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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act for 1934 for the quarterly period ended June 30, 2002

[   ]

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act for 1934 for the transition period from ______________ to ______________

Commission File Number: 0-20736

Sport Chalet, Inc.

Not Applicable

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  [X]	No [   ]

Number of shares outstanding of the registrant’s common stock as of July 30, 2002: 6,606,334

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SPORT CHALET, INC.

Index to Form 10-Q

Part I — Financial Information

						Page
Item 1.		Financial Statements					3
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations					8
Part II — Other Information
Item 5.		Other Information					14
Item 6.		Exhibits and Reports on Form 8-K					14

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Part I — Financial Information

     Item 1. Financial Statements.

SPORT CHALET, INC.

CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying notes.

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SPORT CHALET, INC.

CONDENSED BALANCE SHEETS

See accompanying notes.

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SPORT CHALET, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes.

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SPORT CHALET, INC.

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)

1.

Basis of Presentation

     The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of operations for the periods presented have been included.

     The financial data at March 31, 2002 is derived from audited financial statements which are included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2002, and should be read in conjunction with the audited financial statements and notes thereto. Interim results are not necessarily indicative of results for the full year.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

2.

Earnings per Share

     Earnings per share, basic, is computed based on the weighted average number of common shares outstanding for the period. Earnings per share, diluted, is computed based on the weighted average number of common and potentially dilutive common equivalent shares outstanding for the period. A reconciliation is as follows:

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3.

New Accounting Pronouncements

     In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets.” Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Statement 141 also includes guidance on the initial recognition and measurement of goodwill and other intangible assets arising from business combinations completed after June 30, 2001. Statement 142 prohibits the amortization of goodwill and intangible assets with indefinite useful lives. Statement 142 requires that these assets be reviewed for impairment at least annually. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. Additionally, Statement 142 requires that goodwill included in the carrying value of equity method investments no longer be amortized. The Company adopted Statement 142 beginning in the first quarter of fiscal 2003 and it did not have a material impact on its results of operations.

     In August 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations” for a disposal of a segment of a business. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company adopted SFAS 144 in the first quarter of fiscal 2003 and it did not have a material impact on its results of operations.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     Except for the historical information contained herein, the matters addressed in this Item 2 constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are subject to a variety of risks and uncertainties, including those discussed below under the heading “Factors That May Affect Future Results” and elsewhere in this Quarterly Report on Form 10-Q, that could cause actual results to differ materially from those anticipated by the Company’s management. The Private Securities Litigation Reform Act of 1995 (the “Act”) provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made on this Quarterly Report on Form 10-Q are made pursuant to the Act.

     The following should be read in conjunction with the Company’s financial statements and related notes thereto provided under Item 1 above.

Results of Operations

     The following tables set forth statements of income data and relative percentages of net sales for the periods indicated (dollar amounts in thousands, except per share amounts).

     Three Months Ended June 30, 2002, Compared to Three Months Ended June 30, 2001. Sales have increased from $47.9 million for the three months ended June 30, 2001 to $51.2 million for the same period this year, a 6.8% increase. The increase is the result of opening one store late in the quarter last year and two new stores in November 2001, partially offset by a comparable store sales decrease of 0.9%. Comparable store sales are based upon stores opened throughout both periods. Comparable store sales have decreased as consumer demand, in reaction to prolonged weak economic conditions, has made the retail sales environment difficult as compared to last year.

     Gross profit as a percent of sales decreased from 31.2% for the three months ended June 30, 2001 to 26.9% for the same period this year due to a change in consumer purchasing that has trended towards value merchandise. In addition, the decrease in comparable store sales and the new larger distribution center caused occupancy costs to increase by 1.1% of sales in the period ended June 30, 2002 as compared to the same period last year.

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     Selling, general and administrative expenses as a percent of sales decreased from 26.9% for the three months ended June 30, 2001 to 26.6% for the same period this year. The decrease is a result of lower distribution center labor expenses from efficiencies gained by the new facility and no new store pre-opening expenses as compared to one new store opening last year.

     Interest expense was $40,000 for the period ended June 30, 2002, compared to interest income of $69,000 for the period ended June 30, 2001, due to the use of the Company’s credit facility in the current period compared to the same period last year when the facility was not utilized.

