- Fourth quarter same store sales increased 5.7%
- Achieved positive EBITDA in all four quarters
- Exceeded bank loan agreement EBITDA covenant by $4.1 million
- Fourth quarter net loss reduced to $0.3 million
- Full year net loss reduced significantly to $8.3 million
LOS ANGELES, June 2, 2010 (GLOBE NEWSWIRE) -- Sport Chalet, Inc. (Nasdaq:SPCHA) (Nasdaq:SPCHB) today announced financial results for its fourth quarter and full year ended March 28, 2010.
Fourth Quarter Results
Sales increased 6.8% to $90.2 million for the fourth quarter of fiscal 2010 from $84.5 million for the fourth quarter of fiscal 2009. The increase is primarily due to a same store sales increase of $4.7 million, or 5.7%, which was driven by favorable winter weather experienced in most of the Company's markets, improved inventory position from increased fulfillment of orders by vendors and enhanced direct customer marketing through an increase in Action Pass membership, the Company's customer relationship program. The same store sales increase was the first quarterly increase since the first quarter of fiscal 2008.
Gross profit as a percent of sales increased to 27.7% compared to 19.8% for the fourth quarter of last year. The increase was primarily a result of decreased markdowns on winter products. Selling, general and administrative expenses ("SG&A") as a percent of sales decreased to 24.3% from 28.5% in the same period last year, primarily due to savings of $3.2 million from cost containment initiatives, as well as the leverage from increased sales.
As a result of increased sales and decreased SG&A expenses, net loss for the quarter ended March 28, 2010 was reduced to $0.3 million, or $0.02 per diluted share, compared to a net loss of $11.1 million, or $0.79 per diluted share, for the quarter ended March 29, 2009.
Craig Levra, Chairman and CEO, stated, "Although the Company has yet to return to profitability, and given that our stores are located in markets hardest hit by unemployment, bankruptcies, home foreclosures and declines in home values, I am pleased that we were able to generate positive same store sales by taking advantage of the favorable weather with adequate inventory levels and increased utilization of our growing Action Pass membership, along with a significantly improved online customer experience at sportchalet.com. At the same time we were able to keep our focus on our cost containment initiatives. After ten consecutive quarters of negative same store sales, we are hopeful that the increase in the fourth quarter reflects the beginning of a change in trends."
Bank Loan Covenant Compliance
While reporting a loss, the Company continued to exceed the requirements of its bank loan agreement. For the fiscal year, the Company achieved earnings before interest, taxes and depreciation ("EBITDA") of $9.46 million compared to the minimum requirement of $5.35 million EBITDA contained in the Company's current bank loan agreement. The bank requirement measures cumulative EBITDA on a trailing twelve month basis each month; accordingly, the $4.1 million achieved above the minimum EBITDA requirement in fiscal 2010 can be used to offset any future shortfalls.
Full Year Results
For the fiscal year, sales decreased 5.1% to $353.7 million from $372.7 million for fiscal 2009. The decrease is primarily due to a same store sales decrease of $30.4 million, or 8.4%, as the result of weaker macroeconomic conditions earlier in the year, partially offset by improved sales in the fourth quarter and sales of $18.1 million from four new stores not included in the same store sales calculation.
Gross profit as a percent of sales increased to 26.8% compared to 23.7% for fiscal 2009. The increase was primarily the result of decreases in markdowns, related to improved demand for winter products along with improved inventory control, and reduced rent from successful lease negotiations. SG&A as a percent of sales decreased to 24.3% compared to 28.9% for fiscal 2009, as expenses related to new stores were offset by savings of $24.0 million from cost containment initiatives, primarily from decreases in salaries, advertising, professional fees, repairs and maintenance and utilities.
As previously reported, the Company recorded a non-cash impairment charge of $10.9 million for fiscal 2010, compared to a non-cash impairment charge of $10.7 million for fiscal 2009, related to certain stores. In addition, the Company received an income tax benefit of $9.1 million related to the portion of the 2009 net operating loss (NOL) carryback that was recently allowed by legislative changes compared to a tax provision of $5.8 million for fiscal 2009. This $9.1 million refund was received in January 2010.
As a result of decreased SG&A expenses and the income tax refund, partially offset by the reduction in same store sales and the impairment charge, net loss for fiscal 2010 was reduced to $8.3 million, or $0.59 per diluted share, compared to a net loss of $52.2 million or $3.70 per diluted share, for fiscal 2009. Excluding the non-cash impairment charges and the effect of income taxes in fiscal 2010 and 2009, net loss for fiscal 2010 was reduced to $6.5 million, or $0.46 per diluted share, compared to net loss of $35.7 million, or $2.53 per diluted share, for fiscal 2009.
Craig Levra, Chairman and CEO, concluded, "The economic environment in 2009 was very challenging and remains so in our markets. In response, we examined and modified our business model in a manner that made us more efficient, more focused and better able to navigate this difficult environment. Our entire team worked diligently to ensure that our company not only survived, but built a foundation for future prosperity. Working in conjunction with our business partners and our merchandise vendors, we made major strides in our ECommerce initiative as we more fully developed this business to drive branding, as well as generate online and offline sales. We made good progress as we achieved better results in the fourth quarter and positive EBITDA in all four quarters, but we recognize there is more to do and remain focused on continued improvement."
