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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act for 1934
For the quarterly period ended June 30, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act for 1934
For the Transition period from to
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Commission file number: 0-20736
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Sport Chalet, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 95-4390071
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
920 Foothill Boulevard, La Canada California 91011
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(Address of principal executive offices) (Zip)
(818) 790-2717
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(Registrant's telephone number, including area code)
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(Former name former address and former fiscal year, if changes since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date, August 1, 1996:
6,500,000
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SPORT CHALET, INC.
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Index to Form 10-Q
Part I
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1. Item 1. Condensed Financial Statements
2. Item 2. Management's Discussion and Analysis of Financial Condition and
the Results of Operations
Part II
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1. Item 4. Submission of Matters to a Vote of Security Holders
2. Item 6. Exhibits and Reports on Form 8-K
2
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SPORT CHALET, INC.
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PART I
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ITEM 1. CONDENSED FINANCIAL STATEMENTS.
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The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are adequate to
make the information presented not misleading. In the opinion of management,
all adjustments, consisting of normal recurring adjustments, necessary for a
fair statement of results for the interim period have been made.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1996 Annual Report to Shareholders filed with the Commission on June
27, 1996.
3
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SPORT CHALET, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30,
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1996 1995
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<S> <C> <C>
Net sales............................... $29,250,426 $27,328,237
Cost of goods sold...................... 18,450,823 17,546,317
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Gross profit............................ 10,799,603 9,781,920
Selling, general and administrative
expenses............................... 10,362,989 10,237,230
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Income (loss) from operations........... 436,614 (455,310)
Interest expense........................ 282,292 318,624
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Income (loss) before taxes.............. 154,322 (773,934)
Income tax provision (benefit).......... 63,000 (312,000)
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Net income (loss)....................... 91,322 (461,934)
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Earnings (loss) per share.............. $ .01 $ (.07)
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Weighted average number
of common shares outstanding........... 6,500,000 6,500,000
=========== ===========
</TABLE>
See accompanying note.
4
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SPORT CHALET, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
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(Unaudited)
<S> <C> <C>
ASSETS
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Current assets:
Cash..................................... $ 742,106 $ 768,562
Accounts receivable - net................ 716,309 961,875
Merchandise inventories.................. 34,020,652 33,069,322
Prepaid expenses and other current
assets................................. 111,998 367,412
Note receivable.......................... 212,710
Deferred and refundable income taxes..... 872,939 964,034
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Total current assets............ 36,464,004 36,343,915
Furniture, equipment and leasehold
improvements - net....................... 12,076,594 12,654,596
Deferred income taxes...................... 379,381 442,381
Deposits................................... 66,730 66,730
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Total assets.................... $48,986,709 $49,507,622
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities
Loans payable to bank.................... $ 9,004,023 $10,307,560
Accounts payable......................... 10,821,817 9,895,655
Salaries and wages payable............... 1,665,030 1,850,789
Other accrued expenses................... 2,991,250 2,999,617
Amounts due to Principal Shareholder..... 9,578 50,312
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Total current liabilities....... 24,491,698 25,103,933
Shareholders' 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 -
6,500,000.......................... 65,000 65,000
Additional paid-in capital........... 19,900,052 19,900,052
Retained earnings........................ 4,529,959 4,438,637
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Total shareholders' equity............... 24,495,011 24,403,689
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Total liabilities and
shareholders' equity.......... $48,986,709 $49,507,622
=========== ===========
</TABLE>
See accompanying note.
5
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SPORT CHALET, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30,
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1996 1995
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)..........................$ 91,322 $ (461,934)
Adjustments to reconcile net income
(loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization............ 840,000 714,000
Deferred income taxes.................... 154,095 (52,000)
Changes in operating assets and
liabilities:
Accounts receivable................... 245,566 (40,268)
Merchandise inventories............... (951,330) (2,398,361)
Prepaid expenses and other current
assets.............................. 255,414 596,166
Note receivable....................... 212,710
Accounts payable...................... 926,162 1,922,006
Salaries and wages expenses........... (185,759) (944,991)
Other accrued expenses................ (8,367) (164,489)
Amounts due to Principal Shareholders. (40,734) 577
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Net cash provided by (used in)
operating activities...................... 1,539,079 (829,294)
INVESTING ACTIVITIES
Purchase of furniture, equipment and
leasehold improvements.................... (261,998) (1,091,077)
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Net cash used in investing activities...... (261,998) (1,091,077)
FINANCING ACTIVITIES
Proceeds from bank borrowings.............. 16,496,215 10,050,031
Principal payments on bank loans........... (17,799,752) (8,423,556)
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Net cash (used in) provided by
financing activities...................... (1,303,537) 1,626,475
Decrease in cash........................... (26,456) (293,896)
Cash at beginning of period................ 768,562 492,303
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Cash at end of period...................... 742,106 198,407
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Cash paid (refunded) during the year for:
Income taxes............................. (91,094) (260,000)
Interest................................. 349,081 303,231
</TABLE>
See accompanying note.
6
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SPORT CHALET, INC.
NOTE TO FINANCIAL STATEMENTS
(UNAUDITED)
1. For a summary of significant accounting policies and other information which
relates to these interim statements, reference should be made to the notes to
financial statements included in the Company's 1996 Annual Report to
Shareholders.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
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RESULTS OF OPERATIONS.