     The effective income tax rate was 39.8% for the three months ended June 30, 2001, compared to 40.9% for the same period this year, which differs from the statutory rate as a result of permanent differences between financial reporting and tax-basis income.

     Net income decreased from $1.3 million, or $0.18 per diluted share, for the three months ended June 30, 2001 to $84,000, or $0.01 per diluted share, for the same period this year, primarily as a result of decreased gross profit.

Liquidity and Capital Resources

     The Company’s primary capital requirements are for inventory and store expansion, relocation and remodeling. Historically, cash from operations, credit terms from vendors and bank borrowing have met the Company’s liquidity needs. Management believes that these sources will be sufficient to fund currently anticipated cash requirements for the foreseeable future.

     Net cash used in operating activities was $1.0 million for the three months ended June 30, 2002 compared to $4.0 million for the same period last year as the result of lower net income, adjusted for depreciation and amortization, and increases in bank overdraft combined with accounts payable offset by inventory purchases.

     Inventories increased by $7.5 million and $11.1 million for the three months ended June 30, 2002 and 2001, respectively, compared to the respective year-end balances primarily due to the seasonal build-up of summer related inventory. Inventory at June 30, 2002 is $1.8 million greater than the same period last year primarily as a result of the opening of two stores since the end of this period in the prior year. This increase was partially offset by the implementation of a new replenishment system that resulted in a 5% decrease in average store inventory.

     Historically accounts payable increases as inventory increases. In fiscal 2002, invested cash built-up in prior years was used to fund the Company’s expansion plans causing a bank overdraft of $1.4 million, which represents the total of checks in transit in excess of cash on hand. The overdraft is expected to continue to fluctuate due to the timing of vendor payments. For the quarter ended June 30, 2002 and 2001, accounts payable combined with bank overdraft increased $4.8 million and $6.5 million, respectively, primarily as a result of increased inventory levels.

     Net cash used in investing activities for the three months ended June 30, 2002 was $523,000, resulting from capital expenditures primarily for existing store improvements. For the same period last year net cash used in investing activities was $3.1 million, primarily as a result

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of the addition of one new store and capital expenditures to enhance merchandising presentation in the Company’s older stores.

     Net cash provided by financing activities reflects advances and repayment of borrowings under the Company’s revolving credit facility. As of June 30, 2002 the Company has $1.4 million outstanding on this facility for the seasonal build-up of inventory. There were no borrowings during the three months ended June 30, 2001.

     The Company’s credit facility with Bank of America National Trust and Savings Association, Inc. (the “Lender”) provides for advances up to $20 million, increasing to $30 million for the period October 1, 2002 through December 31, 2002, less the amount of any outstanding draws up to a $1.5 million maximum in authorized letters of credit. Interest accrues at the Lender’s prime rate plus ¼% or can be fixed for a period of time at the then current rate established under one of several indices, all at the Company’s option. This credit facility expires on September 30, 2003 and the Company expects to renegotiate and extend the term of this agreement or obtain another form of financing before that date. The Company’s obligation to the Lender is presently secured by a first priority lien on substantially all of the Company’s non-real estate assets, and the Company is subject to several restrictive covenants. The principal operating covenants require the Company to maintain certain minimum cash flow coverage and debt to equity ratios and restrict the level of capital expenditures, calculated on a quarterly basis. The Company currently is in compliance with the amended covenants. The Company believes its credit line with the Lender is sufficient to fund capital expenditures for the foreseeable future and to meet seasonal fluctuations in cash flow requirements. However, unexpected conditions could require the Company to request additional borrowing capacity from the Lender or alter its expansion plans or operations.

     The Company’s primary contractual obligations and commitments are its store leases with initial terms expiring from 2004 through 2020 and typically provide for multiple five-year renewal options:

     All retail store leases provide for base rent which may or may not be credited against percentage rent based upon gross sales from the premises. In some of the leases, base rental amounts increase as the lease term progresses, although in some cases, the Company expects that percentage rent will more than offset the base rental amounts.

     No cash dividends have been declared on Common Stock in fiscal 2002. The Company intends to retain earnings for use in the operation and expansion of its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future.