Non-GAAP Financial Measures
In addition to reporting the Company's financial results in accordance with accounting principles generally accepted in the United States ("GAAP"), the Company provides information regarding EBITDA, net loss and loss per diluted share adjusted for non-cash impairment charges and income taxes. These measures are considered non-GAAP and are not preferable to GAAP financial information. EBITDA, as defined in the Company's current bank loan agreement is a non-GAAP measure of liquidity and is included in this release to provide information concerning the Company's performance relative to benchmarks contained in the bank loan agreement. In addition, the Company believes the non-GAAP information provides additional measures of performance that the Company's management, analysts and investors can use to compare operating results between reporting periods. For more information on these non-GAAP financial measures, please see the tables captioned "Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures," included at the end of this release.
About Sport Chalet, Inc.
Sport Chalet, founded in 1959 by Norbert Olberz, is a leading operator of full service specialty sporting goods stores in California, Nevada, Arizona and Utah, as well as a Team Sales Division. The Company offers over 50 services for the serious sports enthusiast, including backpacking, canyoneering, and kayaking instruction, custom golf club fitting and repair, snowboard and ski rental and repair, SCUBA training and certification, SCUBA boat charters, team sales, racquet stringing, and bicycle tune-up and repair throughout its 55 locations. The address for Sport Chalet's web site is www.sportchalet.com.
Disclosure Regarding Forward-Looking Statements
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, including any statement concerning the Company's prospects or its ability to identify and implement opportunities to improve its results of operations or prospects. 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 negative effect of the economic downturn on the Company's sales, limitations on borrowing under the Company's bank credit facility, the Company's ability to reduce an adequate amount of operating expenses and control costs, the competitive environment in the sporting goods industry in general and in the Company's specific market areas, inflation, the challenge of maintaining its competitive position, 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.
Consolidated Statements of Operations
| Fiscal year | |||
| 2010 | 2009 | 2008 | |
| (in thousands, except per share amounts) | |||
| Net sales | $ 353,695 | $ 372,652 | $ 402,534 |
| Cost of goods sold, buying and occupancy costs | 258,873 | 284,257 | 285,982 |
| Gross profit | 94,822 | 88,395 | 116,552 |
| Selling, general and administrative expenses | 85,894 | 107,651 | 105,697 |
| Depreciation and amortization | 12,644 | 14,243 | 12,898 |
| Impairment charge | 10,935 | 10,730 | 2,077 |
| Loss from operations | (14,651) | (44,229) | (4,120) |
| Interest expense | 2,762 | 2,195 | 1,466 |
| Loss before income taxes | (17,413) | (46,424) | (5,586) |
| Income tax (benefit) provision | (9,139) | 5,823 | (2,224) |
| Net loss | $ (8,274) | $ (52,247) | $ (3,362) |
| Loss per share: | |||
| Basic and diluted | $ (0.59) | $ (3.70) | $ (0.24) |
| Weighted average number of common shares outstanding: | |||
| Basic and diluted | 14,126 | 14,123 | 14,075 |
Sport Chalet, Inc.
Consolidated Balance Sheets
| March 28, | March 29, | |
| 2010 | 2009 | |
| Assets | (in thousands, except share amounts) | |
| Current assets: | ||
| Cash and cash equivalents | $ 2,906 | $ 290 |
| Accounts receivable, net of allowances for doubtful accounts of $348 and $376, respectively | 2,403 | 1,434 |
| Merchandise inventories | 97,280 | 88,431 |
| Prepaid expenses and other current assets | 1,235 | 2,178 |
| Income tax receivable | 12 | 1,004 |
| Total current assets | 103,836 | 93,337 |
| Fixed assets, net | 34,873 | 57,718 |
| Total assets | $ 138,709 | $ 151,055 |
| Liabilities and stockholders' equity | ||
| Current liabilities: | ||
| Accounts payable | $ 24,998 | $ 31,083 |
| Loan payable to bank | 45,290 | 39,140 |
| Salaries and wages payable | 3,972 | 4,150 |
| Other accrued expenses | 15,909 | 19,379 |
| Total current liabilities | 90,169 | 93,752 |
| Deferred rent | 24,056 | 25,217 |
| Commitments and contingencies | ||
| Stockholders' equity: | ||
| Preferred stock, $.01 par value: | ||
|
Authorized shares – 2,000,000 Issued and outstanding shares – none |
– | – |
| Class A Common stock, $.01 par value: | ||
|
Authorized shares – 46,000,000 Issued and outstanding shares – 12,412,490 in 2010 and 12,359,990 in 2009 |
124 | 124 |
| Class B Common stock, $.01 par value: | ||
|
Authorized shares – 2,000,000 Issued and outstanding shares – 1,770,821 in 2010 and 1,763,321 in 2009 |
18 | 18 |
| Additional paid-in capital | 35,130 | 34,458 |
| Accumulated deficit | (10,788) | (2,514) |
| Total stockholders' equity | 24,484 | 32,086 |
| Total liabilities and stockholders' equity | $ 138,709 | $ 151,055 |
Sport Chalet, Inc.
