##### Table of Contents



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 December 31, 2001
|--- | -----------------------------------------------------------------------------------------------------------------------------------------



|[   ] | 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.

(Exact name of registrant as specified in its charter)


|                                                                                       |  |                                                
|-------------------------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization)                |  | 95-4390071
(I.R.S. Employer Identification No.)
|                                                                                      
|920 Foothill Boulevard, La Canada, California
(Address of principal executive offices) |  | 91011
(Zip Code)                               
|                                                                                      
|(818) 790-2717
(Registrants telephone number, including area code)                    |  |                                                

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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 January 28,
2002:

6,592,834





---

TABLE OF CONTENTS



|                               |                                                                                                |  |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Part I  Financial Information
|                               | Item 1. Financial Statements.                                                                 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|Part II  Other Information   
|                               | Item 1. Legal Proceedings.                                                                    
|                               | Item 5. Other Information.                                                                    
|                               | Item 6. Exhibits and Reports on Form 8-K.                                                     
|SIGNATURE                     
|EXHIBIT 10.1                  



---



##### Table of Contents



SPORT CHALET, INC.
Index to Form 10-Q

|                               |  |                                                                                       |      |   
|------------------------------ |  | ------------------------------------------------------------------------------------- | ---- | --
|                               |  |                                                                                       | Page
|                               |  |                                                                                       |     
|Part I  Financial Information
|                              
|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 1.                        |  | Legal Proceedings                                                                     |      | 14
|                              
|Item 5.                        |  | Other Information                                                                     |      | 14
|                              
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                      |      | 15

2



---



##### Table of Contents






Part I  Financial Information




Item 1. Financial Statements.

SPORT CHALET, INC.

CONDENSED STATEMENTS OF INCOME
(UNAUDITED)

|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |           | 
|----------------------------------------------------- | ------- | - | ------------------ | --------- | ----------------- | - | ---------- | --------- | ---- | - | ----------- | --------- |  | - | ----------- | --------- | 
|                                                      |         |   | Three months ended |           | Nine months ended
|                                                      |         |   | December 31,       |           | December 31,     
|                                                      |         |   |                    |           |                  
|                                                      |         |   | 2001               |           | 2000              |   | 2001       |           | 2000
|                                                      |         |   |                    |           |                   |   |            |           |     
|Net sales                                             |         | $ | 67,429,014         |           |                   | $ | 60,954,715 |           |      | $ | 170,036,590 |           |  | $ | 158,819,787 |          
|Cost of goods sold, buying and
occupancy              |         |   | 47,885,312         |           |                   |   | 41,150,977 |           |      |   | 119,851,914 |           |  |   | 109,095,749 |          
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|Gross profit                                          |         |   | 19,543,702         |           |                   |   | 19,803,738 |           |      |   | 50,184,676  |           |  |   | 49,724,038  |          
|Selling, general and administrative
expenses          |         |   | 15,776,963         |           |                   |   | 14,876,082 |           |      |   | 42,141,788  |           |  |   | 39,584,624  |          
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|Income from operations                                |         |   | 3,766,739          |           |                   |   | 4,927,656  |           |      |   | 8,042,888   |           |  |   | 10,139,414  |          
|Interest income (expense)                             |         |   | (100,751           | )         |                   |   | 32,015     |           |      |   | (30,223     | )         |  |   | 205,535     |          
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|Income before taxes                                   |         |   | 3,665,988          |           |                   |   | 4,959,671  |           |      |   | 8,012,665   |           |  |   | 10,344,949  |          
|Income tax provision                                  |         |   | 1,481,000          |           |                   |   | 1,975,000  |           |      |   | 3,221,000   |           |  |   | 4,122,000   |          
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|Net income                                            |         | $ | 2,184,988          |           |                   | $ | 2,984,671  |           |      | $ | 4,791,665   |           |  | $ | 6,222,949   |          
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|Earnings per share:                                   |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|                                                      | Basic   |   | $                  | 0.33      |                   |   | $          | 0.45      |      |   | $           | 0.73      |  |   | $           | 0.95      | 
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|                                                      | Diluted |   | $                  | 0.31      |                   |   | $          | 0.44      |      |   | $           | 0.68      |  |   | $           | 0.92      | 
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|Weighted average number of
common shares outstanding: |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|                                                      | Basic   |   |                    | 6,589,834 |                   |   |            | 6,577,667 |      |   |             | 6,585,982 |  |   |             | 6,577,667 | 
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          
|                                                      | Diluted |   |                    | 7,019,281 |                   |   |            | 6,807,836 |      |   |             | 7,007,671 |  |   |             | 6,754,699 | 
|                                                      |         |   |                    |           |                   |   |            |           |      |   |             |           |  |   |             |          

See accompanying notes.

