Feltl and Company Research Department 2100 LaSalle Plaza 800 LaSalle Avenue Minneapolis, MN 55402 1.866.655.3431

Mark E. Smith [email protected] | 612.492.8806

Big 5 Sporting Goods Corp. Consumer- Retail Se p tember 20, 2010 Company Description: Corp. operates 388 sporting goods stores in the Western . Big 5 focuses on value priced merchandise including athletic shoes, apparel, accessories, outdoor and athletic equipment for team sports, fitness, camping, fishing, tennis, golf, snowboarding and skating. The company was founded in 1955 and has its headquarters in El Segundo, CA.

Initiating coverage with a STRONG BUY rating and $17 price target (BGFV - $11.88) STRONG BUY Key Points Financial Summary We are initiating research coverage on Big 5 Sporting Goods Corp. (BGFV) with a STRONG BUY rating and a $17 price target. Big 5 is a value focused retailer appealing to consumers in both good and bad times. BGFV’s focus on a wide assortment of value priced products has Rev(mil) 2010E 2011E 2012E helped the company boost sales from thrifty consumers. Despite the company’s large exposure to markets especially hard hit by the current recession (CA, NV and Mar $219A $223E $236E AZ) same-store sales have improved over the last 18 months. We think the value Jun $220A $230E $239E priced offerings will remain attractive to consumers even with a marked Sep $234E $245E $255E improvement in consumer spending. Dec $232E $242E $254E

BGFV has high gross margins despite its value focus. In 2009 BGFV FY $904E $941E $984E produced 33.2% gross margins, better than its closest peers. We think the P/Sales 0.29x 0.28x 0.26x selective buying, smaller store size, and merchandise mix of exclusive branded and private label items help BGFV produce industry leading margins. Approximately 45% of items sold are unique to BGFV and carry higher margins. Unique advertising strategy helps produce positive sales. BGFV uses a weekly four-page newspaper advertisement to highlight promotions. These ads EPS 2010E 2011E 2012E are placed in local and regional newspapers and are also viewed online. This strategy helps BGFV save advertising costs while reaching a large swath of its core Mar $0.23A $0.25E $0.29E customers. Jun $0.22A $0.25E $0.29E Sep $0.33E $0.38E $0.44E We think there are ample growth opportunities for BGFV. With only 388 stores Dec $0.30E $0.35E $0.41E in 12 Western states, we think BGFV has ample opportunities for store growth. We think most growth over the next two years will be backfilling existing markets with FY $1.08E $1.23E $1.42E selective geographic expansion. Management has a history of prudent growth, P/E 11.0x 9.7x 8.4x which we find strategically appealing. Additionally, we think BGFV is poised to produce positive, consistent comp growth after three years of same-store sales declines. BGFV produces strong free cash flow from its prudent growth and strong margins. We project $1.09, $1.24 and $1.43 of free cash flow per share in 2010, 2011 and 2012, respectively. We think the historically conservative growth has Price: $11.88 helped the company avoid “growing pains” while maintaining strong cash flow. We 52-Week Range: $18.39-$10.77 Target: $17.00 expect the company will continue to deleverage the balance sheet and completely Rating: STRONG BUY repay its debt in early 2012. We think share repurchases or an increased dividend could happen once the debt is removed. Shares Outstanding: 21.8 mil Mkt. Capitalization: $259 mil INVESTMENT THESIS Ave. Volume: 130,600 We are initiating coverage with a STRONG BUY rating and $17 price target. Instit. Ownership: 77% BGFV has industry leading margins, experienced management with a proven track BV / Share: $6.45 record and unwavering loyalty to the business model, a solid advertising program, Debt / Tot. Cap.: 32% and significant growth opportunities. We think the company will continue to thrive Est. LT EPS Growth: 15% in good or difficult economic times. BGFV currently trades at 9.7x our 2011 EPS estimate while its peers trade at approximately 13x forward earnings. We think the company deserves a multiple roughly inline with its peers and our expected earnings growth rate of 15%. We derive our $17 price target by applying a 14x multiple to our 2011 EPS estimate of $1.23. With over 40% price appreciation potential to our target we are initiating coverage with a STRONG BUY rating.

Please see important disclosures on pages 12 to 14.

