Sports Chalet’s Q2 Profits Tumble 56.5%

Sport Chalet, Inc. reported Q2 sales increased 7% to $97.7 million from $91.3 million a year ago, but same-store sales dropped 2.2%. Net income plunged 56.5% to $739,000, or 5 cents a share, from $1.7 million, or 12 cents, for the same period last year.

The sporting goods chain said sales were negatively impacted by softer macroeconomic trends. Same store sales were said to have also been affected by the company and competitors opening new stores in existing markets. Seven new stores not included in same store sales contributed $8.0 million in sales for the quarter.

Gross profit as a percent of sales was 30.4% compared to 32.2% for the second quarter of last year. The decline was primarily due to increased rent as a percent of sales in newer stores which take time to reach operating efficiency, as well as increased promotional activity. Selling, general and administrative expenses (SG&A) as a percent of sales improved to 28.8% from 29.1% last year, as a result of reduced existing store and overhead costs.

Craig Levra, Chairman and CEO, stated, “We are not satisfied with our second quarter performance, which was impacted by a challenging economy, particularly in California where the majority of our stores are located. However, we are pleased with our ability to manage expenses and generate bottom line results significantly ahead of the expectations we outlined in our business update in September. Despite the environment, we continued to successfully open new stores and strengthen our systems, as we moved forward with our SAP installation and completed the rollout of enterprise selling to all stores.”

Six-Month Results

For the six months ended September 30, sales increased 7.7% to $189.2 million from $175.7 million for the first six months of the prior year. Eight new stores not included in same store sales contributed $15.8 million to total sales for the first six months of fiscal 2008. Same store sales decreased 0.5% for the six-month period. The first six months of fiscal 2008 had two fewer selling days, which reduced sales by $2.1 million, compared to the six months ended October 1, 2006 as a result of the company's calendar change last year.

Gross profit as a percent of sales was 29.5% for the six months ended September 30, 2007 compared to 30.8% for the same period last year. The decline was due to increased rent as a percent of sales for newer stores as well as increased promotional activity in the second quarter. SG&A as a percent of sales for the six-month period was 29.1% compared to 28.7% for the same period of fiscal 2007, reflecting increased expenses for new stores, partially offset by reduced existing store and overhead costs.

Net income for the six months ended September 30, 2007 was $75,000, or $0.01 per diluted share, compared to net income of $2.2 million, or $0.15 per diluted share, for the six months ended October 1, 2006.

Levra concluded, “We approach the business with the goal of driving a broad range of ongoing improvements and we are pleased with our progress on several important initiatives this year. Earlier this week we expanded into our fourth state, remaining on track in our store opening plans as we opened our first store in Utah. At the same time we are opening new stores, we have been successful in elevating our store experience by bringing in more performance and technical product to complement our “expert” approach to customer service. As we head into the back half of the fiscal year, we are creating more targeted marketing strategies through improved analytics. Additionally, we are making changes to our team sales division to strengthen the crossover and synergies with the merchandise offered in our stores. Finally, we are carefully managing our inventory levels to solidly position the Company for the upcoming holiday season. The challenging environment in which we are operating is only creating added focus within the Sport Chalet Team. We remain committed to prudently managing our business to generate growth over the long term.”

                         SPORT CHALET, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                 (UNAUDITED)

                             Three months ended          Six months ended
                         September 30,  October 1,  September 30,   October 1,
                             2007         2006          2007          2006

    Net sales            $97,669,443  $91,302,660  $189,223,353  $175,720,999
    Cost of goods sold,
     buying and occupancy
     costs                67,959,881   61,942,265   133,361,106   121,611,761
    Gross profit          29,709,562   29,360,395    55,862,247    54,109,238

    Selling, general and
     administrative
     expenses             28,101,716   26,560,046    55,010,404    50,388,933
    Income from
     operations            1,607,846    2,800,349       851,843     3,720,305

    Interest expense         357,178       22,667       716,195        61,187
    Income before taxes    1,250,668    2,777,682       135,648     3,659,118

    Income tax provision     511,247    1,095,979        60,551     1,447,004
    Net income              $739,421   $1,681,703       $75,097    $2,212,114

    Earnings per share:
                 Basic         $0.05        $0.12         $0.01         $0.16
                 Diluted       $0.05        $0.12         $0.01         $0.15

    Weighted average number
     of common shares
     outstanding:
                 Basic    14,077,833   13,796,374    14,046,527    13,735,804
                 Diluted  14,734,728   14,405,180    14,750,402    14,303,114