##### Table of Contents



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 OF 1934. FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

|  |  |                                                                                                                                          
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 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)  |  |                                     

One Sport Chalet Drive, La Canada, CA 91011
(Address of principal executive offices)

(818) 949-5301
(Registrants telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of Act). Yes      No X

Number of shares outstanding of the registrants Common Stock, $0.01 par value,
as of June 30, 2003: 6,630,334

1



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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.
|                               | Item 3. Quantitative and Qualitative Disclosures About Market Risk                                                 
|                               | Item 4. Controls and Procedures.                                                                                   
|Part II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings.                                                                                         
|                               | Item 2. Changes in Securities and Use of Proceeds.                                                                 
|                               | Item 3. Defaults Upon Senior Securities.                                                                           
|                               | Item 4. Submission of Matters to a Vote of Securities Holders.                                                     
|                               | Item 5. Other Information.                                                                                         
|                               | Item 6.Exhibits and Reports on Form 8-K.                                                                           
|EXHIBIT 31.1                  
|EXHIBIT 31.2                  
|EXHIBIT 32.1                  



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##### Table of Contents



SPORT CHALET, INC.

Index to Form 10-Q

PART I  FINANCIAL INFORMATION

|                                                                                             |                             |  |      |  | 
|-------------------------------------------------------------------------------------------- | --------------------------- |  | ---- |  | 
|                                                                                             |                             |  | Page
|                                                                                             |                             |  |     
|Item 1.Financial Statements                                                                  |                             |  | 3    | 
|Item 2.Managements Discussion and Analysis of Financial Condition
and Results of Operations |                             |  | 9    | 
|Item 3.Quantitative and Qualitative Disclosures About Market Risk                            |                             |  | 16   | 
|Item 4.Controls and Procedures                                                               |                             |  | 16   | 
|                                                                                             | PART II  OTHER INFORMATION |  |      |  | 
|Item 1.Legal Proceedings                                                                     |                             |  | 17   | 
|Item 2.Changes in Securities and Use of Proceeds                                             |                             |  | 17   | 
|Item 3.Defaults Upon Senior Securities                                                       |                             |  | 17   | 
|Item 4.Submission of Matters to a Vote of Securities Holders                                 |                             |  | 17   | 
|Item 5.Other Information                                                                     |                             |  | 18   | 
|Item 6.Exhibits and Reports on Form 8-K                                                      |                             |  | 18   | 

2



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##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. Financial Statements.

SPORT CHALET, INC.

CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

|                                                      |         |   |                    |           |      |   |            |           | 
|----------------------------------------------------- | ------- | - | ------------------ | --------- | ---- | - | ---------- | --------- | 
|                                                      |         |   | Three months ended
|                                                      |         |   | June 30,          
|                                                      |         |   |                   
|                                                      |         |   | 2003               |           | 2002
|                                                      |         |   |                    |           |     
|Net sales                                             |         | $ | 53,309,276         |           |      | $ | 51,204,660 |          
|Cost of goods sold, buying and
occupancy              |         |   | 38,536,263         |           |      |   | 37,423,341 |          
|                                                      |         |   |                    |           |      |   |            |          
|Gross profit                                          |         |   | 14,773,013         |           |      |   | 13,781,319 |          
|Selling, general and administrative
expenses          |         |   | 15,721,469         |           |      |   | 13,599,489 |          
|                                                      |         |   |                    |           |      |   |            |          
|Income (loss) from operations                         |         |   | (948,456           | )         |      |   | 181,830    |          
|Interest expense                                      |         |   | (34,010            | )         |      |   | (39,942    | )        
|                                                      |         |   |                    |           |      |   |            |          
|Income (loss) before taxes                            |         |   | (982,466           | )         |      |   | 141,888    |          
|Income tax (benefit) provision                        |         |   | (389,000           | )         |      |   | 58,000     |          
|                                                      |         |   |                    |           |      |   |            |          
|Net (loss) income                                     |         | $ | (593,466           | )         |      | $ | 83,888     |          
|                                                      |         |   |                    |           |      |   |            |          
|Earnings (loss) per share:                            |         |   |                    |           |      |   |            |          
|                                                      | Basic   |   | $                  | (0.09     | )    |   | $          | 0.01      | 
|                                                      |         |   |                    |           |      |   |            |          
|                                                      | Diluted |   | $                  | (0.09     | )    |   | $          | 0.01      | 
|                                                      |         |   |                    |           |      |   |            |          
|Weighted average number of
common shares outstanding: |         |   |                    |           |      |   |            |          
|                                                      | Basic   |   |                    | 6,629,667 |      |   |            | 6,603,945 | 
|                                                      |         |   |                    |           |      |   |            |          
|                                                      | Diluted |   |                    | 6,629,667 |      |   |            | 7,006,165 | 
|                                                      |         |   |                    |           |      |   |            |          

See accompanying notes.

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SPORT CHALET, INC.