3



---



##### Table of Contents



SPORT CHALET, INC.

CONDENSED BALANCE SHEETS

|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |            |            |            | 
|----------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ---------- | ------------ | ---------- | ---------- | ---------- | ---------- | ---------- | 
|                                                      |                                           |                                                                                                                              |                                            |            | December 31, |            | March 31, 
|                                                      |                                           |                                                                                                                              |                                            |            | 2001         |            | 2001      
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |           
|                                                      |                                           |                                                                                                                              |                                            |            | (Unaudited)  |            |            |            |           
|Assets                                                |                                           |                                                                                                                              |                                            |            |              |            |            |           
|Current assets:                                       |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      | Cash                                      |                                                                                                                              | $                                          | 4,954,104  |              |            | $          | 8,945,034  |           
|                                                      | Accounts receivable  net                 |                                                                                                                              |                                            | 1,505,462  |              |            |            | 519,677    |           
|                                                      | Merchandise inventories                   |                                                                                                                              |                                            | 59,444,574 |              |            |            | 42,491,532 |           
|                                                      | Prepaid expenses and other current assets |                                                                                                                              |                                            | 1,928,671  |              |            |            | 1,324,047  |           
|                                                      | Refundable income tax                     |                                                                                                                              |                                            | 408,798    |              |            |            |           |           
|                                                      | Deferred income tax                       |                                                                                                                              |                                            | 1,416,076  |              |            |            | 1,928,710  |           
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      |                                           | Total current assets                                                                                                         |                                            |            | 69,657,685   |            |            |            | 55,209,000 |           
|Furniture, equipment and leasehold improvements  net |                                           |                                                                                                                              | 26,535,090                                 |            |              |            | 20,252,004 |           
|Deferred income tax                                   |                                           |                                                                                                                              | 78,926                                     |            |              |            | 95,433     |           
|Other assets                                          |                                           |                                                                                                                              | 227,778                                    |            |              |            | 265,421    |           
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      |                                           | Total assets                                                                                                                 |                                            | $          | 96,499,479   |            |            | $          | 75,821,858 |           
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           
|Liabilities and stockholders equity                  |                                           |                                                                                                                              |                                            |            |              |            |            |           
|Current liabilities:                                  |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      | Accounts payable                          |                                                                                                                              | $                                          | 26,572,386 |              |            | $          | 11,950,684 |           
|                                                      | Salaries and wages payable                |                                                                                                                              |                                            | 2,862,470  |              |            |            | 2,960,167  |           
|                                                      | Other accrued expenses                    |                                                                                                                              |                                            | 8,211,248  |              |            |            | 5,776,010  |           
|                                                      | Income tax payable                        |                                                                                                                              |                                            |           |              |            |            | 1,286,861  |           
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      |                                           | Total current liabilities                                                                                                    |                                            |            | 37,646,104   |            |            |            | 21,973,722 |           
|Deferred rent                                         |                                           |                                                                                                                              | 3,977,468                                  |            |              |            | 3,811,246  |           
|Stockholders equity                                  |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      | Preferred stock, $.01 par value:          |                                                                                                                              |                                            |            |              |            |            |            |           
|                                                      |                                           | Authorized
shares - 2,000,000
Issued and outstanding shares  none                                                           |                                            |            |             |            |            |            |           |           
|                                                      | Common stock, $.01 par value:             |                                                                                                                              |                                            |            |              |            |            |            |           
|                                                      |                                           | Authorized
shares - 15,000,000
Issued and outstanding shares  6,592,834
atDecember 31, 2001 and 6,580,001
at March 31, 2001 |                                            |            | 65,928       |            |            |            | 65,800     |           
|                                                      | Additional paid-in capital                |                                                                                                                              |                                            | 21,886,564 |              |            |            | 21,842,340 |           
|                                                      | Retained earnings                         |                                                                                                                              |                                            | 32,923,415 |              |            |            | 28,131,750 |           
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      | Total stockholders equity                |                                                                                                                              |                                            | 54,875,907 |              |            |            | 50,039,890 |           
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           
|                                                      |                                           |                                                                                                                              | Total liabilities and stockholders equity |            | $            | 96,499,479 |            |            | $          | 75,824,858 | 
|                                                      |                                           |                                                                                                                              |                                            |            |              |            |            |           

See accompanying notes.

