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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act for 1934 for the quarterly period ended September 30, 2000
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act for 1934 for the transition period from ______ to ______
Commission File Number: 0-20736
Sport Chalet, Inc.
(Exact name of registrant as specified in its charter)
Delaware 95-4390071
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
920 Foothill Boulevard, La Canada, California 91011
(Address of principal executive offices) (Zip Code)
(818) 790-2717
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed 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 ___
--
Number of shares outstanding of the registrant's common stock as of October 31,
2000:
6,577,000
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SPORT CHALET, INC.
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Index to Form 10-Q
Part I - Financial Information
------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements............................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 7
Part II - Other Information
---------------------------
Item 1. Legal Proceedings.............................................. 10
Item 4. Submission of Matters to a Vote of Security Holders............ 10
Item 6. Exhibits and Reports on Form 8-K............................... 11
</TABLE>
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Part I - Financial Information
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Item 1. Financial Statements.
---------------------
SPORT CHALET, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $53,774,086 $41,678,562 $97,865,072 $76,347,189
Cost of goods sold, buying and
occupancy 37,573,258 29,372,766 67,944,772 53,588,767
----------- ----------- ----------- -----------
Gross profit 16,200,828 12,305,796 29,920,300 22,758,422
Selling, general and administrative
expenses 13,271,283 10,601,671 24,708,542 20,044,343
----------- ----------- ----------- -----------
Income from operations 2,929,545 1,704,125 5,211,758 2,714,079
Interest income 90,280 64,688 173,520 149,210
----------- ----------- ----------- -----------
Income before taxes 3,019,825 1,768,813 5,385,278 2,863,289
Income tax provision 1,204,000 704,000 2,147,000 1,140,000
----------- ----------- ----------- -----------
Net income $ 1,815,825 $ 1,064,813 $ 3,238,278 $ 1,723,289
=========== =========== =========== ===========
Earnings per share:
Basic $0.28 $0.16 $0.49 $0.26
=========== =========== =========== ===========
Diluted $0.27 $0.16 $0.48 $0.25
=========== =========== =========== ===========
Weighted average number
of common shares outstanding:
Basic 6,577,000 6,577,000 6,577,000 6,577,000
=========== =========== =========== ===========
Diluted 6,701,548 6,755,035 6,728,464 6,776,110
=========== =========== =========== ===========
</TABLE>
See accompanying note.
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SPORT CHALET, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------------- -------------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 2,085,073 $ 5,468,390
Accounts receivable - net 1,164,072 2,808,769
Merchandise inventories 52,100,660 36,921,166
Prepaid expenses and other current assets 1,144,157 1,295,082
Deferred income tax 1,181,595 1,186,162
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Total current assets 57,675,557 47,679,569
Furniture, equipment and leasehold improvements - net 18,336,324 16,408,630
Other assets 259,058 365,739
----------- -----------
Total assets $76,270,939 $64,453,938
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $19,656,275 $11,579,549
Salaries and wages payable 1,775,059 1,815,476
Other accrued expenses 7,922,118 6,709,492
Income tax payable 992,554 1,667,554
----------- -----------
Total current liabilities 30,346,006 21,772,071
Deferred income taxes 65,000 60,212
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 - 6,577,000 65,770 65,770
Additional paid-in capital 21,689,607 21,689,607
Retained earnings 24,104,556 20,866,278
----------- -----------
Total stockholders' equity 45,859,933 42,621,655
----------- -----------
Total liabilities and stockholders' equity $76,270,939 $64,453,938
=========== ===========
</TABLE>
See accompanying note.
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SPORT CHALET, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended September 30,
-----------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Operating activities
Net income $ 3,238,278 $ 1,723,289
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,972,000 1,938,502
Stock compensation - 128,250
Deferred income taxes 9,355 98,072
Changes in operating assets and liabilities:
Accounts receivable 1,644,697 (104,898)
Merchandise inventories (15,179,494) (10,722,082)
Prepaid expenses and other current assets 150,925 149,973
Accounts payable 8,076,726 5,219,496
Salaries and wages expenses (40,417) (996,345)
Other accrued expenses 1,212,626 550,891
Income tax payable (675,000) (353,072)
------------ ------------
Net cash provided by (used in) operating activities 409,696 (2,367,924)
Investing activities
Other assets 106,681 91,296
Purchase of furniture, equipment and leasehold improvements (3,899,694) (4,127,692)
------------ ------------
Net cash used in investing activities (3,793,013) (4,036,396)
Decrease in cash (3,383,317) (6,404,320)
Cash at beginning of period 5,468,390 10,829,102
------------ ------------
Cash at end of period $ 2,085,073 $ 4,424,782
============ ============
Cash paid during the year for:
Income taxes $ 2,822,000 $ 1,050,000
Interest - -
</TABLE>
See accompanying note.
