Ball Refuses to Bounce Sport Chalet’s Way

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Is Sport Chalet ready to get back in the game?

The La Canada-Flintridge-based sports retailer last week reported its 10th consecutive losing quarter. Sport Chalet hasn’t made a profit since late 2007, when shares were trading at $6.90, compared with a recent asking price of $2.50 – a drop of more than 60 percent.

Management reacted to the recession by negotiating lower prices with vendors. The company has been promoting its e-commerce business in stores and reducing inventory. Also, it has cut costs by negotiating new store leases and cutting payroll, advertising and administrative budgets.

Analyst Camilo Lyon at brokerage firm Wedbush Morgan Securities in New York said those were all good moves, but just not enough to respond to the economic downturn, which has been particularly acute in the company’s home state.

“They are not generating the revenue growth they need to get out of this predicament,” Lyon said. “And I don’t think anyone thinks the situation in California will improve anytime soon.”

Lyon sees another sign of bad luck for the company: Unseasonably cool weather in the West will hurt sales for the third quarter because consumers aren’t buying as much water sports and swim gear.

Sean McGowan, an analyst at Needham & Co. in New York, said that the company was hit hard by the mortgage meltdown and the recession because most of its stores are in the West.

“Sport Chalet’s stores are located in what turned out to be ground zero of the housing crisis,” McGowan said. “Their business has been softer because their customers have been hit harder in the wallet.”

Sport Chalet has 55 stores in California, Nevada, Arizona and Utah. Compared with its peers, Sport Chalet’s stock has underperformed. It has declined 12 percent in the last month, while there have been gains of 11 percent for Big 5 Sports, 9.3 percent for Dick’s Sporting Goods and 23 percent for Hibbett Sports, which have stores over wider geographic areas.

However, McGowan believes Sport Chalet’s moves might pay off.

“I actually think that considering the hurricane that hit them, they battened down the hatches pretty well, cutting costs, capital expenditures and store openings so they could live to fight on a better day,” he said.

Chief Executive Craig Levra attributed the chain’s poor performance to its store locations.

“Every indicator suggests that California, Arizona, and Nevada, where 98 percent of our stores are located, will continue to be the hardest hit,” he said in a statement accompanying the quarterly report. “That being said, we believe that our business has stabilized.”

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