<PAGE>
 
                                   FORM 10-Q
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549
 
(Mark One)
 
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
    Act for 1934
 
For the quarterly period ended September 30, 1998
[ ] 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                                      95-4390071
-------------------------------------------------------------------------------
(State or other jurisdiction of          (I.R.S. Employer Identification No.)
incorporation or organization)
 

 920 Foothill Boulevard,  La Canada                 California  91011
-------------------------------------------------------------------------------
(Address of principal executive offices)                 (Zip)
 
 
  (818) 790-2717
-------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
 
 
-------------------------------------------------------------------------------
(Former name former address and former fiscal year, if changes 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 
    --               --   

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date, November 1, 1998:

                                 6,532,000

                                       1
<PAGE>
 
                              SPORT CHALET, INC.
                              ------------------

                              Index to Form 10-Q

                                    Part I
                                    ------

1. Item 1.      Condensed Financial Statements

2. Item 2.      Management's Discussion and Analysis of Financial Condition and
                the Results of Operations


                                    Part II
                                    -------

1. Item 4.      Submission of Matters to a Vote of Security Holders
   
2. Item 6.      Exhibits and Reports on Form 8-K

                                       2
<PAGE>
 
                              SPORT CHALET, INC.
                              ------------------


                                    PART I
                                    ------


  ITEM 1.  CONDENSED FINANCIAL STATEMENTS.
           -------------------------------

  The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Commission.

  Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading.  In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair statement of
results for the interim period have been made.

  It is suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company's 1998 Annual Report to Shareholders filed with the Commission on 
June 30, 1998.

                                       3
<PAGE>
 
                              SPORT CHALET, INC.
 
                        CONDENSED STATEMENTS OF INCOME
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                        Three months ended              Six months ended
                                                  -----------------------------   -----------------------------
                                                          September 30,                  September 30,
                                                  -----------------------------   -----------------------------
                                                      1998            1997            1998            1997
                                                  -------------   -------------   -------------   -------------
<S>                                              <C>             <C>             <C>              <C>
Net sales.......................................  $ 36,191,622    $ 32,905,741    $ 68,288,862     $ 62,124,856
Cost of goods sold, buying and occupancy........    25,293,955      23,810,766      47,872,727       44,980,648
                                                  ------------    ------------    ------------     ------------
Gross profit....................................    10,897,667       9,094,975      20,416,135       17,144,208
Selling, general and administrative
         expenses...............................     9,343,529       8,277,796      17,923,934       15,828,797
                                                  ------------    ------------    ------------     ------------

Income from operations..........................     1,554,138         817,179       2,492,201        1,315,411
Interest (income) expense.......................       (50,269)         49,764         (76,923)         125,270
                                                  ------------    ------------    ------------     ------------
Income before taxes.............................     1,604,407         767,415       2,569,124        1,190,141
Income tax provision............................       655,000         311,000       1,049,000          488,000
                                                  ------------    ------------    ------------     ------------
Net income......................................  $    949,407    $    456,415    $  1,520,124     $    702,141
                                                  ============    ============    ============     ============

Earnings per share:
         Basic..................................  $        .15    $        .07    $        .23     $        .11
                                                  ============    ============    ============     ============
         Diluted................................  $        .14    $        .07    $        .23     $        .11
                                                  ============    ============    ============     ============

Weighted average number
         of common shares outstanding:
         Basic..................................     6,529,667       6,500,000       6,527,333        6,500,000
                                                  ============    ============    ============     ============
         Diluted................................     6,680,617       6,500,000       6,694,752        6,500,000
                                                  ============    ============    ============     ============
</TABLE>
 
                            SEE ACCOMPANYING NOTES.

                                       4
<PAGE>
 
                              SPORT CHALET, INC.
 
                           CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                               September 30,
                                                                   1998             March 31,
                                                                (Unaudited)           1998
                                                               -------------       -----------
<S>                                                            <C>                 <C>
ASSETS
------
Current assets:
  Cash.......................................................   $ 3,846,170        $ 4,970,335
  Accounts receivable - net..................................       183,298            409,635
  Merchandise inventories....................................    37,931,747         27,812,058
  Prepaid expenses and other current assets..................        52,538            205,297
  Deferred and refundable income taxes.......................       687,653          1,809,921
                                                                -----------        -----------
                Total current assets.........................    42,701,406         35,207,246
Furniture, equipment and leasehold improvements - net........    13,994,909         13,443,937
Other assets (note 2)........................................       693,861             66,730
                                                                -----------        -----------
                Total assets.................................   $57,390,176        $48,717,913
                                                                ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
  Accounts payable...........................................   $17,211,274        $ 9,610,860
  Salaries and wages payable.................................     2,174,220          2,842,807
  Other accrued expenses.....................................     4,800,432          4,552,352
                                                                -----------        -----------
                Total current liabilities....................    24,185,926         17,006,019
Deferred income taxes........................................       117,957            191,225