4



---



##### Table of Contents



SPORT CHALET, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                                  |                                              |                                           |             |                                |             |      |            |           |             |  
|--------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ----------- | ------------------------------ | ----------- | ---- | ---------- | --------- | ----------- | -
|                                                                                  |                                              |                                           |             | Nine months ended December 31,
|                                                                                  |                                              |                                           |             |                               
|                                                                                  |                                              |                                           |             | 2001                           |             | 2000
|                                                                                  |                                              |                                           |             |                                |             |     
|Operating activities                                                              |                                              |                                           |             |                                |             |      |            |          
|Net income                                                                        |                                              | $                                         | 4,791,665   |                                |             | $    | 6,222,949  |          
|Adjustments to reconcile net income to net cash provided
by operating activities: |                                              |                                           |             |                                |             |      |            |          
|                                                                                  | Depreciation and amortization                |                                           |             | 3,947,000                      |             |      |            | 2,968,000 |            
|                                                                                  | Stock compensation                           |                                           |             |                               |             |      |            | 137,729   |            
|                                                                                  | Deferred income tax                          |                                           |             | 529,141                        |             |      |            | 9,355     |            
|                                                                                  | Changes in operating assets and liabilities: |                                           |             |                                |             |      |            |           |            
|                                                                                  |                                              | Accounts receivable                       |             |                                | (975,785    | )    |            |           | 1,655,102   |  
|                                                                                  |                                              | Merchandise inventories                   |             |                                | (16,953,042 | )    |            |           | (15,446,247 | )
|                                                                                  |                                              | Refundable income tax                     |             |                                | (408,798    | )    |            |           |            |  
|                                                                                  |                                              | Prepaid expenses and other current assets |             |                                | (604,624    | )    |            |           | 77,670      |  
|                                                                                  |                                              | Accounts payable                          |             |                                | 14,621,702  |      |            |           | 8,522,558   |  
|                                                                                  |                                              | Salaries and wages payable                |             |                                | (97,697     | )    |            |           | 1,258,614   |  
|                                                                                  |                                              | Other accrued expenses                    |             |                                | 2,428,238   |      |            |           | 5,305,530   |  
|                                                                                  |                                              | Income tax payable                        |             |                                | (1,286,861  | )    |            |           | 120,000     |  
|                                                                                  |                                              | Deferred rent                             |             |                                | 166,222     |      |            |           |            |  
|                                                                                  |                                              |                                           |             |                                |             |      |            |          
|Net cash provided by operating activities                                         |                                              |                                           | 6,157,161   |                                |             |      | 10,831,260 |          
|                                                                                 
|Investing activities                                                              |                                              |                                           |             |                                |             |      |            |          
|Other assets                                                                      |                                              |                                           | 37,643      |                                |             |      | 70,097     |          
|Purchase of furniture, equipment and leasehold improvements                       |                                              |                                           | (10,230,086 | )                              |             |      | (6,627,915 | )        
|                                                                                  |                                              |                                           |             |                                |             |      |            |          
|Net cash used in investing activities                                             |                                              |                                           | (10,192,443 | )                              |             |      | (6,557,818 | )        
|                                                                                 
|Financing activities                                                              |                                              |                                           |             |                                |             |      |            |          
|Proceeds from bank borrowing                                                      |                                              |                                           | 10,000,000  |                                |             |      |           |          
|Repayments of bank borrowing                                                      |                                              |                                           | (10,000,000 | )                              |             |      |           |          
|Proceeds from exercise of stock options and related tax benefit                   |                                              |                                           | 44,352      |                                |             |      |           |          
|                                                                                  |                                              |                                           |             |                                |             |      |            |          
|Net cash provided by financing activities                                         |                                              |                                           | 44,352      |                                |             |      |           |          
|                                                                                  |                                              |                                           |             |                                |             |      |            |          
|Increase (decrease) in cash and cash equivalents                                  |                                              |                                           | (3,990,930  | )                              |             |      | 4,273,442  |          
|Cash and cash equivalents at beginning of period                                  |                                              |                                           | 8,945,034   |                                |             |      | 5,468,390  |          
|                                                                                  |                                              |                                           |             |                                |             |      |            |          
|Cash and cash equivalents at end of period                                        |                                              | $                                         | 4,954,104   |                                |             | $    | 9,741,832  |          
|                                                                                  |                                              |                                           |             |                                |             |      |            |          
|                                                                                 
|Supplemental Disclosure of Cash Flow Information                                  |                                              |                                           |             |                                |             |      |            |          
|Cash paid during the year for:                                                    |                                              |                                           |             |                                |             |      |            |          
|                                                                                  |                                              | Income taxes                              |             | $                              | 4,587,516   |      |            | $         | 4,002,000   |  
|                                                                                  |                                              | Interest                                  |             |                                | 68,194      |      |            |           |            |  