CONDENSED BALANCE SHEETS

|                                                      |                                                |                                                                                            |            |             |            |           |            |            |            | 
|----------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------------------------------------------ | ---------- | ----------- | ---------- | --------- | ---------- | ---------- | ---------- | 
|                                                      |                                                |                                                                                            |            | June 30,    |            | March 31,
|                                                      |                                                |                                                                                            |            | 2003        |            | 2003     
|                                                      |                                                |                                                                                            |            |             |            |          
|                                                      |                                                |                                                                                            |            | (Unaudited) |            |           |            |           
|Assets                                                |                                                |                                                                                            |            |             |            |           |            |           
|Current assets:                                       |                                                |                                                                                            |            |             |            |           |            |           
|                                                      | Cash                                           |                                                                                            | $          | 6,514,298   |            |           | $          | 4,230,003  |           
|                                                      | Accounts receivable, less allowance of $25,000 |                                                                                            |            | 776,513     |            |           |            | 1,090,519  |           
|                                                      | Merchandise inventories                        |                                                                                            |            | 59,500,709  |            |           |            | 50,886,630 |           
|                                                      | Prepaid expenses and other current assets      |                                                                                            |            | 2,272,779   |            |           |            | 2,038,588  |           
|                                                      | Refundable income taxes                        |                                                                                            |            | 322,896     |            |           |            | 58,990     |           
|                                                      | Deferred income taxes                          |                                                                                            |            | 1,475,008   |            |           |            | 1,325,249  |           
|                                                      |                                                |                                                                                            |            |             |            |           |            |           
|                                                      |                                                | Total current assets                                                                       |            |             | 70,862,203 |           |            |            | 59,629,979 | 
|Furniture, equipment and leasehold improvements-net   |                                                |                                                                                            | 27,590,880 |             |            |           | 27,095,314 |           
|Deferred income taxes                                 |                                                |                                                                                            | 143,874    |             |            |           | 66,281     |           
|Other assets                                          |                                                |                                                                                            | 103,630    |             |            |           | 109,905    |           
|                                                      |                                                |                                                                                            |            |             |            |           |            |           
|                                                      |                                                | Total assets                                                                               |            | $           | 98,700,587 |           |            | $          | 86,901,479 | 
|                                                      |                                                |                                                                                            |            |             |            |           |            |           
|Liabilities and stockholders equity                  |                                                |                                                                                            |            |             |            |           |            |           
|Current liabilities:                                  |                                                |                                                                                            |            |             |            |           |            |           
|                                                      | Bank overdraft                                 |                                                                                            | $          | 6,954,995   |            |           | $          | 5,764,355  |           
|                                                      | Accounts payable                               |                                                                                            |            | 18,948,007  |            |           |            | 9,353,444  |           
|                                                      | Salaries and wages payable                     |                                                                                            |            | 2,790,744   |            |           |            | 2,191,335  |           
|                                                      | Other accrued expenses                         |                                                                                            |            | 5,871,842   |            |           |            | 5,041,753  |           
|                                                      |                                                |                                                                                            |            |             |            |           |            |           
|                                                      |                                                | Total current liabilities                                                                  |            |             | 34,565,588 |           |            |            | 22,350,887 | 
|Deferred rent                                         |                                                |                                                                                            | 5,443,437  |             |            |           | 5,276,696  |           
|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 - 6,630,334
at June 30, 2003 and 6,628,334
at March 31, 2003 |            |             | 66,303     |           |            |            | 66,283     | 
|                                                      | Additional paid-in capital                     |                                                                                            |            | 22,132,481  |            |           |            | 22,121,369 |           
|                                                      | Retained earnings                              |                                                                                            |            | 36,492,778  |            |           |            | 37,086,244 |           
|                                                      |                                                |                                                                                            |            |             |            |           |            |           
|                                                      | Total stockholders equity                     |                                                                                            |            | 58,691,562  |            |           |            | 59,273,896 |           
|                                                      |                                                |                                                                                            |            |             |            |           |            |           
|                                                      |                                                | Total liabilities and stockholders equity                                                 |            | $           | 98,700,587 |           |            | $          | 86,901,479 | 
|                                                      |                                                |                                                                                            |            |             |            |           |            |           

See accompanying notes.

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SPORT CHALET, INC.

CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)

