Sport Chalet Shrinks Q1 Loss

Sport Chalet reported first-quarter sales increased 0.4% to $79.7 million from $79.4 million a year ago. The increase is primarily due to improvements in the Team Sales and Ecommerce Divisions partially offset by a slight decrease in comparable store sales of 0.2%, a result of continuing macroeconomic weakness in the company's markets which provided no catalyst for improved sales. The retailers also said it continues to exceed the requirements of its bank loan agreement.

The quarter ended June 27.

Gross profit as a percent of sales increased to 28.3% compared to 26.4% for the first quarter of last year. The increase was primarily a result of decreased rent expense from successful landlord negotiations as well as improved merchandise margins from better inventory management. Selling, general and administrative expenses (“SG&A”) as a percent of sales increased to 26.5% from 25.1% in the same period last year, primarily due to increases in workers compensation expense, labor costs, payroll taxes and advertising. Depreciation declined as a percent of sales to 3.3% from 4.4% primarily due to impairment charges incurred in the previous two fiscal years as well as lower capital expenditures.

As a result of increased gross profit and reduced depreciation, partially offset by increased SG&A expenses, net loss for the quarter ended June 27, 2010 was reduced to $1.9 million, or 14 cents per diluted share, compared to a net loss of $3.0 million, or 21 cents per diluted share, for the quarter ended June 28, 2009.

Craig Levra, Chairman and CEO, concluded, “We continue to improve the efficiency of our business, while leveraging the factors that differentiate Sport Chalet in specialty retail. The trade areas in which our stores are located continue to suffer the most from the economic downturn; every indicator suggests that California, Arizona, and Nevada, where 98% of our stores are located, will continue to be the hardest hit. That being said, we believe that our business has stabilized and will continue to deliver positive EBITDA and positive cash flow. The stability of our comparable store sales attests to our efforts to align our operations with the current economic realities of our markets.”

“Our focus now is to profitably grow top-line sales, and many initiatives we began 24 months ago are now beginning to positively impact our sales, including Action Pass, with well over 1.1 million members, our new website at sportchalet.com, which provides a fully integrated online/offline shopping experience for customers, our growth in Specialty Services, as many customers want to try before they buy, and our P-59 skate shop initiative. Our Team Sales Division continues to deliver improved results, even as the state budget crisis in California, Arizona, and Nevada impacts school spending on athletics.”

Bank Loan Covenant Compliance

The company continues to exceed the requirements of its bank loan agreement. For the trailing 12 months ended June 27, 2010, the company achieved earnings before interest, taxes and depreciation (“EBITDA”) of $9.94 million compared to the minimum requirement of $5.35 million EBITDA contained in the company's current bank loan agreement. The bank requirement measures cumulative EBITDA on a trailing 12-month basis each month; accordingly, the $4.59 million achieved above the minimum EBITDA requirement can be used to offset any future shortfalls.

Non-GAAP Financial Measure

In addition to reporting the company's financial results in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company provides information regarding EBITDA. This measure is considered non-GAAP and is not preferable to GAAP financial information. EBITDA, as defined in the company's current bank loan agreement is a non-GAAP measure of liquidity and is included in this release to provide information concerning the Company's performance relative to benchmarks contained in the bank loan agreement.