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Critical Accounting Policies and Use of Estimates

     The Company’s significant accounting policies are described in Note 2 of the Company’s Annual Report on Form 10-K for the year ended March 31, 2002, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the financial statements, the Company is required to make estimates and judgments which affect the results of its operations and the reported value of assets and liabilities. Actual results may differ from these estimates. The Company believes that the following summarizes critical accounting policies which require significant judgments and estimates in the preparation of its consolidated financial statements

     Inventory Valuation. Merchandise inventories are stated at the lower of cost (first-in, first-out determined by the retail method of accounting) or market. The Company considers cost to include direct cost of merchandise, plus internal costs associated with merchandise procurement, storage and handling. The Company regularly reviews aged and excess inventories to determine if the carrying value of such inventories exceeds market value; a reserve is recorded to reduce the carrying value to market value as necessary. A determination of market value requires estimates and judgment based on the Company’s historical markdown experience and anticipated markdowns based on future merchandising and advertising plans, seasonal considerations, expected business trends and other factors. For interim reporting purposes, the Company accrues an estimate for inventory shrinkage based upon a percentage of sales in the interim period. The shrink percentage is based upon the Company’s historical shrink results. Actual shrink results are impacted by internal and external factors and this estimate may vary significantly from actual results.

Factors That May Affect Future Results

     The statements which are not historical facts contained in this Quarterly Report on Form 10-Q are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. These risks and uncertainties include, but are not limited to, those set forth below.

     Economic Conditions. The retail industry historically has been subject to substantial cyclical variation, and a recession in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits have had, and may in the future have, a materially adverse effect on the Company’s results of operations.

     Competition. The sporting goods business and the retail environment are highly competitive, and the Company competes with national, regional and local full-line sporting goods chains, specialty stores, supplier owned stores, discount and department stores, and e-tailers. A number of the Company’s competitors are larger and have greater resources than the Company.

     Regional Market Concentration. Currently, all of the Company’s stores are located in Southern California and the Las Vegas area of Nevada. Accordingly, the Company is subject to regional risks, such as the economy, weather conditions, natural disasters and government regulations. If the region were to suffer an economic downturn or if other adverse events were to occur, there could be an adverse effect on the Company’s net sales and profitability and its ability

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to implement its planned growth. Several of the Company’s competitors operate stores across the United States and, thus, are not as vulnerable as the Company to such regional risks.

     Single Distribution Center. The Company has a single distribution center and if there is a natural disaster or other serious disruption at the facility, merchandise may be lost or undeliverable to our stores, thereby, reducing sales and profitability.

     Expansion Plan. The Company’s continued growth is dependent to a significant degree upon its ability to open new stores on a profitable basis. The Company’s ability to expand will depend, in part, on business conditions and the availability of satisfactory store locations based on local competitive conditions, site availability and cost, and the Company’s ability to provide and maintain high service levels and quality brand merchandise at competitive prices. In addition, a decline in the Company’s overall financial performance, increased rents or any other adverse effects arising from the commercial real estate market in the Company’s markets may adversely effect the Company’s current growth plan. There can be no assurance that the Company will possess sufficient funds to finance the expenditures related to its planned growth, that new stores can be opened on a timely basis, that such new stores can be operated on a profitable basis, or that such growth will be manageable.

     Future Capital Requirements. The Company may not be able to fund its future growth or react to competitive pressures if it lacks sufficient funds. Unexpected conditions could cause the Company to be in violation of its Lender’s operating covenants. Currently, the Company feels it has sufficient cash available through its bank credit facilities and cash from operations to fund existing operations for the foreseeable future. The Company cannot be certain that additional financing will be available in the future if necessary.

     Management of Growth. Since its inception, the Company has experienced periods of rapid growth. No assurance can be given that the Company will be successful in maintaining or increasing its sales in the future. Any future growth in sales will require additional working capital and may place a significant strain on the Company’s management, management information systems, inventory management, distribution facilities and receivables management. Any failure to timely enhance the Company’s operating systems, or unexpected difficulties in implementing such enhancements, could have a material adverse effect on the Company’s results of operations.