|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |           |            |  
|-------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ----------------------------------------- | ---------- | --------------------------- | ---------- | ---- | ----------- | --------- | ---------- | -
|                                                                                                   |                                                                    |                                           |            | Three months ended June 30,
|                                                                                                   |                                                                    |                                           |            |                            
|                                                                                                   |                                                                    |                                           |            | 2003                        |            | 2002
|                                                                                                   |                                                                    |                                           |            |                             |            |     
|Operating activities                                                                               |                                                                    |                                           |            |                             |            |      |             |          
|Net (loss) income                                                                                  |                                                                    | $                                         | (593,466   | )                           |            | $    | 83,888      |          
|Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities: |                                                                    |                                           |            |                             |            |      |             |          
|                                                                                                   | Depreciation and amortization                                      |                                           |            | 1,452,000                   |            |      |             | 1,377,000 |           
|                                                                                                   | Loss on disposal of furniture, eqipment and leasehold improvements |                                           |            | 244,821                     |            |      |             |          |           
|                                                                                                   | Deferred income taxes                                              |                                           |            | (227,352                    | )          |      |             | (101,570  | )         
|                                                                                                   | Tax benefit on employee stock options                              |                                           |            | 2,257                       |            |      |             | 24,392    |           
|                                                                                                   | Changes in operating assets and liabilities:                       |                                           |            |                             |            |      |             |           |           
|                                                                                                   |                                                                    | Accounts receivable                       |            |                             | 314,006    |      |             |           | (379,852   | )
|                                                                                                   |                                                                    | Merchandise inventories                   |            |                             | (8,614,079 | )    |             |           | (7,456,041 | )
|                                                                                                   |                                                                    | Refundable income taxes                   |            |                             | (263,906   | )    |             |           | 35,177     |  
|                                                                                                   |                                                                    | Prepaid expenses and other current assets |            |                             | (234,191   | )    |             |           | (276,115   | )
|                                                                                                   |                                                                    | Bank overdraft                            |            |                             | 1,190,640  |      |             |           | 680,422    |  
|                                                                                                   |                                                                    | Accounts payable                          |            |                             | 9,594,563  |      |             |           | 3,793,196  |  
|                                                                                                   |                                                                    | Salaries and wages payable                |            |                             | 599,409    |      |             |           | 148,557    |  
|                                                                                                   |                                                                    | Other accrued expenses                    |            |                             | 830,089    |      |             |           | 929,272    |  
|                                                                                                   |                                                                    | Deferred rent                             |            |                             | 166,741    |      |             |           | 136,986    |  
|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Net cash provided by (used in) operating activities                                                |                                                                    |                                           | 4,461,532  |                             |            |      | (1,004,688  | )        
|Investing activities                                                                               |                                                                    |                                           |            |                             |            |      |             |          
|Purchase of furniture, equipment and leasehold improvements                                        |                                                                    |                                           | (2,192,387 | )                           |            |      | (570,343    | )        
|Other assets                                                                                       |                                                                    |                                           | 6,275      |                             |            |      | 17,413      |          
|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Net cash used in investing activities                                                              |                                                                    |                                           | (2,186,112 | )                           |            |      | (552,930    | )        
|Financing activities                                                                               |                                                                    |                                           |            |                             |            |      |             |          
|Proceeds from bank borrowing                                                                       |                                                                    |                                           |           |                             |            |      | 25,325,000  |          
|Repayments of bank borrowing                                                                       |                                                                    |                                           |           |                             |            |      | (23,945,000 | )        
|Proceeds from exercise of stock options                                                            |                                                                    |                                           | 8,875      |                             |            |      | 34,857      |          
|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Net cash provided by financing activities                                                          |                                                                    |                                           | 8,875      |                             |            |      | 1,414,857   |          
|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Increase (decrease) in cash and cash equivalents                                                   |                                                                    |                                           | 2,284,295  |                             |            |      | (142,761    | )        
|Cash and cash equivalents at beginning of period                                                   |                                                                    |                                           | 4,230,003  |                             |            |      | 4,273,485   |          
|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Cash and cash equivalents at end of period                                                         |                                                                    | $                                         | 6,514,298  |                             |            | $    | 4,130,724   |          
|                                                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Supplemental Disclosure of Cash Flow Information                                                   |                                                                    |                                           |            |                             |            |      |             |          
|Cash paid during the period for:                                                                   |                                                                    |                                           |            |                             |            |      |             |          
|                                                                                                   |                                                                    | Income taxes                              |            | $                           | 100,000    |      |             | $         | 100,000    |  
|                                                                                                   |                                                                    | Interest                                  |            |                             |           |      |             |           | 12,242     |  

See accompanying notes.

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SPORT CHALET, INC.

NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)



|1. |  | Basis of Presentation
|-- |  | ---------------------

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

The financial data at March 31, 2003 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, 2003, 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 (loss) per Share
|-- |  | -------------------------

Earnings (loss) 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
|                                          |                                             |   | June 30,          
|                                          |                                             |   |                   
|                                          |                                             |   | 2003               |           | 2002
|                                          |                                             |   |                    |           |     
|Net (loss) income                         |                                             | $ | (593,466           | )         |      | $ | 83,888 |          
|Weighted average number of common shares: |                                             |   |                    |           |      |   |        |          
|                                          | Basic                                       |   |                    | 6,629,667 |      |   |        | 6,603,945 | 
|                                          | Effect of dilutive securities
stock options |   |                    |          |      |   |        | 402,220   | 
|                                          |                                             |   |                    |           |      |   |        |          
|                                          | Diluted                                     |   |                    | 6,629,667 |      |   |        | 7,006,165 | 
|                                          |                                             |   |                    |           |      |   |        |          
|Earnings
(loss) per share:                |                                             |   |                    |           |      |   |        |          
|                                          | Basic                                       |   | $                  | (0.09     | )    |   | $      | 0.01      | 
|                                          | Effect of dilutive securities               |   | $                  | 0.00      |      |   | $      | 0.00      | 
|                                          |                                             |   |                    |           |      |   |        |          
|                                          | Diluted                                     |   | $                  | (0.09     | )    |   | $      | 0.01      | 
|                                          |                                             |   |                    |           |      |   |        |          

An aggregate of 937,667 options were excluded from the 2003 computation of
diluted earnings per share as their effect would have been anti-dilutive.

