Sport Chalet finds itself skiing uphill
With free scuba lessons and celebrity appearances, Sport Chalet Inc. founder Norbert Olberz kicked off the grand opening last August of the chain’s flagship store in the new La Canada Flintridge Town Center, the culmination of a decades-long dream for the 83-year-old German immigrant.
But even as Olberz cut the ribbon at the $60-million development that houses restaurants, shops and the company’s headquarters, the sporting goods chain he created 50 years ago was bracing for tough months ahead. Caught in an increasingly tight market for sports gear and faced with a deepening recession, Sport Chalet scaled back its store openings, offered more markdowns and reduced inventory and costs.
Still, sales sagged, earnings evaporated and Sport Chalet’s stock plunged -- to 18 cents Wednesday for Class A shares from more than $11 two years ago.
Sport Chalet’s 55 stores operate in many of the nation’s worst-hit housing markets. Even at reduced prices, the regional chain’s premium snowboards, camping gear and athletic apparel are a tough sell in the current economic environment. And unseasonably warm weather hurt its winter sports sales last quarter.
“Clearly, we’ve had a curveball thrown at us just like everybody else,” Chief Executive Craig Levra said. “It wasn’t unexpected, but it had a more severe curve than we had been expecting.”
The company reported last month that same-store sales in its third quarter fell 15.4% from the year-earlier period. In the fiscal year ended March 30, 2008, the chain posted an operating loss of $4.1 million -- its first annual loss from operations in 12 years -- and a net loss of $3.4 million.
The downhill slide prompted Sport Chalet in February to say it was evaluating “strategic alternatives” including raising more capital or further cutting expenses, but it didn’t mention bankruptcy among the options. Analysts worry that the company, which went public in 1992, could soon be forced to reorganize or seek a buyer.
“Because of the size of the chain and the amount of debt they have, they’re in a very precarious position,” said Jeff Mintz, an analyst with Wedbush Morgan Securities. “There’s definitely some risk to their ability to remain in business without at least some form of restructuring.”
The sporting goods landscape has changed dramatically since Olberz and his wife, Irene, paid $4,000 for a tiny ski shop in La Canada in 1959.
Two years ago, Covina-based Chick’s Sporting Goods Inc. was bought by Dick’s Sporting Goods Inc., one of the nation’s largest sporting goods chains. Gart Sports Co., which bought Sportmart Inc. in 1998 and Oshman’s Sporting Goods Inc. in 2001, merged with Sports Authority Inc. in 2003; the company soon began rebranding locations to the Sports Authority name.
Unlike Dick’s and Sports Authority -- national chains with hundreds of stores -- Sport Chalet is tied to a limited market that has been disproportionately hurt by the mortgage meltdown, analysts said.
With all of its stores in California, Nevada, Arizona and Utah, Sport Chalet “can hardly have been in a worse geographic location to weather the housing crisis,” said Sean McGowan, an analyst at Needham & Co. “They’re just right in the cross hairs.”
Recession effects aside, Sport Chalet has made some missteps of its own. Analysts questioned the placement of several of the chain’s latest locations, such as stores opened last year in Menifee, Calif., and Queen Creek, Ariz.
“Those are stores that were driven by the fact that there were a lot of new homes being built in that area,” Mintz said. “And now that’s the area where homes are standing empty and being foreclosed on.”
So consumers, who are also contending with job insecurities and crashing stock portfolios, have snapped their wallets shut.
At Sport Chalet’s store in La Canada Flintridge, Jim Daniels, 48, was looking to buy a stability ball but couldn’t afford the $29.99 price. Since the Calabasas resident lost his job as a truck driver in September, sporting goods are “like a luxury,” he said.
“It’s something I’d like to buy more of,” he said, “but unfortunately, it’s not high on the list when you’re unemployed.”
In Southern California, Sport Chalet competes with sporting goods stores including Sports Authority, REI and Big 5 Sporting Goods, as well as merchants such as Wal-Mart and Nordstrom, which sell some athletic merchandise.
The market is expected to become more crowded in the coming months, with Dick’s set to make a big push into the Southland. The Pittsburgh company has only one store in California, in El Segundo, after converting a former Chick’s store but plans to rebrand a dozen more locations in May.
“Eventually, we think we could have as many as 90 stores in California,” said Jeff Hennion, a Dick’s spokesman.
Already, many Sport Chalet customers have checked out the Dick’s store in El Segundo to compare prices and items.
“My first choice used to be Sport Chalet, but now I come here because of the variety,” said Reggie Jones, 56, a tree maintenance supervisor from Los Angeles who was buying two pairs of undershorts at Dick’s recently. “It’s my mainstay now. I went back to Sport Chalet one time and couldn’t find what I was looking for.”
Other longtime customers said they liked Sport Chalet’s roots as a homegrown Southern California company.
“I’ve been shopping here for so long,” said Jim Kostas, a lawyer from Palmdale, while buying hiking pants at Sport Chalet. “They go out of their way to help you, so I’d be inclined to return the loyalty.”
Levra downplayed Dick’s expansion and Sport Chalet’s plummeting stock price, saying the company’s focus was to “navigate this uncertain period and come out ahead.”
“We’ve got a ton of initiatives to compete in this environment,” including a beta launch of a new e-commerce website this week, he said. “When I came to work for Norbert, now over 10 years ago, I had a conversation with him and said: ‘Norbert, we really need to make our stock price go up.’ He got really angry with me.”
Olberz, who lived in the back of his ski shop and bathed with a garden hose during Sport Chalet’s early days, is no longer involved with the day-to-day operations of the company but serves as a consultant and remains a major shareholder. Olberz wasn’t made available for an interview, but in response to an e-mailed question he called Sport Chalet’s executives “tough and experienced.”
“The company I founded in 1959 is in the right hands,” he said. “We certainly are living in turbulent times, but I have the utmost confidence that this team will be able to weather the economic downturn.”
For now, Sport Chalet’s management has expressed no interest in selling the company, analysts said. But the chain could still consider alternatives including closing some stores and renegotiating problem leases, Mintz said.
“In terms of long-term survival, I think there’s a place in the market for Sport Chalet,” he said.