 22 percent decline in at the Team Sales Division. Those declines were partially offset by a 32.4 percent increase in online sales and the contribution of one new store opened at the end of the first quarter.

 

Gross profit decreased 10.8 percent to  $2.7 million, or 10.8 percent as SPCH spent more on promotions, but made fewer sales. That drove down gross margin 170 basis points (bps) to 25.9 percent. Higher advertising spending drove up selling, general and administrative expenses 4.1 percent to 26.3 percent or revenues; a 230 bps increase compared with the same period last year.

 

SPCH’s net loss reached $3.0 million, or 21 cents per diluted share, compared to net income of $800,000, or 5 cents per diluted share, in the second quarter of last year.

 

Inventory increased 2.3 percent on an average store basis for the 26 weeks ended Sept. 29 , but Levra said SPCH was heading into the holidays with very little aged inventory.

 

“We had previously made additional investments in merchandise categories that had exhibited the greatest sales growth potential, which combined with the overall weak sales and store closures in the first half fiscal 2014 caused the average inventory per store to be increased, masking our efforts to reduce inventory,” explained CFO Howard Kaminsky.

Chairman and CEO Craig Levra opined that higher spending on big ticket items such as cars, furniture, electronics and appliances during July and August cut into spending on sporting goods and entertainment. While calling the results ”disappointing,”  he said comp store sales turn positive in September and Team sales comped positive in October as that division continued to recover from the defection of top sales reps. 

Levra argued that better than expected results at the company’s next-generation store in downtown Los Angeles and growing online sales demonstrate SPCH has a viable growth strategy. Half of sportchalet.com’s customers are from outside the four western states where it operates bricks-and-mortar stores. The retailer also grew its loyalty program by 94,000 members to 2.2 million during the quarter.  

“With additional capital, we believe there is enormous sales growth potential in rolling out this next generation format across our existing store base through a strategic remodel program, and opening new next generation stores in both our core markets and new geographies,” said Levra.  

SPCH engaged Cappello Capital Corp. in late September to scout potential investors needed to implement its strategic plan. It has since appointed Miki Berardelli, chief marketing officer for Tony Burch, to replace the son of Sport Chalet’s founder on its board of directors in bid to tap her expertise on multi-channel marketing. 

SPCH ended the quarter with $10.8 million in borrowing capacity available under its bank line, or $4.2 million above what is required by loan covenants.