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|3. |  | Stock Compensation
|-- |  | ------------------

In December 2002, the Financial Accounting Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based Compensation-Transition and
Disclosure, and Amendment of FASB Statement No. 123 (SFAS No.148). SFAS No.
148 amends SFAS No. 123 Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to fair value based
method of accounting for employee stock-based compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent
disclosure in annual and interim financial statements about the method of
accounting for stock-based compensation and its effects on reporting. The
Company continues to apply the principles of APB Opinion No. 25 and related
interpretations in accounting for its stock-based compensation plans.
Accordingly, no compensation expense has been recorded in conjunction with
options issued to employees. Had compensation cost been determined based on
the fair value of the options at the grant date and amortized over the
options vesting period, consistent with the method prescribed by SFAS No.
123, the Companys net income (loss) would have been (in thousands except per
share information):

|                                             |                                                                                                                                            |   |                             |         |      |   |        |        | 
|-------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | - | --------------------------- | ------- | ---- | - | ------ | ------ | 
|                                             |                                                                                                                                            |   | Three months ended June 30,
|                                             |                                                                                                                                            |   |                            
|                                             |                                                                                                                                            |   | 2003                        |         | 2002
|                                             |                                                                                                                                            |   |                             |         |     
|Net (loss) income as reported                |                                                                                                                                            | $ | (593,466                    | )       |      | $ | 83,888 |       
|Add:                                         |                                                                                                                                            |   |                             |         |      |   |        |       
|                                             | Stock based compensation expense
included in reported net income, net of
related tax effects                                               |   |                             |        |      |   |        |       | 
|Deduct:                                      |                                                                                                                                            |   |                             |         |      |   |        |       
|                                             | Total stock-based employee compensation
expense determined under fair market
value based method for all awards, net
of related tax effects |   |                             | 134,202 |      |   |        | 78,846 | 
|                                             |                                                                                                                                            |   |                             |         |      |   |        |       
|Pro forma net (loss) income                  |                                                                                                                                            | $ | (727,668                    | )       |      | $ | 5,042  |       
|                                             |                                                                                                                                            |   |                             |         |      |   |        |       
|Earning (loss) per share  basic and diluted |                                                                                                                                            |   |                             |         |      |   |        |       
|                                             | As reported  basic                                                                                                                        |   | $                           | (0.09   | )    |   | $      | 0.01   | 
|                                             | As reported  diluted                                                                                                                      |   | $                           | (0.09   | )    |   | $      | 0.01   | 
|                                             | Pro forma  basic                                                                                                                          |   | $                           | (0.11   | )    |   | $      | 0.00   | 
|                                             | Pro forma  diluted                                                                                                                        |   | $                           | (0.11   | )    |   | $      | 0.00   | 

There were no grants for the quarter ended June 30, 2003. The fair value
of each option granted is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in fiscal 2003; expected volatility of 41%; risk-free interest rate
of 4.0% expected lives from one to four years and expected dividends of 0%.
The Black-Scholes model was developed for use in estimating the fair
value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Companys employee stock options have characteristics
significantly different from those of traded options, and because changes
in the subjective input assumptions can materially affect the fair value
estimate, in managements opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee
stock options.

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|4. |  | New Accounting Pronouncements
|-- |  | -----------------------------

In November 2002, the FASB issued Emerging Issues Task Force Issue No.
02-16 (Issue 02-16), Accounting by a Reseller for Cash Consideration
Received from a Vendor. Issue 02-16 addresses the issue of how a reseller of
a vendors product should account for cash consideration received from a
vendor. The adoption of Issue 02-16, effective with agreements entered into
after November 21, 2002, did not have a material impact on the Companys
financial position or results of operations.