September 20, 2010

Company Overview Big 5 Sporting Goods is a leading sporting goods retailer in the western United States, operating 388 stores in 12 states. With an average store space of 11,000 square feet, Big 5 is smaller than superstores that typically average over 35,000 square feet. With smaller stores, Big 5 has more flexibility regarding new store locations allowing them to be in both major metropolitan areas and in areas with as few as 50,000 people, which is something its larger competitors cannot do. Since Big 5's stores are smaller than its competitors, new store openings require relatively low investment and typically a short amount of time before generating profits..

Big 5 sells athletic shoes, apparel and accessories, as well as a broad selection of outdoor and athletic equipment for team sports, fitness, camping, hunting, fishing, tennis, golf, snowboarding and in-line skating, through its stores. The company sells major brand name merchandise from manufacturers such as adidas, Coleman, Easton, New Balance, Nike, Reebok, Spalding, Under Armour and Wilson. Big 5 purchases merchandise from over 700 vendors with Nike being the largest at 6%. Major brands account for approximately 55% of sales. The company also sells branded merchandise manufactured exclusively for Big 5, accounting for approximately 32% of sales. We think the exclusive merchandise produces margins 300-500 bps higher than branded in-line products. Approximately 10% of products sold are from opportunistic buying opportunities which the company sources at significant discounts and also carrying higher margins than branded in-line items. Big 5 also sells private label merchandise under its owned labels comprising Court Casuals, Golden Bear, Harsh, Pacifica, Rugged Exposure, and Triple Nickel, in addition to labels licensed from a third party, including Avet, Body Glove, Hi-Tec, Maui & Sons, and Realm and The Realm. Private labels account for approximately 3% of sales.

Product Mix

Br ande d Opportunistic Private Label Buy 3% 10%

Br ande d In-Line Br ande d 55% Exclusive to Big 5 32%

Source: Company

Big 5 operates one distribution center in that supplies all of its stores. The distribution center is approximately 953,000 square feet and the company ships merchandise to stores at least once a week. We think the company has excess capacity in the distribution center for the next several years.

Robert W. Miller co-founded Big 5 in 1955 with the establishment of five retail locations in California. The company sold World War II surplus items until 1963, when they began focusing exclusively on sporting goods and changed the name to “Big 5 Sporting Goods”. In 1971, Big 5 was acquired by Thrifty Corporation, which was subsequently purchased by Pacific Enterprises. In 1992, management bought the company in conjunction with Green Equity Investors, L.P., an affiliate of Leonard Green & Partners, L.P. In 1997, Robert W. Miller, Steven G. Miller and Green Equity Investors, L.P. recapitalized the company so that the majority of our common stock would be owned by management and employees. In 2002, Big 5 completed an initial public offering.

Dividend: Big 5 currently pays a $0.05 per share quarterly dividend. The dividend was reduced from $0.09 in 2009 due to the economic environment. The current yield is 1.7% which makes the shares more attractive to income investors, but the reduced dividend was disappointing. We expect the company will maintain the dividend at current levels until the debt is further reduced or eliminated; we model a debt free balance sheet in early 2012.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 2 September 20, 2010

Management: Steven G. Miller, Chairman of the Board, Chief Executive Officer and President. Mr. Miller has been with the company for over forty years at almost every level and has served in his current roles of Chairman of the Board, Chief Executive Officer and President since 2002, 2000, and 1992, respectively. Prior to that Mr. Miller Served as the COO from 1992 to 2000 and Executive Vice President of Administration from 1988 to 1992. He has also served as a director since 1992.

Richard A. Johnson, Executive Vice President. Mr. Johnson has been in his current role as Executive Vice President since March of 2007. Prior to that Mr. Johnson served as the Senior Vice President of Store Operations since 1992 and was the Vice President of Store Operations since 1982.

Barry Emerson, Chief Financial Officer, Treasurer, and Senior Vice President. Mr. Emerson has been Chief Financial Officer and Treasurer since October of 2005 and Senior Vice President since September of 2005. Prior to joining Big 5, Mr. Emerson was Vice President, Treasurer and Chief Financial Officer of U.S. Auto Parts Network in 2005. Prior to that he held those same roles at Elite Information Group from 1999 to 2004.

Gary S. Meade, Senior Vice President, General Counsel and Secretary. Mr. Meade has served in his current roles of Senior Vice President and General Counsel and Secretary since 2001 and 1997, respectively. From 1997 to 2001 Mr. Meade also served as Vice President. Prior to joining the company Mr. Meade was Vice President, Legal Affairs and Secretary from 1994 to 1996 by Thrifty Payless and from 1979 to 1992 served in those same roles for Thrifty Corporation.