     Dependence on Key Personnel. The Company depends on the continued service of its senior management. The loss of the services of any key employee could hurt the business. Also, the future success of the Company depends on its ability to identify, attract, hire, train and motivate other highly skilled personnel. Failure to do so may adversely affect future results.

     Seasonality. The Company’s business is seasonal in nature. As is typical with other sporting goods retailers, the Company’s sales volume increases significantly during the Christmas holiday season and the peak ski and snowboard season generally corresponds to the months of November, December and January. Therefore, the Company’s results of operations are likely to vary during its fiscal year. Historically the Company’s operating results have been influenced by the quantity and timing of snowfall at the resorts frequented by those living in Southern California. An early seasonal snowfall often influences sales as it generally extends the demand for winter related merchandise while a late snowfall will have the opposite effect. Suppliers in the ski and snowboard industry require purchasing commitments in April for a fall delivery. If snowfall does not provide an adequate base, occurs late in the season, or if sales do

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not meet expectations, the Company may be required to mark down its winter apparel and equipment.

     Variability of Quarterly Results. The Company has experienced, and expects to continue to experience, a substantial variation in its net sales and operating results from quarter to quarter. The Company believes that the factors which influence this variability of quarterly results include general economic and industry conditions that affect consumer spending, changing consumer demands, the timing of the Company’s introduction of new products, the level of consumer acceptance of each new product, the seasonality of the markets in which the Company participates, the weather and actions of competitors. Accordingly, a comparison of the Company’s results of operations from period to period is not necessarily meaningful, and the Company’s results of operations for any period are not necessarily indicative of future performance.

     Closely Controlled Stock. At July 30, 2002, Norbert Olberz, the Company’s founder and Chairman Emeritus of the Board of Directors, owned approximately 66% of the Company’s outstanding common stock. Mr. Olberz effectively has the ability to control the outcome on all matters requiring stockholder approval, including, but not limited to, the election and removal of directors, and any merger, consolidation or sale of all or substantially all of the Company’s assets, and to control the Company’s management and affairs.

     Stock Price. The market price of the Company’s common stock is likely to be volatile and could be subject to significant fluctuations in response to factors such as quarterly variations in operating results, operating results which vary from the expectations of securities analyst and investors, changes in financial estimates, changes in market valuations of competitors, announcements by the Company or its competitors of a material nature, additions or departures of key personnel, future sales of common stock and stock volume fluctuations. Also, general political and economic conditions such as a recession or interest rate fluctuations may adversely affect the market price of the Company’s stock.

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Part II — Other Information

     Item 5. Other Information.

Stockholder Proposals

     The proxy materials for the 2002 annual meeting of the stockholders to be held on August 1, 2002 were mailed to stockholders of the Company on June 21, 2002. Under certain circumstances, stockholders are entitled to present proposals at stockholders meetings. Any such proposal to be included in the proxy statement for the Company’s 2003 annual meeting of stockholders must be submitted by a stockholder prior to February 22, 2002 in a form that complies with applicable regulations. In the event a stockholder proposal is not submitted to the Company prior to May 7, 2002, the proxies solicited by the Board of Directors for the 2003 annual meeting of the stockholders will confer authority on the holders of the proxy to vote the shares in accordance with their best judgment and discretion if the proposal is presented at the 2003 annual meeting of stockholders without any discussion of the proposal in the proxy statement for such meeting.

Loan Extensions

     The Company granted loans to employees to pay the income taxes associated with certain stock awards granted in fiscal 1999 and 2001. These loans are secured by the awarded shares, bear interest at 6% and were due May 2002. The Board of Directors approved an extension and these loans are now due in May 2004. At June 30, 2002, Messrs. Levra, Kaminsky and Trausch were indebted to the Company in the amounts of $80,218, $14,107 and $36,350, respectively.

     Item 6. Exhibits and Reports on Form 8-K.

(a)

Reports on Form 8-K.

During the quarter for which this report on Form 10-Q is filed, no reports on Form 8-K were filed.

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SIGNATURE

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned duly authorized officer and principal financial officer.

	SPORT CHALET, INC.
DATE: July 30, 2002	By:	/s/ HOWARD K. KAMINSKY
		Howard K. Kaminsky Executive Vice President-Finance, Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)

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