Summary
Business:
Full-service sporting goods retailer
Headquarters:
La Canada Flintridge
CEO:
Craig L. Levra
Market Cap:
$52.6 million Dividend Yield: N/A*
Total Liabilities:
$21.9 million P/E Ratio: 6.84
Long-Term Debt:
None
* Sport Chalet does not pay dividends.
Venerable regional retailer Sport Chalet Inc. is basking in investors’ rediscovered love for basic businesses with solid profits and a successful track record.
The La Canada Flintridge-based sporting goods retailer saw its stock price languishing at a few bucks a share over the last decade even as earnings have grown since 1996 with investors seduced by far sexier Internet stocks.
But now investors are taking a second look at solid earners like the 42-year-old seller of athletic wares.
The company’s stock price, which had been stuck at about $4 a share a year ago, as of last week was trading at around $8 a share, spurred on by a string of record earnings.
Progress has been such that in October Forbes magazine named the company to its list of the “200 Best Small Companies in America” for the first time.
“Basically, the company has had a nice string of sales and earning performances,” said Joan Bogucki-Storms, an analyst with Wedbush Morgan Securities. “They have beaten my numbers every quarter (recently).”
For the fiscal third quarter ended Dec. 31, the company reported net income of $3 million (44 cents per diluted share), up from $2 million (30 cents per diluted share) for the same period a year earlier.
That was on third-quarter revenues of $61 million, vs. $50.5 million in the year-earlier quarter.
The company’s financial results for the fourth quarter and fiscal year ended March 30 are expected to be released in May.
Sport Chalet’s earnings growth has been especially noteworthy because it is not being driven by a burst of new store openings. Rather, growth has come as a result of the same measured strategy that the company has followed for years.
Sport Chalet has opened only four stores since May 1999 and now operates 23 stores from San Diego to Oxnard, taking pride in its same-store sales figures, which were up on average an impressive 16.9 percent in the fiscal third quarter.
“Under one roof we pretty much cover the gamut,” said Craig Levra, president and CEO. “You can’t really get your skis waxed or jump in the pool and take diving lessons (elsewhere).”
“We have had good sales, and we like to take some credit for it,” said Howard Kaminsky, the company’s executive vice president and chief financial officer. “In Southern California, no one competes with us on all fronts.”
But that’s likely to change shortly.
While Sport Chalet has positioned itself as the premium sporting goods retailer in the region, carrying a vast array of products and offering service on par with small independent shops, competitors are consolidating and readying for an expansion that could come at the company’s expense.
Denver-based Garts Sports Co., which merged with Sportmart Inc. in 1998 to become the second leading sporting goods retailer in the nation, is in the process of acquiring Oshman’s Sporting Goods Inc. When that acquisition is complete, the chain will operate 178 stores in 25 states, including about two dozen or so in Southern California.
In addition, Galyan’s Trading Co., an Indiana-based sporting goods retailer with 21 stores in 11 states, filed for a $100 million IPO that is expected to fuel an aggressive expansion into Southern California.
Among the challenges facing Sport Chalet is the fact that 75-year-old founder Norbert Olberz owns about two-thirds of the 6.6 million outstanding shares, leaving only about 1.6 million in the public float.
With so few shares actively traded, any news about the company tends to be reflected in exaggerated swings in the stock price, Kaminsky said, such as when the third-quarter earnings release on Feb. 6 caused the stock price to spike to a 52-week high of $11.375.
Moreover, with only a few thousand shares changing hands each day, institutional investors are precluded from taking a significant position in the company, which has led to less analyst coverage, and thus less investor interest, than management would like.
Bogucki-Storms rates Sports Chalet a “buy” and says the chain should be able to remain competitive. But she also says the company needs to continue opening new stores to have a “growth story.” She is anticipating three Sport Chalet store openings this year. Levra would not confirm that number, but confirmed that the company plans to pursue growth.
Kaminsky said the company is looking to expand outside Southern California, eyeing the northern part of the state and the rapidly growing Nevada market.