Shareholders' 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 - 6,532,000............        65,320             65,250
        Additional paid-in capital...........................    21,532,107         21,486,677
  Retained earnings..........................................    11,488,866          9,968,742
                                                                -----------        -----------
  Total shareholders' equity.................................    33,086,293         31,520,669
                                                                -----------        -----------
                Total liabilities and shareholders' equity...   $57,390,176        $48,717,913
                                                                ===========        ===========
</TABLE>

                            SEE ACCOMPANYING NOTES.

                                       5
<PAGE>
 
                              SPORT CHALET, INC.
 
                      CONDENSED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)
<TABLE>
<CAPTION>
                                                                           Six months ended September 30,
                                                                          --------------------------------
                                                                              1998                1997
                                                                          ------------         -----------
<S>                                                                       <C>                  <C> 
OPERATING ACTIVITIES
Net income...........................................................     $  1,520,124         $   702,141
Adjustments to reconcile net income to net cash provided
  by (used in) operating activities:
       Depreciation and amortization.................................        1,567,001           1,359,001
       Stock compensation............................................           45,500                   -
       Deferred income taxes.........................................        1,049,000             736,051
       Changes in operating assets and liabilities:
            Accounts receivable......................................          226,337             334,485
            Merchandise inventories..................................      (10,119,689)         (5,965,746)
            Prepaid expenses and other current assets................          152,759             316,141
            Accounts payable.........................................        7,600,414           4,595,286
            Salaries and wages expenses..............................         (668,587)           (313,262)
            Other accrued expenses...................................          248,080             459,333
            Income tax payable.......................................                -            (324,000)
                                                                          ------------         -----------
Net cash provided by operating activities............................        1,620,939           1,899,430

INVESTING ACTIVITIES
Other assets.........................................................         (627,131)                  -
Purchase of furniture, equipment and leasehold improvements..........       (2,117,973)         (1,564,307)
                                                                          ------------         -----------
Net cash used in investing activities................................       (2,745,104)         (1,564,307)

FINANCING ACTIVITIES
Proceeds from bank borrowings........................................                -          27,148,155
Principal payments on bank loans.....................................                -          27,411,920
                                                                          ------------         -----------
Net cash used in financing activities................................                -            (263,765)

Increase (decrease) in cash..........................................       (1,124,165)             71,358
Cash at beginning of period..........................................        4,970,335             451,114
                                                                          ------------         -----------
Cash at end of period................................................     $  3,846,170         $   522,472
                                                                          ============         ===========

Cash paid during the year for:
     Income taxes....................................................     $          -         $    75,842
     Interest........................................................                -             125,270
</TABLE>
                            SEE ACCOMPANYING NOTES.

                                       6
<PAGE>
 
                              SPORT CHALET, INC.

                         NOTE TO FINANCIAL STATEMENTS
                                  (UNAUDITED)

1. For a summary of significant accounting policies and other information which
   relates to these interim statements, reference should be made to the notes to
   financial statements included in the Company's 1998 Annual Report to
   Shareholders.

2. On March 31, 1998, the Principal Shareholder and his spouse, through their
   Family Trust, awarded 293,625 unregistered shares of common stock to certain
   employees and Directors.  The Company granted loans to employees to pay the
   income taxes associated with these awards.  These loans bear interest at 6%
   and are payable over four years and secured by the awarded shares.

                                       7
<PAGE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND THE
         --------------------------------------------------------------------
         RESULTS OF OPERATIONS.
         ----------------------

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

      THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997.  Sales have increased 10.0%, $36.2 million for the current
fiscal quarter compared to $32.9 million for the same quarter last year.
Comparable store sales are up 4.2%, which Management believes is the result of
visual merchandising enhancements, improved customer service, better in-stock
position and other factors.  In addition, one new store was opened in San Diego
during June 1998 and one in Laguna Niguel during November 1997, while the under-
performing El Cajon store was closed in September 1997.

      Gross profit as a percent of sales increased to 30.1% compared to 27.7%
for the same quarter last year, due to strong consumer demand and buying
efficiencies.

      Selling, general and administrative expenses as a percent of sales
increased from 25.2% to 25.8% reflecting increased labor costs attributable to
hiring management personnel in connection with the Company's expansion program
and additional warehouse staff to ensure more merchandise is delivered in a
"floor-ready" condition, offset partially by the impact of higher sales.

