SPCH Sport Chalet (MM)

Sport Chalet Reports Second Quarter Results and Expansion to Arizona LOS ANGELES, Nov. 2 /PRNewswire-FirstCall/ -- Sport Chalet, Inc. (NASDAQ:SPCH) announced the results for its second quarter ended September 30, 2004. Sales increased 17.2%, from $61.8 million for the quarter ended September 30, 2003 to $72.5 million for the same quarter this year. The increase is the result of opening three new stores in late Fall 2003 and two new stores in the second quarter of this year, as well as a same store sales increase of 5.2%. Gross profit margin increased from 29.9% for the quarter ended September 30, 2003 to 31.0% for the same quarter this year, due to reduced costs from more efficient inbound logistics as well as continued improvements in inventory procurement, which lowered markdowns as a percent of sales. Selling, general and administrative expenses, as a percentage of sales, increased from 25.2% for the three months ended September 30, 2003 to 26.8% for the same period this year, primarily due to the additional labor and advertising expense required to open three new stores, partially offset by the leverage created by the increase in same store sales. Even with new store opening expenses, net income increased $76,000, from $1.7 million, or $0.25 per diluted share, in the second quarter last year to $1.8 million, or $0.25 per diluted share, for the same quarter this year. For the six months ended September 30, 2004, sales increased 16.4%, from $115.1 million last year to $134.0 million for the same period this year. The increase is the result of opening three new stores in late Fall 2003 and two new stores in the second quarter of this year, as well as a same store sales increase of 5.7%. Gross profit margin increased from 28.9% for the six months ended September 30, 2003, to 30.0% for the same period this year due to reduced costs from more efficient inbound logistics as well as continued improvements in inventory procurement, which lowered markdowns as a percent of sales. Selling, general and administrative expenses, as a percentage of sales, increased from 27.2% for the six months ended September 30, 2003, to 27.4% for the same period this year as a result of the additional labor and advertising expense required to open three new stores, partially offset by the leverage created by the increase in same store sales. Consequently, net income increased $914,000 or 82%, from $1.1 million, or $0.16 per diluted share, for the six months ended September 30, 2003, to $2.0 million, or $0.28 per diluted share, for the same period this year. Sport Chalet's expansion in Northern California continued in the second quarter of this year with the opening of stores in the cities of Roseville and Pleasanton. The Company also strengthened its primary Southern California market by adding a store location in Arcadia. In addition, the Company is scheduled to open two stores in the third quarter of fiscal 2005 in the cities of Elk Grove and Visalia. The Company currently plans to expand into Arizona with an initial opening of four locations in the Phoenix area in fiscal 2005-2006. "Our team executed the new store openings well during the quarter without disruption to our existing store base while exceeding last year's earnings," said Craig Levra, Sport Chalet's Chairman and Chief Executive Officer. "We continue to manage inventory effectively while achieving same store sales growth and gross profit margin improvement. I am thrilled to announce that we finished our 28th consecutive quarter with no loans outstanding. We believe that we are well positioned to continue this momentum as we expand to our third state in the upcoming year." Sport Chalet, founded in 1959 by Norbert Olberz, is a leading operator of full service specialty sporting goods superstores in California and Southern Nevada. The Company offers over 40 services for the serious sports enthusiast, including backpacking, canyoneering, and kayaking instruction, custom golf club fitting and repair, ski rental and repair, SCUBA training and certification, SCUBA boat charters, team sales, racquet stringing, and bicycle tune up and repair throughout its current 34 locations. The address for Sport Chalet's web site is http://www.sportchalet.com/. Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among other things, the competitive environment in the sporting goods industry in general and in the Company's specific market areas, inflation, the challenge of implementing the Company's expansion plans in Northern California and Arizona and maintaining its competitive position in Southern California, changes in costs of goods and services, the weather and economic conditions in general and in specific market areas. These and other risks are more fully described in the Company's filings with the Securities and Exchange Commission. SPORT CHALET, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Six months ended September 30, September 30, 2004 2003 2004 2003 Net sales $72,465,181 $61,818,702 $134,003,300 $115,127,978 Cost of goods sold, buying and occupancy 49,989,199 43,305,377 93,828,640 81,841,640 Gross profit 22,475,982 18,513,325 40,174,660 33,286,338 Selling, general and administrative expenses 19,419,902 15,580,745 36,656,257 31,302,214 Income from operations 3,056,080 2,932,580 3,518,403 1,984,124 Interest expense 47,616 55,746 90,907 89,756 Income before taxes 3,008,464 2,876,834 3,427,496 1,894,368 Income tax provision 1,205,000 1,149,000 1,379,000 760,000 Net income $1,803,464 $1,727,834 $2,048,496 $1,134,368 Earnings per share: Basic $0.27 $0.26 $0.31 $0.17 Diluted $0.25 $0.25 $0.28 $0.16 Weighted average number of common shares outstanding: Basic 6,679,590 6,633,667 6,678,631 6,631,667 Diluted 7,217,471 6,944,024 7,202,652 6,937,438 SPORT CHALET, INC. CONDENSED CONSOLIDATED BALANCE SHEETS September 30, March 31, 2004 2004 (Unaudited) Assets Current assets: Cash $1,371,215 $3,071,648 Accounts receivable, less allowance of $235,000 at September 30, 2004 and $30,000 at March 31, 2004 4,448,821 1,158,934 Merchandise inventories 76,625,015 54,172,055 Prepaid expenses and other current assets 2,443,198 2,202,036 Deferred income taxes 2,326,380 2,443,945 Total current assets 87,214,629 63,048,618 Furniture, equipment and leasehold improvements-net 32,228,634 29,467,976 Deferred income taxes 398,402 83,704 Other assets 87,403 101,036 Total assets $119,929,068 $92,701,334 Liabilities and stockholders' equity Current liabilities: Bank overdraft $7,543,711 $ -- Accounts payable 29,351,024 11,131,473 Salaries and wages payable 2,988,752 3,354,368 Income taxes payable 574,512 35,631 Other accrued expenses 6,781,965 7,830,961 Total current liabilities 47,239,964 22,352,433 Deferred rent 6,007,412 5,818,026 Stockholders' equity Preferred stock, $.01 par value: Authorized shares -- 2,000,000 Issued and outstanding shares -- none -- -- Common stock, $.01 par value: Authorized shares -- 15,000,000 Issued and outstanding shares - 6,680,701 at September 30, 2004 and 6,673,534 at March 31, 2004 66,807 66,735 Additional paid-in capital 22,933,155 22,830,906 Retained earnings 43,681,730 41,633,234 Total stockholders' equity 66,681,692 64,530,875 Total liabilities and stockholders' equity $119,929,068 $92,701,334 SPORT CHALET, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six months ended September 30, 2004 2003 Operating activities Net income $2,048,496 $1,134,368 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,761,783 2,986,396 Loss on disposal of furniture, equipment and leasehold improvements -- 244,821 Deferred income taxes (197,133) (149,542) Tax benefit on employee stock options 61,923 4,134 Changes in operating assets and liabilities: Accounts receivable (3,289,887) 87,982 Merchandise inventories (22,452,960) (10,838,835) Prepaid expenses and other current assets (241,162) (242,571) Refundable income taxes -- 58,990 Bank overdraft 7,543,711 (566,426) Accounts payable 18,219,551 9,586,711 Salaries and wages payable (365,616) (264,144) Income taxes payable 538,881 746,488 Other accrued expenses (1,048,996) (18,889) Deferred rent 189,386 295,261 Net cash provided by operating activities 4,767,977 3,064,744 Investing activities Purchase of furniture, equipment and leasehold improvements (6,522,441) (3,681,844) Other assets 13,633 13,464 Net cash used in investing activities (6,508,808) (3,668,380) Financing activities Proceeds from exercise of stock options 40,398 39,430 Net cash provided by financing activities 40,398 39,430 Decrease in cash and cash equivalents (1,700,433) (564,206) Cash and cash equivalents at beginning of period 3,071,648 4,230,003 Cash and cash equivalents at end of period $1,371,215 $3,665,797 Supplemental Disclosure of Cash Flow Information Cash paid during the period for: Income taxes $975,000 $100,000 Interest -- -- DATASOURCE: Sport Chalet, Inc. CONTACT: Howard Kaminsky, Exec. VP-CFO of Sport Chalet, Inc., +1-818-949-5386 Web site: http://www.sportchalet.com/

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