SOUTHERN CALIFORNIA ENTERPRISE : Hitting the Wall : Sport Chalet Suffers Many Bruises While Expanding
Surfers would call it a wipeout. Cyclists might speak of road pizza. And the grunged-out snowboarders who bonk down the aisles at Sport Chalet might say that the regional sporting goods retailer had suffered a “butt munchie.” Translation: a spectacular fall.
After years of relatively steady sales and earnings growth, Sport Chalet hit the wall last year.
In the midst of an aggressive expansion from its mom-and-pop origins, Sport Chalet stumbled over Southern California’s famous triple-header of a recession, drought and earthquake. Toss in some stiff competition from specialty stores, national chains and mass merchandisers to sell about $30 billion in sporting goods each year, and the scoreboard reads: Sport Chalet, -$11,127, and two CEOs gone to the showers.
The 17-store chain posted that net loss in fiscal 1994 despite a nearly 15% increase in sales. Financial results are thought to have improved for the fiscal year that ended March 31, but partly because of an unanticipated sales slump since January, revenue and earnings will not reach predicted levels, executives said.
If that were not enough, Sport Chalet is searching for another new president and chief executive to replace Joe Coulombe, the colorful founder of the Trader Joe’s specialty food chain. Coulombe resigned last Monday after less than two months on the job, because of “management-style differences” with Chairman Norbert Olberz, the silver-haired German immigrant who started the company with his wife, Irene.
Coulombe, a former Sport Chalet director, had been wooed from semi-retirement to replace Sam Allen, who was ousted after 11 years coaching the chain’s rapid growth.
Sport Chalet’s stock, which trades over the counter, has executed its own butt munchie. The day after Coulombe resigned, the stock lost nearly 22% of its value, dropping to $3.125 per share, where it closed Friday. Sport Chalet went public in 1992 at $9.25 per share.
For Sport Chalet, and for many others that sell the trappings of our leisure time, the bone-jarring crash has become a way of life lately.
The largest sporting goods retailers, including Wal-Mart, Kmart and Sports Authority, grab a bigger piece of the market each year at the expense of the smaller chains, said Chris Barton, associate editor of Sports Trend magazine.
“That’s the story of the sporting goods industry: expand, expand, expand; almost, it seems, for the sake of expansion,” Barton said.
In 1959, when Norbert and Irene Olberz bought a tiny sporting goods store on Foothill Boulevard at the foot of the Angeles Crest Highway, only about 10 other Southern California retailers provided serious competition in skiing, Sport Chalet’s specialty at the time. Nowadays, the La Canada Flintridge-based company sells a much broader line of sports equipment and clothing, and it must contend with 200 or 300 other stores doing much the same thing, Olberz said.
Sport Chalet, which bills itself as a collection of specialty stores under one roof, began seriously expanding in the mid-1980s. It beefed up management ranks by hiring Sam Allen, a young accounting firm executive, and others with more business and financial expertise than Olberz felt he possessed. The company began opening outlets, growing from six stores with sales of $23 million in 1984 to 17 stores with of $122 million in fiscal 1994.
But recent sales gains came primarily from new stores, with sales in stores open a year or more showing scant improvement. Costs also rose. Quarterly results were uneven. The stock price slumped.
The worst days came in the first three months of 1994, Olberz said.
“We had an earthquake and no snow and a poor economy,” he said.
The Jan. 17 earthquake collapsed the roof of the Santa Clarita store, closing that operation for three weeks. Three other stores had to be shut for a day or two, but reopened to do a booming business in Coleman products and other camping equipment. However, consumers’ appetite for sporting goods was otherwise depressed.
Business began to pick up later in the year and the snow came back. Sales rose 6% and the company earned $1.8 million during the nine months ended Dec. 31, 1994.
But a spell of warm weather caused ski sales to melt in late January, resulting in significant markdowns. Allen resigned as president and chief executive on Feb. 8 and was replaced the same day by Coulombe.
Sport Chalet spokesman Bob Haueter said Olberz and Coulombe are two entrepreneurs with different management styles that, ultimately, did not mesh. The 69-year-old Olberz not only is chairman, he owns about 70% of the company’s stock. His son Eric, who was recently named Sport Chalet’s vice chairman, holds a 5% stake.
Coulombe could not be reached for comment, but he told Bloomberg News Service that he had accomplished what he had intended at Sport Chalet, including hiring a new senior vice president of merchandising.
“I’m not a sporting goods expert, I’m a grocer,” Coulombe said.
Stock analyst Martin Cosgrove, who follows Sport Chalet for Wedbush Morgan Securities in Los Angeles, called Coulombe’s departure an “unfortunate decision.”
“I thought he was going to be able to bring some really helpful changes to the company,” Cosgrove said. “I’m disappointed.”
Sport Chalet executives say the company will turn a profit in fiscal 1995, but not the nearly $2.3 million that analysts had projected. For Olberz, the difficulties of today are viewed through the hardships of the chain’s origins.
“We made $800 a month the first six months,” Olberz said. “We slept in the store. We took showers from a garden hose. . . . But then came the (1960 Winter) Olympics in Squaw Valley, and business improved.”
A Sporting Chance
An agressive expansion program has brought the Sports Chalet chain of sporting goods stores steady sales increases. But the recession, earthquake and a poor skiing season combined to create a net loss in fiscal year 1994. Financial results are expected to improve in fiscal 1995, but will be below analyst estimates.
Revenue, in millions: ‘94: $122.2
Earnings, in thousands: ‘94: -$11.1
Source: Sports Chalet annual report