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SPORT CHALET, INC.
NOTE TO FINANCIAL STATEMENTS
(UNAUDITED)
1. The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation of
the results of operations for the periods presented have been included.
The financial data at March 31, 2000 is derived from audited financial
statements which are included in the Company's Annual Report on Form 10-K for
the year ended March 31, 2000, and should be read in conjunction with the
audited financial statements and notes thereto. Interim results are not
necessarily indicative of results for the full year.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
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Item 2. Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations.
----------------------
The following should be read in conjunction with the Company's
financial statements and related notes thereto provided under Item 1 above.
Results of Operations
The following tables set forth statements of income data and relative
percentages of net sales for the periods indicated (dollar amounts in thousands,
except per share amounts).
<TABLE>
<CAPTION>
Three months ended September 30, Six months ended September 30,
-------------------------------------------- -----------------------------------------------
2000 1999 2000 1999
---------------------- ------------------ ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $53,774 100.0% $41,679 100.0% $97,865 100.0% $76,347 100.0%
Gross profit 16,201 30.1% 12,306 29.5% 29,920 30.6% 22,758 29.8%
Selling, general and
administrative expenses 13,271 24.7% 10,602 25.4% 24,709 25.2% 20,044 26.3%
Income from operations 2,930 5.4% 1,704 4.1% 5,212 5.3% 2,714 3.6%
Interest income 90 0.2% 65 0.2% 174 0.2% 149 0.2%
Income before taxes 3,020 5.6% 1,769 4.2% 5,385 5.5% 2,863 3.7%
Net income 1,816 3.4% 1,065 2.6% 3,238 3.3% 1,723 2.3%
Earnings per share:
Basic $ 0.28 $ 0.16 $ 0.49 $ 0.26
Diluted $ 0.27 $ 0.16 $ 0.48 $ 0.25
</TABLE>
Three Months Ended September 30, 2000, Compared to Three Months Ended
September 30, 1999. Sales have increased to $53.8 million for the three months
ended September 30, 2000 from $41.7 million for the same period last year, a
29.0% increase. The increase is the result of opening two new stores last year
and one this year combined with a comparable store sales increase of 19.2%.
Comparable store sales are based upon stores opened throughout both periods.
Management believes that the increase in comparable store sales is due to the
successful execution of the Company's basic business plan including diversifying
the product mix, more focused marketing, and continued emphasis on customer
service. Increased consumer demand for in-line scooters also contributed to the
sales increase.
Gross profit as a percent of sales increased to 30.1% for the three months
ended September 30, 2000 from 29.5% for the same period last year, primarily due
to the increased sales which caused occupancy costs to decrease as a percent of
sales.
Selling, general and administrative expenses as a percent of sales
decreased to 24.7% for the three months ended September 30, 2000 from 25.4% for
the same period last year, primarily because of the leveraging effect of
increased comparable store sales.
The effective income tax rate was 39.9% for the three months ended
September 30, 2000, compared to 39.8% for the same period last year, which
differs from the statutory rate as a result of permanent differences between
financial reporting and tax-basis income.
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Net income increased to $1.8 million, or $.27 per diluted share, for the
three months ended September 30, 2000 from $1.1 million, or $.16 per diluted
share, for the same period last year, primarily as a result of increased sales.
Six Months Ended September 30, 2000, Compared to Six Months Ended September
30, 1999. Sales have increased to $97.9 million for the six months ended
September 30, 2000 from $76.3 million for the same period last year, a 28.3%
increase. The increase is the result of opening three new stores last year and
one this year combined with a comparable store sales increase of 16.3%.
Management believes that the increase in comparable store sales is due to the
successful execution of the Company's basic business plan including diversifying
the product mix, more focused marketing, and continued emphasis on customer
service. Increased consumer demand for in-line scooters also contributed to the
sales increase.
Gross profit as a percent of sales increased to 30.6% for the six months
ended September 30, 2000 from 29.8% for the same period last year, primarily due
to the increased sales which caused occupancy costs to decrease as a percent of
sales.
Selling, general and administrative expenses as a percent of sales
decreased to 25.2% for the six months ended September 30, 2000 from 26.3% for
the same period last year, primarily because of the leveraging effect of
increased comparable store sales.
The effective income tax rate was 39.8% for the six months ended
September 30, 2000 and 1999, which differs from the statutory rate as a result
of permanent differences between financial reporting and tax-basis income.
Net income increased to $3.2 million, or $.48 per diluted share, for the
six months ended September 30, 2000 from $1.7 million, or $.25 per diluted
share, for the same period last year, primarily as a result of increased sales.
