Expansion plans lift retailer into view of larger investors.

Even microcap companies can get recognition in the stock market when management introduces new growth plans.

Sport Chalet Inc., which has been operating in Southern California for 45 years, has seen its shares double in the past five months to $13 with its recent expansion into Sacramento and Las Vegas.

The timing couldn't have been better. Sport Chalet reported an 18 percent jump in net income for the third quarter ended Dec. 31--one of its strongest quarters ever.

Chairman and Chief Executive Craig Levra said investments in technology have begun to pay off, allowing the company to control back-end costs. Above-average snowfall on the West Coast also translated into robust sales of snowboard and ski equipment.

Still, one major drawback remains--La Canada-based Sport Chalet, with 28 stores in two states, is thinly traded.

Even the smallest of moves by an institutional investor can send the stock soaring--or tanking. Investors who are familiar with the volatile micro-cap asset class--where market capitalizations range from $50 million to $150 million - warn of potentially wide market swings, particularly after the run-up of the past year.

With its new expansion plan, Sport Chalet increasingly looks like a takeover candidate. Management thinks otherwise. "We're really not for sale," said Levra. "We've been a sleepy little company for a long time."

Sport Chalet's stock began moving up in November after the company opened its first store in Northern California and, in December, in Sacramento. There are plans to open five stores this year, compared with an average of three new store openings in past years.

Inside ownership

The founder of Sport Chalet, Norbert Olberz, holds 65 percent of outstanding shares, giving the stock a small float and little recognition.

Still, the company's profitability makes it attractive to microcap funds. Dimensional Fund Advisors in Santa Monica and the California Public Employees Retirement System are large holders.

Gary Holdsworth, an analyst with Wedbush Morgan Securities in Los Angeles, recognizes the stock's fundamental problem: it practically trades by appointment only.

"Because this is a microcap stock with no volume, it doesn't take a lot to make it move," said Holdsworth, whose firm owns Sport Chalet shares and hits acted as its investment banker. "We felt that it is an acquisition target for someone that wants to go into the West Coast."

Consumers appear to be spending freely at sporting goods stores, judging by the rise in stock prices for the sector. Shares of Big Five Sporting Goods Corp. of El Segundo, have jumped 121 percent in the past year to close at $26.66 a share on April 7, compared with $12.03 a year ago.

Sport Chalet reported net income of $3.1 million for the third quarter ended Dec. 31, compared with $2.6 million for the like period a year earlier. Sales rose 10.3 percent to $79.7 million, from $72.3 million in the third quarter of 2003.

Shares of Sport Chalet rose 79 percent in the past year, closing at $12.65 on April 7, compared with $7.07 a share a year ago.

Major competitors are Wal-Mart Stores Inc. and Costco Wholesale Corp.

Other large competitors include Big Five with 275 stores; Dicks Sport Goods Inc. of Pittsburgh, with 141 stores; REI Outfitters (Recreational Equipment Inc.) in Sumner, Wash., with 69 stores; and Sports Authority Inc. of Englewood, Colo. with 388 stores operating under the Sportmart and Oshman's names.

More than a year ago, Sport Chalet invested in Windows-based supply chain software to get its infrastructure in place for expansion. Levra chose HighJump Software, of Eden Prairie, Minn., and believes the investment in technology has dramatically improved efficiency.

"When I got to the company six years ago, we were pulling stuff off the shelves, marking it with pen and paper and inputting the numbers into a computer," Levra said in a phone interview from Mammoth, where he was skiing. "Now we're scanning everything in real time so we know where all the merchandise is."

YEAR (March 31)              2003     2002

Revenue (millions)           $238   $227.3
Cost of Sales (millions)   $230.9    219.2
Operating Income (millions)   7.1      8.1
Net Income (millions)         4.2      4.8
Earnings Per Share          $0.60    $0.69

SUMMARY

Business: Sporting goods retailer
Headquarters: La Canada
CEO: Craig Levra
Market Cap: $86.1 million Dividend Yield: None
Total Liabilities: $47.1 million P/E Ratio: 21.3
Long-Term Debt: $0

Kate Berry can be reached at 323-549-5225, ext. 228, or at [e-mail].