See accompanying notes.

5



---



##### Table of Contents



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, 2001 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, 2001, 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:

|                                          |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |           | 
|----------------------------------------- | -------------------------------------------- | - | ------------------ | --------- | ----------------- | - | --------- | --------- | ---- | - | --------- | --------- |  | - | --------- | --------- | 
|                                          |                                              |   | Three months ended |           | Nine months ended
|                                          |                                              |   | December 31,       |           | December 31,     
|                                          |                                              |   |                    |           |                  
|                                          |                                              |   | 2001               |           | 2000              |   | 2001      |           | 2000
|                                          |                                              |   |                    |           |                   |   |           |           |     
|Net income                                |                                              | $ | 2,184,988          |           |                   | $ | 2,984,671 |           |      | $ | 4,791,664 |           |  | $ | 6,222,949 |          
|                                         
|Weighted average number of common shares: |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |          
|                                          | Basic                                        |   |                    | 6,589,834 |                   |   |           | 6,577,667 |      |   |           | 6,585,982 |  |   |           | 6,577,667 | 
|                                          | Effect of dilutive securities-
stock options |   |                    | 429,447   |                   |   |           | 230,169   |      |   |           | 421,689   |  |   |           | 177,032   | 
|                                          |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |          
|                                          | Diluted                                      |   |                    | 7,019,281 |                   |   |           | 6,807,836 |      |   |           | 7,007,671 |  |   |           | 6,754,699 | 
|                                          |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |          
|                                         
|Earnings per share:                       |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |          
|                                          | Basic                                        |   | $                  | 0.33      |                   |   | $         | 0.45      |      |   | $         | 0.73      |  |   | $         | 0.95      | 
|                                          | Effect of dilutive securities                |   | $                  | 0.02      |                   |   | $         | 0.01      |      |   | $         | 0.05      |  |   | $         | 0.03      | 
|                                          |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |          
|                                          | Diluted                                      |   | $                  | 0.31      |                   |   | $         | 0.44      |      |   | $         | 0.68      |  |   | $         | 0.92      | 
|                                          |                                              |   |                    |           |                   |   |           |           |      |   |           |           |  |   |           |          

6



---



##### Table of Contents



3. Loans Payable to Bank

The Company has a credit facility with Bank of America National Trust and
Savings Association, Inc. (Lender), which was increased from $10.0 million to
$20.0 million. Interest accrues at prime 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 August 31, 2002 and the
Company expects to renegotiate and extend the term of this agreement 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 losses
and capital expenditures, calculated on a quarterly basis. In addition, the
Company must reduce borrowings to $2 million or less for 30 consecutive days
during each fiscal year. The Company currently is in full compliance with
these covenants and expects to remain in compliance during the term of the
credit facility.