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

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

Results of Operations

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

|                                             |         |   |                             |       |         |  |        |    |         |   |        |      |  |  |       |    | 
|-------------------------------------------- | ------- | - | --------------------------- | ----- | ------- |  | ------ | -- | ------- | - | ------ | ---- |  |  | ----- | -- | 
|                                             |         |   | Three months ended June 30,
|                                             |         |   |                            
|                                             |         |   | 2003                        |       | 2002   
|                                             |         |   |                             |       |        
|                                             |         |   | Amount                      |       | Percent |  | Amount |    | Percent
|                                             |         |   |                             |       |         |  |        |    |        
|Net sales                                    |         | $ | 53,309                      |       |         |  | 100.0  | %  |         | $ | 51,205 |      |  |  | 100.0 | % 
|Gross profit                                 |         |   | 14,773                      |       |         |  | 27.7   | %  |         |   | 13,781 |      |  |  | 26.9  | % 
|Selling, general and administrative expenses |         |   | 15,721                      |       |         |  | 29.5   | %  |         |   | 13,599 |      |  |  | 26.6  | % 
|Income (loss) from operations                |         |   | (948                        | )     |         |  | (1.8   | %) |         |   | 182    |      |  |  | 0.4   | % 
|Interest expense                             |         |   | (34                         | )     |         |  | (0.1   | %) |         |   | (40    | )    |  |  | (0.1  | %)
|Income (loss) before taxes                   |         |   | (982                        | )     |         |  | (1.8   | %) |         |   | 142    |      |  |  | 0.3   | % 
|Net (loss) income                            |         |   | (593                        | )     |         |  | (1.1   | %) |         |   | 84     |      |  |  | 0.2   | % 
|Earnings (loss) per share:                   |         |   |                             |       |         |  |        |    |         |   |        |      |  |  |       |   
|                                             | Basic   |   | $                           | (0.09 | )       |  |        |    |         |   | $      | 0.01 |  |  |       |    | 
|                                             | Diluted |   | $                           | (0.09 | )       |  |        |    |         |   | $      | 0.01 |  |  |       |    | 

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002.
Sales increased from $51.2 million for the three months ended June 30, 2002 to
$53.3 million for the same period this year, a 4.1% increase. The increase is
the result of opening two new stores in late November 2002, offset by a
comparable store sales decrease of 2.1%. The same store sales decrease results
primarily from unseasonably cold weather throughout the period which impacted
sales of spring and summer related merchandise. Same store sales are based
upon stores opened throughout both periods.

Gross profit as a percent of sales increased from 26.9% for the three months
ended June 30, 2002 to 27.7% for the same period this year primarily due to a
tight inventory management focus. This focus yielded better inventory
procurement and administration as compared to the prior year when consumer
purchasing trended towards value merchandise producing higher then anticipated
markdowns. The improvement in merchandise margins was partially offset by the
effects of the decrease in same store sales which caused occupancy costs to
increase by 60 basis points in the current period as compared to the same
period last year.

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Selling, general and administrative expenses, as a percent of sales, increased
from 26.6% for the three months ended June 30, 2002, to 29.5% for the same
period this year. The increase is primarily a result of the decline in same
store sales, higher advertising expense attributable to the timing of vendor
reimbursements, the write-off of undepreciated assets as a result of two
large-scale remodels, and additional labor costs relating to the installation
of new warehouse management software.

The effective income tax rate was 40.9% for the three months ended June 30,
2002 compared to 39.6% for the same period this year. These rates differ from
the statutory rate of 39.8% primarily as a result of permanent differences
between financial reporting and tax-basis income.

Net income decreased from $84,000, or $0.01 per diluted share, for the
three months ended June 30, 2002 to a loss of $593,000, or $0.09 per diluted
share, for the same period this year, primarily as a result of a decline in
same store sales and increased selling, general and administrative expense.

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 is primarily the result of net
income (loss), adjusted for depreciation and amortization, and increases in
accounts payable partially offset by inventory purchases. For the three months
ended June 30, 2003, $4.5 million was generated compared to $1.0 million used
by operating activities for the same period last year.

Inventories increased by $8.6 million and $7.5 million for the three months
ended June 30, 2003 and 2002, respectively, compared to the respective year-end
balances primarily due to the seasonal build-up of summer related inventory.
Inventory at June 30, 2003 is $4.1 million greater than the same period last
year primarily as a result of the opening of two stores since the end of this
period in the prior year. The average inventory per store decreased slightly,
0.2%, at June 30, 2003 as compared to June 30, 2002, as the Company has focused
on inventory management in the face of inconsistent sales trends.

Bank overdraft represents the total of checks in transit in excess of cash
on hand. The overdraft is expected to continue and fluctuate due to the timing
of vendor payments. Historically accounts payable has increased as inventory
increases. In the three months ended June 30, 2003, accounts payable combined
with the bank overdraft increased by $10.8 million as compared to $4.5 million
for the three months ended June 30, 2002. The relative change as compared to
inventory levels is primarily the result of the timing of inventory receipts
during the quarter.

Net cash used in investing activities for the three months ended June 30,
2003 was $2.2 million compared to $553,000 for the same period ended June 30,
2002, primarily resulting from capital expenditures for two large scale
remodels of mature stores during the quarter.

Net cash provided by financing activities reflects advances and repayment of
borrowings under the Companys revolving credit facility. Due to improved
inventory management the Company did not borrow on this facility during the
quarter.

