When you're tied primarily to a single market, like Sport Chalet
The sporting-goods retailer has 47 stores spread across four states, but its presence in three of them is nominal. Southern California remains Sport Chalet's primary market, and the driest winter on record there -- as well as in Nevada and Arizona -- led to a 50% drop in profits in the fourth quarter.
When it doesn't snow, people don't ski. And when they don't ski, they don't shop at Sport Chalet. Same-store sales dropped 1% in the quarter, a turnabout from last year's 5.2% increase in comps. Although the company added a few new stores in the quarter, comps are an important retail metric, showing how organic sales are growing at stores open for a year or more. A company can increase its total sales if it continues to open more stores, but the underlying business might be decaying if comps aren't growing.
California's winters have caused problems in the past for Sport Chalet, just as similar weather troubles have also plagued regional sporting goods retailers like Hibbett's
For the year, things looked better for Sport Chalet, with sales rising 13% to $388.2 million and same-store sales up 2% from the year-ago period. While gross profits were flat year over year at 30.9%, net income improved significantly, accelerating from a $0.01-per-share loss to a $0.50-per-share gain.
Although it's been doing its best to reduce its reliance on the fickle weather patterns of southern Cali -- expanding into northern regions of the state, and recently setting up shop in Utah -- Sport Chalet remains highly dependent on the ski season. The fiscal third quarter remains its biggest period, with spillover business into the fourth. When the weatherman doesn't cooperate, Sport Chalet's business suffers.
Although it trades at a relative discount to several competitors, Sport Chalet's valuation is premium-priced compared to industry leader Dick's. Investors taking a stake in Sport Chalet at this price could end up all wet.
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