7



---



##### Table of Contents






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 December 31, |      | Nine months ended December 31,
|                                             |         |   |                                 |      |                               
|                                             |         |   | 2001                            |      | 2000                           |  | 2001   |    | 2000   
|                                             |         |   |                                 |      |                                |  |        |    |        
|                                             |         |   | Amount                          |      | Percent                        |  | Amount |    | Percent |   | Amount |      | Percent |  | Amount |   | Percent
|                                             |         |   |                                 |      |                                |  |        |    |         |   |        |      |         |  |        |   |        
|Net sales                                    |         | $ | 67,429                          |      |                                |  | 100.0  | %  |         | $ | 60,955 |      |         |  | 100.0  | % |         | $ | 170,037 |      |  |  | 100.0 | %  |  | $ | 158,820 |      |  |  | 100.0 | %
|Gross profit                                 |         |   | 19,544                          |      |                                |  | 29.0   | %  |         |   | 19,804 |      |         |  | 32.5   | % |         |   | 50,185  |      |  |  | 29.5  | %  |  |   | 49,724  |      |  |  | 31.3  | %
|Selling, general and
administrative expenses |         |   | 15,777                          |      |                                |  | 23.4   | %  |         |   | 14,876 |      |         |  | 24.4   | % |         |   | 42,142  |      |  |  | 24.8  | %  |  |   | 39,585  |      |  |  | 24.9  | %
|Income from operations                       |         |   | 3,767                           |      |                                |  | 5.6    | %  |         |   | 4,928  |      |         |  | 8.1    | % |         |   | 8,043   |      |  |  | 4.7   | %  |  |   | 10,139  |      |  |  | 6.4   | %
|Interest income (expense)                    |         |   | (101                            | )    |                                |  | (0.1   | %) |         |   | 32     |      |         |  | 0.1    | % |         |   | (30     | )    |  |  | (0.0  | %) |  |   | 206     |      |  |  | 0.1   | %
|Income before taxes                          |         |   | 3,666                           |      |                                |  | 5.4    | %  |         |   | 4,960  |      |         |  | 8.1    | % |         |   | 8,013   |      |  |  | 4.7   | %  |  |   | 10,345  |      |  |  | 6.5   | %
|Net income                                   |         |   | 2,185                           |      |                                |  | 3.2    | %  |         |   | 2,985  |      |         |  | 4.9    | % |         |   | 4,792   |      |  |  | 2.8   | %  |  |   | 6,223   |      |  |  | 3.9   | %
|                                            
|Earnings per share:                          |         |   |                                 |      |                                |  |        |    |         |   |        |      |         |  |        |   |         |   |         |      |  |  |       |    |  |   |         |      |  |  |       |  
|                                             | Basic   |   | $                               | 0.33 |                                |  |        |    |         |   | $      | 0.45 |         |  |        |   |         |   | $       | 0.73 |  |  |       |    |  |   | $       | 0.95 |  |  |       |   | 
|                                             | Diluted |   | $                               | 0.31 |                                |  |        |    |         |   | $      | 0.44 |         |  |        |   |         |   | $       | 0.68 |  |  |       |    |  |   | $       | 0.92 |  |  |       |   | 

Three Months Ended December 31, 2001, Compared to Three Months Ended
December 31, 2000.Sales have increased from $61.0 million for the three
months ended December 31, 2000 to $67.4 million for the same period this year,
a 10.6% increase. The increase is the result of opening two new stores in late
November of this year, aided by a comparable store sales increase of 1.2%.
Comparable store sales are based upon stores opened throughout both periods.
The comparable store sales increase was achieved through increased promotional
pricing in reaction to (i) warmer seasonal weather, which reduces consumer
demand for winter related merchandise and (ii) a softer economic climate, in
the three months ended December 31, 2001 as compared to the three months ended
December 31, 2000.

Gross profit as a percent of sales decreased from 32.5% for the three
months ended December 31, 2000 to 29.0% for the same period this year due to
higher markdowns partially offset by adjustments related to unredeemed gift
certificates. Management ran promotions designed to jump-start the holiday
buying season in light of warmer weather and weakening economic conditions
throughout the period. In addition, there were grand opening related
promotions surrounding two new stores in the period ended December 31, 2001 as
compared to the same period in the prior year.

8



---



##### Table of Contents



Selling, general and administrative expenses as a percent of sales
decreased from 24.4% for the three months ended December 31, 2000 to 23.4% for
the same period this year, due to decreases in incentive-based labor costs and
litigation expenses, partially offset by costs related to the Companys new
store openings and expansion plans. Expenses in the current period include (i)
costs for the successful grand opening of our newest stores in South Coast
Plaza, a premier Southern California shopping destination, and the Companys
first out-of-state store located in Henderson, Nevada and (ii) initial
occupancy costs related to our new larger distribution center scheduled to open
by March 2002.