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The following should be read in conjunction with the Company's financial
statements and related note thereto provided under Item 1 above.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30,
1995. Sales increased from $27.3 million to $29.3 million, a 7.0% increase.
The increase is due to the opening of one new store in November 1995 and a
comparable store sales increase of 2.7%.
Gross profit increased as a percent of sales, 36.9% compared to 35.8% for
the same period last year, as a result of reduced markdowns, which is primarily
related to enhancements made to the Company's inventory management system and
increased sales volume, offset somewhat by an increase in the accrual for
estimated inventory shrinkage.
Selling, general and administrative expenses as a percent of sales
decreased from 37.5% to 35.4%, reflecting reduced labor and other costs
attributable to Management's cost reduction programs.
Interest expense decreased from $319,000 to $282,000 due to a lower average
loan balance outstanding partially offset by increased interest rates.
The effective income tax rate is 40.8% compared to 40.3% for the same
period last year.
Net income increased to $91,000 from a loss of $462,000 last year or $.01
per share compared to $.07 loss per share, primarily as a result of increased
sales and reduced markdowns and expenses.
Because the Company's business is highly seasonal in nature and
historically its highest sales level and operating profitability often occur
during the winter months of November, December and January, which overlap the
third and fourth fiscal quarters, Management believes that the operating results
for the first quarter may not necessarily be indicative of the Company's overall
operating results for the fiscal year.
8
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary capital requirements are for inventory and store
remodeling. Historically, the Company's liquidity needs have been met by cash
from operations, credit terms from vendors and bank borrowings.
Net cash provided by operating activities is $1.5 million for the three
months ended June 30, 1996 compared to cash used of $829,000 for the same period
ended June 30, 995. Net income provided $91,000 and a net loss used $462,000
for the three months ended June 30, 1996 and 1995, respectively. Depreciation
also provided $840,000 and $714,000 of cash for same periods ended June 30, 1996
and 1995, respectively.
Inventories increased by $951,000 and $2.4 million for the three months
ended June 30, 1996 and 1995, respectively, due to the seasonal build-up of
summer inventory. The 1996 increase is less than the 1995 increase because of
Management's renewed focus on improving inventory procurement practices.
Accounts payable increased $926,000 and $1.9 million in each of the same periods
in response to changes in inventory levels.
Net cash used in investing activities was $262,000 for the quarter ended
June 30, 1996 primarily for the routine replacement of furniture, equipment and
leasehold improvements at existing stores. For the quarter ended June 30, 1995,
$1.1 million of cash was used for the routine replacement of furniture,
equipment and leasehold improvements as well as for the remodel of one store
completed in August 1995 and the prepayment of amounts due for another store
which opened in November 1995.
Net cash used in or provided by financing activities has primarily
reflected advances or pay down of the Company's revolving credit line. Cash used
was $1.3 million for the three months ended June 30, 1996 compared to $1.6
million provided by financing activities for the three months ended June 30,
1995. In May 1996, the Company obtained a two-year credit facility from Bank of
America Business Credit, Inc. an affiliate of Bank of America, which provides a
new line of credit to borrow up to $20 million. The prior credit facility with
Wells Fargo Bank, NA, was paid off with the proceeds from the new credit
facility. See the Company's 1996 Annual Report to Shareholders on Form 10-K for
details.
9
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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At the annual meeting of shareholders on August 1, 1996, the Class 1
Director, Eric S. Olberz was re-elected to the Company's Board of Directors.
There were 6,280,250 votes for and 41,287 votes withheld for Eric S. Olberz .
The Company's Class 2 Director, John R. Attwood, and Class 3 Directors, Norbert
J. Olberz and Kenneth Olsen, continue to serve on the Board. The terms of the
Class 1, 2 and 3 Directors presently expire in fiscal year 2000, 1998 and 1999,
respectively.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
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(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter for which this report on Form 10-Q is filed,
no reports on Form 8-K were filed.
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer and principal financial officer.
SPORT CHALET, INC.
/s/ NORBERT J. OLBERZ
DATE: August 8, 1996 --------------------------------------------
Norbert J. Olberz
Chairman of the Board, Interim President
and Chief Executive Officer
(Duly Authorized Officer)
DATE: August 8, 1996 /s/ HOWARD K. KAMINSKY
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Howard K. Kaminsky
Chief Financial Officer, Treasurer and
Secretary (Principal Financial Officer)
11
<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM JUNE 30, 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 742,106
<SECURITIES> 0
<RECEIVABLES> 716,309
<ALLOWANCES> 28,000
<INVENTORY> 34,020,652
<CURRENT-ASSETS> 36,464,004
<PP&E> 24,061,246
<DEPRECIATION> 11,984,652
<TOTAL-ASSETS> 48,986,709
<CURRENT-LIABILITIES> 24,491,698
<BONDS> 0
0
0
<COMMON> 65,000
<OTHER-SE> 24,430,011
<TOTAL-LIABILITY-AND-EQUITY> 48,986,709
<SALES> 29,250,426
<TOTAL-REVENUES> 29,250,426
<CGS> 18,450,823
<TOTAL-COSTS> 10,362,989
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282,292
<INCOME-PRETAX> 154,322
<INCOME-TAX> 63,000
<INCOME-CONTINUING> 91,322
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,322
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
