85.7 F
San Fernando
Friday, Mar 29, 2024

Downhill Run?

In the bygone era of second mortgages, oversized SUVs and easy credit, Sport Chalet Inc. was well-positioned to sell premium recreational equipment to upscale consumers. But as that business formula has faded and years of losses have piled up, the chain of 52 stores has been forced to look at alternatives. The La Cañada Flintridge company announced last month it had retained Cappello Capital Corp., a Santa Monica boutique investment bank, to explore strategic options including joint ventures, strategic alliances and perhaps a sale. Alexander L. Cappello, chief executive of Cappello Capital, said the company has received interest from investors and joint-venture partners, including retailers, manufacturers in the U.S. and abroad, and technology companies looking to establish a presence in Southern California. “We’ve received significant interest in investing in the company from potential partners in some fashion, such as suppliers and (partners interested) in a joint digital relationship,” he said. “Tech companies for retail and sporting goods look interested.” Neil Stern, a senior partner at Chicago-based retail consulting firm McMillan Doolittle LLP, said a likely outcome for such a move could be new ownership. “They’ve been working on initiatives to stay relevant in the marketplace, but when people are looking at strategic alternatives, that is an alternative they look at,” he said. If that is the outcome, it could mark the end of family control for a company that got its start in 1959 when founder Norbert Olberz and his wife Irene started a ski and tennis shop in the foothills of the San Gabriel Mountains. Olberz added specialized sporting equipment that wasn’t widely available at the time, including scuba gear and rock climbing equipment. The specialty retailer essentially remained a mom-and-pop shop for years as it slowly grew and expanded across the street in 1974. In 1992 the company went public – though the Olberz family held most of the stock – leading up to an expansion that got the company in trouble. It grew in California and three nearby states, which later suffered the worst during the housing bust. “Sport Chalet’s concentration in the areas of California, Arizona, Nevada and Utah – the hardest-hit areas of the economy – coupled with the downturn that was so severe caused the company to curtail its growth plans,” said Sean McGowan, an analyst at New York investment bank Needham & Co. LLC who covers competitors Big 5 Corp. and Dick’s Sporting Goods Inc. As an investment, the stock has not performed well. Since its high of $11.39 in April 2007, the price has dropped about 90 percent. It closed Oct. 9 at $1.19. Making moves Founder Olberz died in 2011 but the Olberz family, Chief Exeuctive Craig Levra and Chief Financial Officer Howard Kaminsky own 65 percent of the company. So any decision about the future of the company will be dicated by insiders. Sport Chalet has tried to turn around the business with new tactics, including smaller format stores; “expert centers” in the middle of stores where classes and training sessions are held; a ship-to-home or store pickup arrangement for sales online; and a redesign of its website. However, it has reported losses for each of the past six years, and has accumulated losses of $22.2 million as of the first quarter. And as with most retailers, Sport Chalet has few hard assets except for its inventory. The company doesn’t own any real estate and currently leases all of its 52 store locations, mostly in major malls or power centers. Sport Chalet declined a request to make executives available for this story. However, in a regulatory filing, the chain acknowledged that it will take time to turn around as a high-end retailer, a niche market that has suffered. “The merchandise sold by us is generally a discretionary expense for our customers,” the company stated in its latest annual report. McGowan said the geographic concentration also makes the company less attractive since sporting good sales are often dependent on the weather, including snow in the winter and warm days in the summer. “I think diversification of geographic exposure is of greater interest to the investor,” McGowan said. “Weather is a big factor – if all of a company’s stores are in one region of the country, there’s a greater risk. It’s like managing a portfolio – the more diverse, the better you are.” A similar concern, said Stern, is the chain’s smaller size. For example, competitors such as Dick’s and Big 5 have more than 500 stores and 420 stores, respectively. “When you look at the company, it’s a bit of an anomaly today in sporting retail,” he said. “It’s a very small company and it’s highly regionalized.”

Featured Articles

Related Articles