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The Companys credit facility with Bank of America, N.A. (the Lender)
provides for advances up to $20 million, less the amount of any outstanding
draws, up to a $1.5 million maximum in authorized letters of credit. Interest
accrues at the Lenders prime rate plus .25% (4.0% at June 30, 2003) 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. In addition, there is an unused
commitment fee of .20% per year, based on a weighted average formula. This
credit facility expires on September 30, 2003, and the Company expects to
renegotiate and extend the term of this agreement or obtain another form of
financing before that date. The Companys obligation to the Lender is
presently secured by a first priority lien on substantially all of the
Companys non-real estate assets, and the Company is subject to several
restrictive covenants. The principal operating covenants require the Company
to maintain certain minimum cash flow coverage and debt to equity ratios and
restrict the level of capital expenditures, calculated on a quarterly basis.
The Company currently is in compliance with the covenants. The Company
believes its credit line with the Lender is sufficient to fund capital
expenditures for the foreseeable future and to meet seasonal fluctuations in
cash flow requirements. However, unexpected conditions could require the
Company to request additional borrowing capacity from the Lender or alter its
expansion plans or operations.

The Companys primary contractual obligations and commitments as of March
31, 2003, are its store leases with initial terms expiring from 2004 through
2020 and typically provide for multiple five-year renewal option:

|                        |  |                  |             | 
|----------------------- |  | ---------------- | ----------- | 
|Payments due by period: |  | Operating Leases
|                        |  |                 
|Through March 31, 2004  |  | $                | 16,210,179  | 
|2 - 3 years             |  |                  | 34,067,581  | 
|4 - 5 years             |  |                  | 30,257,199  | 
|After 5 years           |  |                  | 62,902,620  | 
|                        |  |                  |             | 
|Total                   |  | $                | 143,437,579 | 

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

No cash dividends were declared on Common Stock in fiscal 2003. The Company
intends to retain earnings for use in the operation and expansion of its
business and, therefore, does not anticipate paying any cash dividends in the
foreseeable future.

Critical Accounting Policies and Use of Estimates

The Companys significant accounting policies are described in Note 2 of
the Companys Annual Report on Form 10-K for the year ended March 31, 2003,
which have been prepared in accordance with accounting principles generally
accepted in the United States. In preparing the financial statements, the
Company is required to make estimates and judgments which affect the results of
its operations and the reported value of assets and liabilities. Actual results
may differ from these estimates. The Company believes that the following
summarizes critical accounting policies which require significant judgments and
estimates in the preparation of its consolidated financial statements

11



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Inventory Valuation.Merchandise inventories are stated at the lower of
cost (first-in, first-out determined by the retail method of accounting) or
market. The Company considers cost to include direct cost of merchandise, plus
internal costs associated with merchandise procurement, storage and handling.
The Company regularly reviews aged and excess inventories to determine if the
carrying value of such inventories exceeds market value; a reserve is recorded
to reduce the carrying value to market value as necessary. A determination of
market value requires estimates and judgment based on the Companys historical
markdown experience and anticipated markdowns based on future merchandising and
advertising plans, seasonal considerations, expected business trends and other
factors.

Gift Certificate Redemption.The Company offers its customers the option
of purchasing gift certificates which may be used toward the future purchase of
the Companys product offerings. These gift certificates have no expiration
dates. The Company records unredeemed gift certificates as a liability until
the point of redemption. The Companys historical experience indicates that
not all issued gift certificates get redeemed. Accordingly, the Company
periodically adjusts the carrying value of the gift certificate liability. The
Company monitors redemptions rates as a percent of issuances and uses this
information to estimate probable redemption of all outstanding gift
certificates. This calculation is based on historical experience, and future
redemption rates may vary if consumer purchasing practices change.

Factors That May Affect Future Results

The Companys short and long-term success is subject to many factors that
are beyond the Companys control. Stockholders and prospective stockholders in
the Company should consider carefully the following risk factors, in addition
to other information contained in this report. This Report on Form l0-Q
contains forward-looking statements, which are subject to a variety of risks
and uncertainties. The Companys actual results could differ materially from
those anticipated in these forward-looking statements as a result of various
factors including those set forth below.

Economic Conditions.The retail industry historically has been subject to
substantial cyclical variations. The merchandise sold by the Company is
generally a discretionary expense for its customers. A recession in the
general economy or uncertainties regarding future economic prospects that
affect consumer spending habits has had, and may in the future have, a
materially adverse effect on the Companys results of operations.

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

Regional Market Concentration.Currently, all of the Companys stores are
located in Southern California and the Las Vegas area of Nevada. Accordingly,
the Company is subject to regional risks, such as the economy, weather
conditions, natural disasters and government regulations. For example, warm
winter weather in the resorts frequented by Southern California residents has
affected sales in the past. When the region suffers an economic downturn or
when other adverse events occur, historically there has been an adverse effect
on the Companys net sales and profitability and this could also affect the
Companys 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.

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Reliance on a Single Distribution Center.The Company currently relies on
a single distribution center in Ontario, California. Any natural disaster or
other serious disruption to this distribution center due to fire, earthquake or
any other cause could damage a significant portion of the Companys inventory
and could materially impair both the Companys ability to adequately stock its
stores and the Companys net sales and profitability.