The effective income tax rate was 39.8% for the three months ended
December 31, 2000, compared to 40.2% 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 $3.0 million, or $0.44 per diluted share, for
the three months ended December 31, 2000 to $2.2 million, or $0.31 per diluted
share, for the same period this year, primarily as a result of promotional
pricing taken to stimulate sales.

Nine Months Ended December 31, 2001, Compared to Nine Months Ended
December 31, 2000.Sales have increased from $158.8 million for the nine
months ended December 31, 2000 to $170.0 million for the same period this year,
a 7.0% increase. The increase is the result of opening one new store in July
2000, and three new store openings during 2001 combined with a comparable store
sales increase of 0.7%. Comparable store sales are based upon stores opened
throughout both periods. The comparable store sales increase was achieved
through increased promotional pricing in reaction to a difficult economic
climate. Further, in the prior fiscal year, sales were positively effected by
the sales of scooters, which did not occur to the same extent this year, and
early colder weather. Excluding sales of scooters from each period, net sales
would have increased by 11.7% and comparable store sales would have increased
by 5.1% in the nine months ended December 31, 2000 as compared to the nine
months ended December 31, 2001. Management believes that sales have been and
could continue to be negatively affected by economic conditions.

Gross profit as a percent of sales decreased from 31.3% for the nine
months ended December 31, 2000 to 29.5% for the same period this year due to
higher markdowns, as management ran promotions through the period designed to
stimulate sales and reduce aged inventory in reaction to a potentially
long-term economic slowdown.

Selling, general and administrative expenses as a percent of sales
decreased slightly from 24.9% for the three months ended December 31, 2000 to
24.8% for the same period this year, as decreased litigation expenses were
partially offset by costs related to the Companys expansion plans. Expenses
in the current period include (i) the successful implementation of the
Companys E3 inventory replenishment system, (ii) the opening of our Palmdale
location in June 2001, along with the South Coast Plaza and Henderson locations
in November 2001, and (iii) initial occupancy costs related to our new larger
distribution center scheduled to open by March 2002.

9



---



##### Table of Contents



The effective income tax rate was 39.8% for the nine months ended December
31, 2000, compared to 40.4% 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 $6.2 million, or $.92 per diluted share, for the
nine months ended December 31, 2000 to $4.8 million, or $.68 per diluted share,
for the same period this year, primarily as a result of increased markdowns
taken to stimulate sales.

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 provided by operating activities was $6.2 million for the nine
months ended December 31, 2001 compared to net cash provided of $10.8 million
for the same period last year. Net income provided cash of $4.8 million and
$6.2 million for the nine months ended December 31, 2001 and 2000,
respectively. Included in net income was non-cash depreciation of $3.9 million
and $3.0 million for the nine months ended December 31, 2001 and 2000,
respectively.

Accounts receivable increased by $976,000 for the nine months ended
December 31, 2001 while the same period last year decreased by $1.7 million
from the elimination of amounts due to the Company from John Wells Golf Shops,
the former operator of the leased golf department within the Companys stores.
On April 1, 2000, the Company purchased the inventory and fixtures of the
leased golf departments from the lessee and is operating the golf departments
directly.

Inventories increased by $17.0 million and $15.4 million for the nine
months ended December 31, 2001 and 2000, respectively, compared to the
respective year-end balances primarily due to normal seasonal build-up.
Inventory at December 31, 2001 is $7.1 million greater than the same period
last year primarily from the opening of three new stores during the period.
Accounts payable increased by $14.6 million and $8.5 million for the respective
periods compared to the respective year-end balances due primarily to inventory
build-up and the timing of payments to vendors.

Salaries and wages payable decreased by $98,000 for the nine months ended
December 31, 2001, compared to an increase of $1.3 million for the same period
last year, primarily as a result of the greater amount of incentive pay
(relating to the prior fiscal year) paid during the current period as compared
to the prior year, coupled with less incentive pay accrued this year as
compared to the prior year.

Other accrued expenses increased $2.4 million for the nine months ended
December 31, 2001, compared to an increase of $5.3 million for the same period
last year, as expenses related to the settlement of the class action lawsuit
were partially accrued in the nine months ended December 31, 2000, and
subsequently paid in the nine months ended December 31, 2001.