Liquidity and Capital Resources
The Company's primary capital requirements are for inventory and store
expansion, relocation and remodeling. Historically, cash from operations,
credit terms from vendors and bank borrowing have met the Company's liquidity
needs. Management believes that these sources will be sufficient to fund
currently anticipated cash requirements for the foreseeable future.
Net cash provided by operating activities was $410,000 for the six months
ended September 30, 2000 compared to net cash used of $2.4 million for the same
period last year. Net income provided cash of $3.2 million and $1.7 million for
the six months ended September 30, 2000 and 1999, respectively. Included in net
income was non-cash depreciation of $1.9 million for each of the periods.
Accounts receivable decreased by $1.6 million for the six months ended
September 30, 2000 as a result of the elimination of amounts due to the Company
from John Wells Golf Shops, the former operator of the leased golf department
within the Company's stores. On April 1, 2000, the
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Company purchased the inventory and fixtures of the leased golf departments from
the lessee and is operating the golf departments directly.
Inventories increased by $15.2 million and $10.7 million for the six
months ended September 30, 2000 and 1999, respectively, due to new store
openings and increased sales in both periods. In addition the purchase from
John Wells Golf Shops in April 2000 added to this year's increase. Accounts
payable increased by $8.1 million and $5.2 million for the respective periods
due primarily to inventory build-up and the timing of payments to vendors.
Net cash used in investing activities was $3.8 million for the six
months ended September 30, 2000 that, in addition to normal capital maintenance,
includes the Company's new point-of-sale system and other computer system
spending plus one new store that opened in July 2000. Net cash used in
investing activities was $4.0 million in the same period last year that, among
other things, included two new stores.
Disclosure Regarding Forward-Looking Statements
The statements which are not historical facts contained in this
Quarterly Report on Form 10-Q are "forward looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, that involve risks and
uncertainties. The words "anticipate", "believes", "expect", "intend", "may",
"likely" or similar expressions used in this Quarterly Report as they relate to
the Company or its management are generally intended to identify such forward
looking statements. These risks and uncertainties contained in this Quarterly
Report include, but are not limited to, product demand and market acceptance
risks, the effect of economic conditions generally and in Southern California,
retail and sporting goods business conditions, the impact of competition,
technological difficulties including Year 2000 issues, capacity and supply
constraints or difficulties, the results of financing efforts, changes in
consumer preferences and trends, the effect of the Company's accounting
policies, weather conditions, acts of God, and other risks detailed in the
Company's Securities and Exchange Commission filings.
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Part II - Other Information
Item 1. Legal Proceedings.
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Kelly Silver v. Sport Chalet, Inc., Case No. 00CC08024, filed on July 7,
2000 in the Superior Court of the State of California, County of Orange.
This is a class action lawsuit brought by former Area Manager Kelly Silver
against the Company. The Complaint alleges a failure to pay overtime wages to
Area Managers, unfair business practices based upon the alleged failure to pay
overtime wages, fraud and deceit and negligent misrepresentation based upon the
failure to pay overtime wages, and conversion/theft of labor for the alleged
overtime hours. The Complaint seeks unspecified damages consisting of alleged
unpaid overtime, interest, penalties, and attorneys' fees, and requests an
injunction prohibiting the Company from requiring Area Managers to work more
than eight hours a day without payment of overtime wages.
The Company has answered the Complaint and denied the material allegations
and asserted numerous affirmative defenses.
The parties have engaged in some discovery consisting of requests for
documents and interrogatories. Plaintiff has noticed a motion to allow
precertification notice to all potential class members of the pendency of this
lawsuit. The Company has opposed this motion. No date has been set for a
motion for class certification. No trial date or discovery cutoff dates have
been set at this time.
The Company is vigorously defending this action. No settlement
discussions have occurred between the parties.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
At the annual meeting of stockholders on August 1, 2000, the two Class 2
Directors, John R. Attwood and Craig L. Levra were re-elected to the Company's
Board of Directors. There were 6,201,641 and 6,199,841 votes for and 17,085 and
18,885 votes withheld, respectively, for each of Mr. Attwood and Mr. Levra. The
Company's Class 1 Directors, Eric S. Olberz and Frederick H. Schneider 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 at the
annual meeting of stockholders in fiscal year 2003, 2004 and 2002, respectively.
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Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(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.
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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.
DATE: November 3, 2000 /s/ Craig L. Levra
-------------------------------------
Craig L. Levra
President and Chief Executive Officer
(Duly Authorized Officer)
DATE: November 3, 2000 /s/ Howard K. Kaminsky
-------------------------------------
Howard K. Kaminsky
Executive Vice President-Finance, Chief
Financial Officer, and Secretary
(Principal Financial and Accounting Officer)
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