      The Company recorded interest income of $50,000 this quarter as opposed to
$50,000 interest expense during the same quarter last year because no money was
borrowed during the three months ended September 30, 1998.

      The effective income tax rate was 40.8%, compared to 40.5% for the same
period last year. These rates differ from the statutory rate of 40.1% as a
result of permanent differences between financial reporting and tax-basis
income.

      Net income increased from $456,000 or $.07 per diluted share to $949,000
or $.14 per diluted share, primarily as a result of increased sales and gross
profit.
 
      SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER
30, 1997. Sales have increased 10.0%, $68.3 million compared to $62.1 million
for the same period last year.  Comparable store sales are up 5.6%, which
Management believes is due to unseasonably cool weather resulting in increased
demand for winter-related merchandise during April 1998 as well as visual
merchandising enhancements, improved customer service and increased emphasis on
core businesses.  In addition, one new store was opened in San Diego during June
1998 and one in Laguna Niguel during November 1997, while the under-performing
El Cajon store was closed in September 1997.

      Gross profit increased as a percent of sales to 29.9% compared to 27.6%,
due to strong consumer demand and buying efficiencies.

                                       8
<PAGE>
 
      Selling, general and administrative expenses as a percent of sales
increased from 25.5% to 26.3%, due to increased labor costs attributable to
hiring management personnel in connection with the Company's expansion program
and additional warehouse staff to ensure more merchandise is delivered in a
"floor-ready" condition and to new store opening expenses, offset partially by
the impact of higher sales.

      The Company recorded interest income of $77,000 this quarter as opposed to
$125,000 interest expense during the same period last year because no money was
borrowed during the six months ended September 30, 1998.

      The effective income tax rate was 40.8%, compared to 41.0% for the same
period last year. These rates differ from the statutory rate of 40.1% as a
result of permanent differences between financial reporting and tax-basis
income.

      Net income increased to $1.5 million from $702,000 and earnings per share
increased to $.23 per diluted share from $.11 per diluted share, as a result of
improved gross profit partially offset by increased selling, general and
administrative expenses.
 
LIQUIDITY AND CAPITAL RESOURCES

      The Company's primary capital requirements are for inventory and store
openings, relocations and remodeling.  The Company is actively pursuing and
evaluating potential store locations in connection with its expansion program
and expects to open one new store in Spring 1999.  The Company's plans to
relocate and expand the La Canada store and corporate offices into the proposed
"Sport Chalet Village" shopping center has been delayed by the entitlement
process with the City of La Canada.  A projected move-in date has not been set
and no assurance can be provided that the City of La Canada will approve the
entitlements necessary to permit construction of the shopping center.

      Historically, the Company's liquidity needs have been met by cash from
operations, credit terms from vendors and bank borrowings.  The Company believes
that these sources will be sufficient to fund currently anticipated cash
requirements, including the Company's expansion program, for the next 2 to 3
fiscal years.

      Net cash provided by operating activities is $1.6 million and $1.9 million
for the six months ended September 30, 1998 and 1997, respectively.  Net income
provided $1.5 million and $702,000 for the six months ended September 30, 1998
and 1997, respectively.  Depreciation also provided $1.6 million and $1.4
million of cash for the same periods.

      Inventories increased by $10.1 million and $6.0 million for the six months
ended September 30, 1998 and 1997, respectively, due to the seasonal build-up of
summer inventory.  Inventory at September 30, 1998 is $3.9 million greater than
the same time last year to support the increase in sales combined with the
earlier arrival of winter-related merchandise.  Winter-related merchandise
generally does not require payment before December regardless of the date
received.  Accounts payable increased by $7.6 million and $4.6 million for the
respective periods due primarily to inventory build-up and the timing of
payments to vendors.

                                       9
<PAGE>
 
      Net cash used in investing activities increased to $2.7 million from $1.6
million for the periods ended September 30, 1998 and 1997, respectively,
primarily due to the opening of one new store during June 1998 and loans made to
certain employees pursuant to the March 31, 1998 stock award described in Note 2
to the Condensed Financial Statements set forth in Item 1.

      Net cash provided by financing activities has primarily reflected advances
or pay down of the Company's revolving credit line.  There were no borrowings
during the period ended September 30, 1998, while $264,000 of cash was paid down
during the six months ended September 30, 1997.

SEASONALITY

      While the Company's business is seasonal in nature, efforts to diversify
the Company's product mix and cost cutting measures have yielded material levels
of net profit during the first half of this fiscal year.  Nevertheless, the
Company historically has achieved its highest levels of sales and profitability
in the winter months of November, December and January, which overlap the third
and fourth fiscal quarters, and no assurance can be provided that the operating
results from the first two quarters will be indicative of the Company's overall
operating results for the entire fiscal year.

