Solid Q4 Propels Sport Chalet Growth

"Although the fourth quarter was below plan, the overall progress we made positions us for fiscal 2008 with a strong determination to improve our performance," CEO Craig Levra said, insisting that the company has "the right team and a solid plan in place to drive Sport Chalet forward into the summer months" and beyond.

Comparable sales dropped 1% in the final frame versus the same period in FY 2006, but other financials favored the company, including an annual sales jump of 13.1% to $388.2 million, and a 2% gain for comparable sales that buttressed a 1.9% boost in the prior fiscal year. Net income was up by $7.1 million, amounting to 50 cents per diluted share, even after declining from $1.6 million in Q4 2006 to $881,000 in this fiscal Q4.

Gross profits as a percentage of sales were unchanged in FY 2007 at 30.9%, and SG&A expenses as a percent of sales were 27.8% versus 29.6% last year. Both indices were off in the final quarter, with gross profits falling from 30.2% to 29.3% and SG&A up to 27.7% from 27%.

Management cited increased occupancy expense for new stores given that they require time to reach operational efficiency. Nearly half of the company's $23 million in capital expenditures was spent on new stores and remodeling of old facilities in FY 2007. New store capital expenditures will grow from $11.5 million to $16 million in FY 2008, said CFO Howard Kaminsky.

The costs do not seem to be deterring Sport Chalet in its growth plans, with the chain now at 47 units in the western US after five new stores opened during FY 2007. The company is now pushing its platform from Arizona, California and Nevada into Utah.

"While new store openings and systems initiatives will have a moderating effect on our earnings in the near term, they are critical to growing the company and generating value for our shareholders over the long term," said Levra. The company expects to launch at least seven new stores in FY 2008.

That will include the fifth operation in the Phoenix area when a Tempe property comes on line in August. The fourth store there opened in the fourth quarter, and 5,000 people were on hand in Bakersfield, CA, for a grand opening three weeks ago, reported Levra.

The third Sport Chalet will open in Las Vegas this autumn and the Salt Lake City operation will be functioning by year's end. By that point, there will be seven units in Arizona, nine in northern California and 32 in the core Southern California market. During the conference call, Levra announced a lease has been signed for a new Los Angeles Sport Chalet that will open next year near Santa Monica.

"We are very excited about the signing of our lease for this new location," says Levra, explaining it is part of a strategy to seek out infill sites in established markets. Most of the stores going forward will have the prototype 42,000-sf footprint favored by Sport Chalet. The geographic migration should help ease seasonal problems such as that seen this year, he says.

Southern California had its warmest and driest winter ever, and the state was the fourth driest in recorded history. The addition of the new stores helped offset those problems, according to Levra.

"Although the fourth quarter will always be largely driven by winter sports, our continuing focus on geographical expansion and extending the breadth of our merchandise assortment will mitigate the impact of unseasonable weather conditions," Levra insisted.

Excluding winter-related products, comp store sales were up 2.5% in the fourth quarter, he noted, and fourth quarter sales overall increased 9.1% to $97.8 million. In addition to announcing plans to move into Utah, Sport Chalet embarked on other strategic initiatives, including its Action Pass campaign that has signed up more than 100,000 customers whose purchases can be tracked over the Internet and who can be marketed to directly.

Even as the firm prepares to deal with new millennium retailing, Sport Chalet marked a poignant moment in the first quarter with the retirement of founder Norbert Olberz, who launched the company in 1959 in La Canada, located just north of Los Angeles. Along with retiring board member Kenneth Olson, Olberz stepped down from his post as chairman emeritus. "We thank Norbert for his tremendous work and guidance and leadership over the years," says Levra, although he adds that the corporate patriarch will continue to visit stores and offer marketing advice.