Net cash used in investing activities for the nine months ended December
31, 2001 was $10.2 million, resulting from capital expenditures related to (i)
enhancing merchandising presentation in the Companys older stores (ii) the
Companys new larger distribution center scheduled to open by March 2002, and
(iii) the opening of three new stores. Net cash used in investing activities
for the nine months ended December 31, 2000 was $6.6 million, primarily due to
payments made for the

10



---



##### Table of Contents



Companys point-of-sale system and other computer system spending plus the
opening of one new location in July 2000. For the final quarter ending March
31, 2002, forecasted capital expenditures will be $2 million to $3 million. In
the coming fiscal year capital expenditures will depend in part upon the number
of new store openings for which plans have not yet been finalized.

Net cash provided by financing activities reflects advances or pay down of
the Companys revolving credit line. Interest accrues at prime 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 August
31, 2002 and the Company expects to renegotiate and extend the term of this
agreement 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 losses and capital expenditures, calculated on a
quarterly basis. In addition, the Company must reduce borrowings to $2 million
or less for 30 consecutive days during each fiscal year. The Company currently
is in full compliance with these covenants and expects to remain in compliance
during the term of the credit facility. As a result of the Companys continued
expansion, the revolving credit line was increased from $10.0 million to $20.0
million (see Exhibit 10.1). During the period ended December 31, 2001 the
Company borrowed $10 million for the seasonal build-up of inventory that was
subsequently repaid. There were no borrowings during the nine months ended
December 31, 2000.

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 will 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 but one of the Companys
stores is located in Southern California. 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 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.

Limited Expansion Locations.The real estate market for retail locations
in Southern California is limited and very competitive. The Companys growth
strategy contemplates locating suitable new store locations over the next
several fiscal years. Failure by the Company to locate

11



---



##### Table of Contents



suitable new store locations would have a material adverse effect on the
Companys implementation of its growth strategy and sales volume.

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 merchandising 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.
The Companys large investment in its information technology has, and the
planned distribution center is expected to, put a strain on cash flow.
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 or occurs late in
the season, or if sales do 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

12



---



##### Table of Contents



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 December 31, 2001, Norbert Olberz, the
Companys founder, 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.

13



---



##### Table of Contents






Part II  Other Information




Item 1. Legal Proceedings.

Kelly Silver v. Sport Chalet, Inc., Case No. 00CC08024, filed on July 7,
2000 in the Superior Court of the State of California, County of Orange.

This is a class action lawsuit brought by a former area manager, Kelly
Silver, against the Company. The complaint alleges a failure to pay overtime
wages to area managers, unfair business practices based upon the alleged
failure to pay overtime wages, fraud and deceit and negligent misrepresentation
based upon the failure to pay overtime wages, and conversion/theft of labor for
the alleged overtime hours.

The Company and plaintiffs reached a settlement of all claims for all
class members. The court approved the settlement and the Company has paid all
claims.




Item 5. Other Information.

Stockholder Proposals

The proxy materials for the 2001 annual meeting of the stockholders held
on August 1, 2001 were mailed to stockholders of the Company on June 22, 2001.
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 2002 annual meeting of stockholders must be submitted by a
stockholder prior to February 21, 2002, in a form that complies with applicable
regulations. Recently, the SEC amended its rule governing a companys ability
to use discretionary proxy authority with respect to stockholder proposals,
which were not submitted by the stockholders in time to be included in the
proxy statement. As a result of the change, in the event a stockholder
proposal is not submitted to the Company prior to May 8, 2002, the proxies
solicited by the Board of Directors for the 2002 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 2002 annual meeting of stockholders without any discussion of
the proposal in the proxy statement for such meeting.

14



---



##### Table of Contents






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

|    |                      |                                                                                                   
|--- | -------------------- | --------------------------------------------------------------------------------------------------
|(a) | Exhibits            
|    |                      | 10.1  Amendment No. 3 To Business Loan Agreement                                                 
|   
|(b) | 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.




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: January 29, 2002 | By:                                                                                                                                      | /s/ Howard K. Kaminsky
|                       |                                                                                                                                         
|                       | Howard K. Kaminsky
Executive Vice President-Finance, Chief
Financial Officer, and Secretary
(Principal Financial and Accounting Officer)

15