Expansion Plan.The Companys continued growth depends on a strategy of
opening new, profitable stores in existing markets and in new regional markets.
The ability to successfully implement this growth strategy could be negatively
affected by any of the following:



| |  |  | suitable sites may not be available for leasing;                                                   
| | - |  | ---------------------------------------------------------------------------------------------------
|
| |  |  | the Company may not be able to negotiate acceptable lease terms;                                   
|
| |  |  | the Company might not be able to hire and retain qualified store personnel; and                    
|
| |  |  | the Company might not have the financial resources necessary to
fund the Companys expansion plans.

In addition, the Companys expansion in new and existing markets may
present competitive, distribution and merchandising challenges that differ from
the current challenges. These potential new challenges include competition
among the Companys stores, added strain on the Companys distribution center,
additional information to be processed by the Companys information systems and
diversion of management attention from ongoing operations. The Company faces
additional challenges in entering new markets, including consumers lack of
awareness of the Company, difficulties in hiring personnel and problems due to
the Companys unfamiliarity with local real estate markets and demographics.
New markets may also have different competitive conditions, consumer tastes and
discretionary spending patterns than the Companys existing markets. To the
extent that the Company is not able to meet these new challenges, net sales
could decrease and operating costs could increase. Furthermore, 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 affect the Companys current growth plan. There can be
no assurance that the Company will possess sufficient funds to finance the
expenditures related to its planned growth, that new stores can be opened on a
timely basis, that such new stores can be operated on a profitable basis, or
that such growth will be manageable.

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

Management of Growth.Since its inception, the Company has experienced
periods of rapid growth. No assurance can be given that the Company will be
successful in maintaining or increasing its sales in the future. Any future
growth in sales will require additional working capital and may place a
significant strain on the Companys management, information systems, inventory
management and distribution facilities. 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

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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 sales volume increases significantly during the
Holiday season as is typical with other sporting goods retailers. In addition,
the Companys product mix has historically emphasized cold weather sporting
goods increasing the seasonality of the Companys business. In recent years
the months of November, December and January represent between 31% and 33%, of
the Companys total net sales, while winter-related products ranged from 15% to
19% of total net sales. The operating results historically have been influenced
by the amount and timing of snowfall at the resorts frequented by those living
in Southern California. An early snowfall often has influenced sales because
it generally extends the demand for winter apparel and equipment, while a late
snowfall may have the opposite effect. Suppliers in the ski and snowboard
industry require the Company to make commitments for purchases of apparel and
equipment by April for fall delivery, and only limited quantities of
merchandise can be reordered during the fall. Consequently, the Company places
its orders in the spring anticipating snowfall in the winter. If the snowfall
does not at least provide an adequate base or occurs late in the season, or if
sales do not meet projections, the Company may be required to mark down its
winter apparel and equipment.

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

Closely Controlled Stock.At July 31, 2003, Norbert Olberz, the Companys
founder, Chairman Emeritus, director and principal stockholder, 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.

Information Systems are Vulnerable.The Companys success, in particular
the Companys ability to successfully manage inventory levels and its
centralized distribution system, largely depends upon the efficient operation
of the Companys computer hardware and software systems. The Company uses
information systems to track inventory information at the store level,
replenish inventory from the Companys warehouse, and aggregate daily sales
information among other things. These systems and the Companys operations are
vulnerable to damage or interruption from:



| |  |  | earthquake, fire, flood and other natural disasters;                                                                                                                                                                                
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | power loss, computer systems failures, internet and
telecommunications or data network failure, operator negligence,
improper operation by or supervision of employees, physical and
electronic loss of data and similar events; and
|
| |  |  | computer viruses, penetration by hackers seeking to disrupt
operations or misappropriate information and other breaches of
security.                                                                                                

14



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The Company seeks to minimize these risks by the use of backup facilities
and redundant systems. Nevertheless any failure that causes an interruption in
the Companys operations or a decrease in inventory tracking could result in
reduced net sales.

Anticipating Consumer Tastes.If the Company fails to anticipate changes
in consumer preferences, it may experience lower net sales, higher inventory
markdowns and lower margins. Products must appeal to a broad range of
consumers whose preferences cannot be predicted with certainty. These
preferences are also subject to change. Sporting goods are often subject to
short-lived trends, such as the short-lived popularity of in-line scooters.
Outdoor wear is significantly influenced by fashion. The Companys success
depends upon the ability to anticipate and respond in a timely manner to trends
in sporting goods merchandise and consumers participation in sports. Failure
to identify and respond to these changes may cause net sales to decline. In
addition, because the Company generally makes commitments to purchase products
from vendors up to six months in advance of the proposed delivery, misjudging
the market may over-stock unpopular products and force inventory markdowns that
could have a negative impact on profitability, or have insufficient inventory
of a popular item that can be sold at full markup.

Stock Price.The Companys Common Stock is thinly traded making it
difficult to sell large amounts. 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 Common Stock.