Consolidated Statements of Cash Flows
| Fiscal year | |||
| 2010 | 2009 | 2008 | |
| Operating activities | (in thousands) | ||
| Net loss | $ (8,274) | $ (52,247) | $ (3,362) |
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | |||
| Depreciation and amortization | 12,644 | 14,243 | 12,898 |
| Loss on disposal of equipment | 4 | 173 | 326 |
| Impairment charge | 10,935 | 10,730 | 2,077 |
| Share-based compensation | 530 | 354 | 233 |
| Deferred income taxes | – | 5,723 | 1,928 |
| Changes in operating assets and liabilities: | |||
| Accounts receivable | (969) | (75) | 5,535 |
| Merchandise inventories | (8,849) | (2,286) | 922 |
| Prepaid expenses and other current assets | 943 | 3,992 | (1,343) |
| Income tax receivable | 992 | 401 | 77 |
| Accounts payable | (6,085) | 1,602 | (1,373) |
| Salaries and wages payable | (178) | (470) | (379) |
| Other accrued expenses | (3,470) | 6,125 | (2,327) |
| Deferred rent | (1,161) | 996 | 1,162 |
| Net cash (used in) provided by operating activities | (2,938) | (10,739) | 16,374 |
| Investing activities | |||
| Purchases of fixed assets | (738) | (16,245) | (22,433) |
| Net cash used in investing activities | (738) | (16,245) | (22,433) |
| Financing activities | |||
| Proceeds from bank borrowings | 396,262 | 321,979 | 110,573 |
| Repayment of bank borrowings | (390,112) | (300,055) | (105,133) |
| Checks drawn in excess of cash in balances | – | 1,446 | |
| Proceeds from exercise of stock options | 142 | – | 372 |
| Tax benefit on employee stock options | – | 10 | 300 |
| Net cash provided by financing activities | 6,292 | 23,380 | 6,112 |
| Increase (decrease) in cash and cash equivalents | 2,616 | (3,604) | 53 |
| Cash and cash equivalents at beginning of year | 290 | 3,894 | 3,841 |
| Cash and cash equivalents at end of year | $ 2,906 | $ 290 | $ 3,894 |
|
Cash paid during the year for: |
|||
| Income taxes | $ – | $ 52 | $ 30 |
| Interest | $ 2,645 | $ 1,716 | $ 1,247 |
Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures
EBITDA is a non-GAAP measure of liquidity and is primarily included in this release to provide information concerning the Company's performance relative to benchmarks contained in the bank loan agreement. EBITDA, as defined in the Company's current bank loan agreement as (loss) income before (benefit) provision for income taxes, interest expense, depreciation and amortization, certain non-cash charges as well as share-based compensation expense. Management also believes EBITDA is useful because it is frequently used by analysts and investors in evaluating companies. In addition, management uses EBITDA, along with other GAAP measures, in evaluating operating performance compared to that of other companies because the calculation of EBITDA generally eliminates the effects of financing, operating in different income tax jurisdictions, and the accounting effects of capital spending. When analyzing operating performance, investors should use EBITDA in addition to, and not as an alternative for, income (loss) from operations and net income (loss), each as determined in accordance with GAAP. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to similarly titled measures used by other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow for management's discretionary use, as it does not consider certain cash requirements such as tax and debt service payments.
EBITDA, as defined in the Company's current bank loan agreement, to net loss as presented in the Company's consolidated statements of operations.
| Fiscal year | |||
| 2010 | 2009 | 2008 | |
| (in thousands) | |||
| Net loss | $ (8,274) | $ (52,247) | $ (3,362) |
| Income tax (benefit) provision | (9,139) | 5,823 | (2,224) |
| Interest expense | 2,762 | 2,195 | 1,466 |
| Depreciation and amortization | 12,644 | 14,243 | 12,898 |
| Share-based compensation | 530 | 354 | 232 |
| Non-cash impairment charge | 10,935 | 10,730 | 2,077 |
| EBITDA (loss) | $ 9,458 | $ (18,902) | $ 11,087 |
The exclusion of impairment charges and income taxes for fiscal 2010, 2009 and 2008 from net loss and diluted loss per share provides a consistent comparison between years. These non-GAAP measurements are intended to supplement the presentation of the Company's financial results in accordance with GAAP.
| Fiscal year | |||
| 2010 | 2009 | 2008 | |
| (in thousands) | |||
| Net loss | $ (8,274) | $ (52,247) | $ (3,362) |
| Non-cash impairment charge | 10,935 | 10,730 | 2,077 |
| Income tax (benefit) provision | (9,139) | 5,823 | (3,362) |
| Non-GAAP net loss | $ (6,478) | $ (35,694) | $ (4,647) |
| Non-GAAP diluted loss per share | $ (0.46) | $ (2.53) | $ (0.33) |
| Diluted shares | 14,126 | 14,123 | 14,075 |