YEAR 2000

      The Company has conducted a review to identify which systems, both
internal and external, will be affected by the "Year 2000" problem, and has
developed a project plan and schedule designed to correct those issues and
systems under its control.
 
      The majority of the Company's business processing applications operate on
a mainframe computer system.  Management believes the mainframe hardware and
operating system are now Year 2000 compliant and as of September 30, 1998.  All
programs and data have been modified.  The Company is now in the testing phase.
The Company's point of sale systems require minor modifications, while the
payroll and phone systems are believed to be Year 2000 compliant.
 
      The Company is planning to implement substantially all of its Year 2000-
conversion project by January 1999, and is primarily using internal staff for
this effort. Based upon information currently known about its computer and other
business systems, the Company estimates it will spend approximately $200,000 in
this effort of which approximately $100,000 has already been expensed. The
Company believes that the cost associated with becoming Year 2000 compliant will
not materially affect its future operating results or financial condition.

      While the Company currently believes that it will be able to implement its
Year 2000 conversion project in a timely manner, failure to do so could have a
material adverse impact on the Company's operations.  In the most reasonably
likely worst case scenario, the Company would be unable to collect payments from
customers through its point-of-sale systems, receive merchandise from vendors or
ship merchandise to its own stores. The Company currently has no contingency
plans in place in the event it does not complete all phases of the Year 2000
project.  The Company plans to evaluate the status of completion in March 1999
and determine whether such a plan is necessary.

                                       10
<PAGE>
 
      In addition, there can be no assurance that the systems of other companies
with which the Company does business will also be converted in a timely manner
or that failure to convert by other companies would not have a material impact
on the Company's operations.  The Company currently does not anticipate any
material disruptions to its operations due to the Year 2000 issues related to
third parties.  The most reasonably likely worst case scenario regarding third
parties would be lost sales due to a significant number of the Company's vendors
having difficulties shipping merchandise or the Company's inability to accept
customer payments because of problems with the bank or credit card processor.
The Company currently does not have a contingency plan for this scenario and
will consider establishing one in March 1999 based on the results surveying its
major vendors and banking relationships.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

      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.  The words "anticipate", "believes", "expect", "intend", "may",
or similar expressions used in this Quarterly Report as they relate to the
Company or its Management are generally intended to identify such forward
looking statements.  These risks and uncertainties contained in this Quarterly
Report include but are not limited to, product demand and market acceptance
risks, the effect of economic conditions generally and in Southern California,
and retail and sporting goods business conditions specifically, the impact of
competition, technological difficulties, capacity and supply constraints or
difficulties, the results of financing efforts, changes in consumer preferences
and trends, the effect of the Company's accounting policies, weather conditions,
acts of God, and other risks detailed in the Company's Security and Exchange
Commission filings.

                                       11
<PAGE>
 
                                    PART II

      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
              ----------------------------------------------------

      At the annual meeting of shareholders on August 6, 1998, the two Class 3
Directors, Norbert J. Olberz and Kenneth Olsen, were re-elected to the Company's
Board of Directors.  There were 6,155,445 votes for and 288,585 votes withheld
for Norbert J. Olberz and 6,161,845 votes for and 282,185 votes withheld for
Kenneth Olsen.  The Company's Class 1 Director, Eric S. Olberz, and Class 2
Director, John R. Attwood, continue to serve on the Board.  The terms of the
Class 1, 2 and 3 Directors presently expire in fiscal year 2000, 2001 and 2002,
respectively.

      The shareholders also voted to ratify the amendment of the 1992 Incentive
Award Plan to increase (i) the number of available shares and the number of
automatic option grants to non-employee Directors which will be automatically
granted upon being elected or reelected to the Board of Directors and (ii) the
maximum number of option shares such non-employee Directors may receive and
(iii) to extend the term of said Plan to October 31, 2012.  The vote was
5,722,208 for, 308,974 against and 4,452 abstained.


      ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
              ---------------------------------

       (a)    Exhibits
 
              27.1    Financial Data Schedule

       (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.

                                       12
<PAGE>
 
                                   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:         November 6, 1998                  /S/ Norbert J. Olberz
                                             ---------------------------------
                                                    Norbert J. Olberz
                                                    Chairman of the Board and
                                                    Interim Chief
                                                    Executive Officer
                                                    (Duly Authorized Officer)



DATE:         November 6, 1998                  /S/ Howard K. Kaminsky
                                             --------------------------------
                                                    Howard K. Kaminsky
                                                    Senior Vice President-
                                                    Finance, Chief
                                                    Financial Officer, and
                                                    Secretary
                                                    (Principal Financial and
                                                    Accounting Officer)

                                       13