15



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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Companys exposure to interest rate risk consists primarily of
borrowings under its credit facility, which bears interest at floating rates
(primarily LIBOR rates). The impact on earnings or cash flows during the next
fiscal year from a change of 100 basis points in the interest rate would not be
significant.




Item 4. Controls and Procedures.

The Chief Executive Officer and the Chief Financial Officer of the
Company, with the participation of the Companys management, carried out an
evaluation of the effectiveness of the Companys disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15(e). Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer believe
that, as of the end of the period covered by this report, the Companys
disclosure controls and procedures are effective in making known to them
material information relating to the Company (including its consolidated
subsidiaries) required to be included in this report.

Disclosure controls and procedures, no matter how well designed and
implemented, can provide only reasonable assurance of achieving an entitys
disclosure objectives. The likelihood of achieving such objections is affected
by limitations inherent in disclosure controls and procedures. These include
the fact that human judgment in decision-making can be faulty and that
breakdowns in internal control can occur because of human failures such as
simple errors or mistakes or intentional circumvention of the established
process.

There were no changes in the Companys internal control over financial
reporting, known to the Chief Executive Officer or the Chief Financial Officer
that occurred during the period covered by this report that has materially
affected, or is likely to materially affect, the Companys internal control
over financial reporting.

16



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##### Table of Contents






Part II  OTHER INFORMATION




Item 1. Legal Proceedings.

The Company is involved in various routine legal proceedings incidental to the
conduct of its business. Management does not believe that any of these legal
proceedings will have a material adverse impact on the business, financial
condition or results of operations of the Company, either due to the nature of
the claims, or because management believes that such claims should not exceed
the limits of the Companys insurance coverage.




Item 2. Changes in Securities and Use of Proceeds.

The Company adopted the Sport Chalet, Inc. Employee Retirement Savings Plan
(the Retirement Plan) effective April 1, 1997. Eligible employee participants
are permitted to make voluntary contributions to the Retirement Plan, through
payroll deductions which may be matched, in part, by the Companys
contributions. Such contributions can be used by the participant to purchase
interests in certain mutual funds or shares of the Companys Common Stock.

Since October 1, 1999, 114 past and current participants in the Retirement
Plan have purchased an aggregate of 17,286 shares of the Companys Common Stock
by means of employee contributions at an average price of $7.89 per share.
Forty-one of these participants are no longer employed by the Company, and
12,641 shares purchased with the employee contributions have been sold during
such period at an average price of $7.02 per share. All purchases and sales of
shares were handled by an independent trustee in open market transactions at
prevailing market prices.

The Company has learned that it unintentionally did not register the
participation interests in the Retirement Plan or the Common Stock purchased
under the Retirement Plan. Accordingly, the Company has filed a Registration
Statement on Form S-8 for an indeterminate number of participation interests
and 50,000 shares of the Companys Common Stock that may be issued in the
future under the Retirement Plan.




Item 3. Defaults Upon Senior Securities.

Not Applicable




Item 4. Submission of Matters to a Vote of Securities Holders.

None

17



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Item 5. Other Information.

Stockholder Proposals

The proxy materials for the 2003 annual meeting of the stockholders to be
held on August 1, 2003 were mailed to stockholders of the Company on June 20,
2003. Under certain circumstances, stockholders are entitled to present
proposals at stockholders meetings. Any such proposal to be included in the
proxy statement for the Companys 2004 annual meeting of stockholders must be
submitted by a stockholder prior to February 22, 2004 in a form that complies
with applicable regulations. In the event a stockholder proposal is not
submitted to the Company prior to May 7, 2004, the proxies solicited by the
Board of Directors for the 2004 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 2004
annual meeting of stockholders without any discussion of the proposal in the
proxy statement for such meeting.




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

| |  |     |  |           |  | 
| |  | --- |  | --------- |  | 
| |  | (a) |  | Exhibits: |  | 

| |  |  |      |  |  |                                                                                                                      
| |  |  | ---- |  |  | ---------------------------------------------------------------------------------------------------------------------
| |  |  | 31.1 |  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                              
| |  |  |      |  |  |                                                                                                                      
| |  |  | 31.2 |  |  | Certification Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002                                              
| |  |  |      |  |  |                                                                                                                      
| |  |  | 32.1 |  |  | Certification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

| |  |     |  |                      |  | 
| |  | --- |  | -------------------- |  | 
| |  | (b) |  | Reports on Form 8-K: |  | 
| |  |     |  | None                 |  | 

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SIGNATURE

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

|                    |  |     |  |                                                                                                                                        
|------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|                    |  |     |  | SPORT CHALET, INC.                                                                                                                     
|                    |  |     |  |                                                                                                                                        
|DATE: July 31, 2003 |  | By: |  | /s/ HOWARD K. KAMINSKY                                                                                                                 
|                    |  |     |  |                                                                                                                                        
|                    |  |     |  | Howard K. Kaminsky
Executive Vice President-Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting Officer)

19