CORPORATE FOCUS: Sport Chalet’s Bottom Line Affected by Recent Drought

CORPORATE FOCUS: Sport Chalet’s Bottom Line Affected by Recent Drought By JACQUELINE FOX Staff Reporter Sales at La Canada-based Sport Chalet may have remained steady throughout most of the first two quarters of 2001, even with a sluggish economy in the works, but that doesn’t mean its bottom line survived intact. You’d think a sporting goods retailer would have seen some impact from the Sept. 11 attacks heading into the winter season, considering the effect the attacks had on the travel industry in Southern California. But, though sales increased by 10.6 percent for the quarter ending Dec. 31, analysts say it ultimately was Mother Nature that took the biggest bite out of the company’s profits for the year. Southern California’s 2001-2002 winter season was the driest on record, limiting the opportunities to participate in cold-weather sports. Net income for the quarter ending Dec. 31, 2001 was $2.2 million on revenues of $67.4 million, compared to income of $3.0 million on revenues of $61.0 million for the same quarter in 2000. By Thanksgiving, the typical kickoff for the winter ski season, executives were already feeling the effects of what would be one of the worst winter sales periods in years. Instead of the typical onslaught of ski and winter sport sales, accompanied by the Christmas shopping season, the company was forced to implement promotional programs to jumpstart sales and move stock off the shelves. “The slowdown in consumer spending leading up to the holidays created a difficult retail environment that was more promotionally price-driven than last year,” said Sport Chalet Chairman and CEO Craig Levra. Same-store sales for the last three quarters in 2000 and the first quarter of 2001 were in the double digits, amounting to a 16.9-percent increase for the year, a tough act to follow, all things considered. And, although same-store sales were relatively strong at the start of 2001, they began to slip by mid-year 2001 to single-digit levels, the lowest in the third quarter (1.2 percent). “I think part of the problem with this company is in 2001 they were somewhat of a victim of their own success in 2000,” said Joan Bogucki-Storms, who tracks Sport Chalet for Wedbush Morgan Securities in Los Angeles. “They were going up against double-digit comp sales figures all year long and, with the dry winter and everything else that was happening prior to the holiday season with the economy, they were exposed to mark-down risk because sales for their winter products, which is what they are best known for in this market, never really materialized.” The company’s stock has also taken a mild dip, trading at $8.80 on May 10, compared to a 52-week high of $11.02 in January. Despite soft winter product sales the company remains firmly in a growth mode and is expected to recover quickly, said Bogucki-Storms. Sport Chalet opened stores in Palmdale and Orange County in 2001, as well as its first out-of-state store in Henderson, Nev., just outside of Las Vegas. A second Las Vegas area store is expected to open this fall. There are now 26 stores up and running. “The company has upgraded its management team over the last few years and they are doing a much better job executing their operational procedures,” said Bogucki-Storms. “So I have every expectation that they will start seeing their numbers improve.” She said she anticipates the company’s comparable store sales will climb about 1.5 percent this year and about 3 percent in 2003, primarily because sales for non-winter sports products like camping, hiking and boating equipment during summer 2001 were strong. Levra agreed. He said the expansion program into the Nevada market is expected to eventually help the company lower its dependence on Southern California winter product sales. “Our long-term strategy has been to diversify our product base so that we aren’t so dependent on the winter sales in this region,” said Levra. “But this year was particularly tough for us, although sales from our non-winter products were very good.” And, there are also similarities between Southern California and Nevada that, according to Levra, will ameliorate some of the risks involved in heading into uncharted territory. Levra said, “Depending on what statistics you look at, you’ll see that a large number of the residents in and around Las Vegas have lived in Southern California already and know us.”