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Sport Chalet Heads North In Slow, Steady Expansion

Sport Chalet Heads North In Slow, Steady Expansion By CARLOS MARTINEZ Staff Reporter After 44 years of serving Southern California, sporting goods retailer Sport Chalet Inc. is looking toward Northern California for growth, but analysts are divided whether the move is the right one for the La Canada Flintridge-based firm. “It seems a little risky to move into an area that already has well-established names in the industry who are bigger and sell cheaper than they do,” said Tom Goetzinger, an analyst for Morningstar Inc. The company, which operates 26 stores in the Los Angeles area and Nevada, announced last month that it would open a store in Sacramento and in Antioch, a small community about 15 miles east of San Francisco. “It is our goal to bring to these new markets the same great production selection, knowledge and value-added services that have set Sport Chalet apart from the competition,” said Craig Levra, Sport Chalet Chairman and CEO. The company also plans to open a store in San Bernardino County and in Redlands as part of its overall expansion plan. Sport Chalet is known for its top-of-the-line ski and winter gear and for its scuba equipment. But it also provides equipment services such as golf club fitting and repair, ski rentals, tennis racquet stringing and dive training and certification. The move into Northern California is not surprising, said Goetzinger, who said the company had been looking to expand outside Southern California. “They’ve been doing well despite the economy and they were thinking of expanding but you have to wonder if this is the right move,” he said. Sport Chalet has seen a steady rise in revenue over the last three years, with $214.8 million in 2001, $227.3 million in 2002 and $238 million in 2003. But more recently, for the company’s fourth quarter ending March 31, Sport Chalet reported net income of $52,000 or $0.01 a share on $58.2 million in total sales, compared to a year earlier when it reported $3,000 in net income ($0.0 per share) on $57.3 million in sales. Levra said the 1.6 percent sales increase was due to the opening of two new stores though overall sales companywide were tempered by a warmer winter than expected, costing the company sales in winter-related merchandise. Excluding the sales of winter merchandise, Sport Chalet would have increased sales by 7 percent, the company said. The company, which is best known for its winter skis and related equipment, has had to weather two consecutive slow winters, due primarily to unseasonably warm weather which has shortened the last two ski seasons. “Despite (the economy), we were able to show earning increases over the last year in three of the four quarters this year,” Levra said. Steady growth Such news was expected, said Joan Storms, an analyst for Wedbush Morgan Securities in Los Angeles. “They’ve been growing at a steady pace and this expansion is part of that steady growth,” Storms said. The company said the expansion will be funded with cash it has on hand rather than financing it, which means it will not incur debt to finance its move north. Already, the company’s 2001 addition of two stores in Nevada, the only stores outside California, has been a success, helping push margins even further, Storms said. Sport Chalet’s expansion plans, however, are unusual due to the weakness of the nation’s overall retail market, Goetzinger said. Even as the company’s sales numbers improve over the same period last year, Wall Street analysts are not impressed as the company’s stock last week hovered around $7, or within a dollar of its 52-week low of $6.12, reached on Oct. 9. Its 52-week high was $9.40, reached on June 6, 2002. Storms says her firm has given the stock a “buy” rating with a $12 per share price target. “They’ve been doing a lot of things to improve themselves,” Storms said. “They have a number of initiatives in place like automatic replenishment of their merchandise and a new warehouse management system that streamlines the supply process.” Storms said the company is also attempting to reduce its reliance on ski gear and to some degree on scuba gear, by focusing on apparel with some positive results so far, as noted in the 2.2 percent increase in same store sales during the quarter ending Dec. 31 as compared to a year earlier. “They’re focusing on core merchandise apparel instead of on fashion like the latest trend parka or ski wear,” she said.

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