Thomas Schlauch, Senior Vice President of Buying. Mr. Schlauch has served in his current role since 1992 and was head of Buying from 1990 to 1992. Prior to that Mr. Schlauch was Vice President of Buying from 1982 to 1990.

Shane O. Starr, Senior Vice President of Operations. Mr. Starr has served in his current role since March of 2007 and prior to that he was the companies Vice President of Operations since 1999.

Industry Sporting goods stores sell merchandise including bicycles, camping equipment, exercise and fitness equipment, apparel, footwear and other sporting goods and accessories. Products are sourced from sporting goods manufacturers and wholesalers and sold to the general public via retail stores. According to IBISWorld, the sporting goods retail segment had annual revenue of $39 billion in 2009 and is projected to be $38.4 billion in 2010 and grow to $40.5 billion by 2015. This industry number is significantly higher when considering department stores and other mass merchants, which would put the industry total to around $125 billion.

Industry Revenue & Forecasts

41,000.0

40,000.0

39,000.0

38,000.0

37,000.0

36,000.0

35,000.0

34,000.0

33,000.0 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E Sour c e: IBIS Wor ld

Demand for specialized sporting goods stores has been affected by increasing levels of competition from department stores and mass merchandisers. Industry operators have evolved from small family-owned businesses to large national chains with major buying power. Still, competition from larger department stores and mass merchandisers continues to threaten these businesses and negatively affect profit margins. Fluctuations in personal disposable income, sports participation and consumer sentiment have also affected revenue and will continue to be major factors that will affect the industry.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 3 September 20, 2010

U.S. Sports Stores By Region

12,000 10,110 10,000

8,000 7,332 6,102 5,744 6,000 3,662 4,000 3,132 3,030 2,763 2,000

0

t st s ic st es e t e ns W ai land hea hw Pl ng E Sout Sout Great Lak Mid-Atlan Sour c e: IBIS Wor ld New Rocky Mountains

The Sporting Goods Industry is broken up into 3 product and services categories: sporting equipment, athletic apparel and athletic footwear.

Comparison: Big 5 Sporting Goods vs. Industry Product Mix

Big 5 Sporting Goods Industry Athletic

Apparel Athletic Apparel

16% Sporting 20% Equipment 34%

Sporting Athletic Equipment 55% Footwear 29% Athletic Footwear 46%

Source: Big 5, IBIS World

Competition Dick’s Sporting Goods Inc. Dick's Sporting Goods operates as a full-line sporting goods retailer offering a broad assortment of brand name sporting apparel and footwear. Dick’s operates 425 Sporting Goods stores in 42 states and an additional 89 Golf Galaxy stores in 31 states. Dick's stores generally contain five stand-alone specialty stores. By creating a distinct look and feel for each specialty department, Dick's aims to heighten customer interest. The five specialty shops usually include the Pro Shop (golf store with putting green and hitting area), the Footwear Center (complete with a track for testing athletic shoes), the Cycle shop (designed to sell and service bikes), the Sportsman's Lodge (designed as an authentic bait and tackle store) and Total Sports (a seasonal sports display area). The Dick’s Sporting Goods stores average about 56,000 square feet, while the Golf Galaxy stores average 16,000 square feet. Dick's Clothing and Sporting Goods was incorporated in 1948 by Dick Stack. The company changed its name to Dick's Sporting Goods in 1999 and went public in 2002. Dick's Sporting Goods acquired rival competitor Galyan's for about $305.0 million in 2004. Further acquisitions were undertaken in 2007, with the purchase of Golf Galaxy (65 golf superstores) for $226.0 million and Chick's (15 stores) for $71.0 million, with the latter converted to Dick’s Sporting Goods stores in Q2 2009.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 4 September 20, 2010

Cabela’s Cabela’s is the world’s largest direct marketer and a leading specialty retailer of hunting, fishing, camping and other outdoor equipment. The multi-channel retail model (catalog, internet and brick-and-mortar stores) helps the company reach and service more customers. We think the company’s subsidiary bank helps CAB retain customers through loyalty reward programs and the financing provides a boost to earnings. About 51% of Cabela’s revenue comes through retail business, 43% direct, and 6% Financial Service Revenue. Cabela’s was founded in 1961 as a direct mail outdoor products retailer. The direct mail business grew with the introduction of its first catalog in 1963, leading to Cabela’s current expansive catalog business. CAB produces nearly 100 catalog titles per year focusing on a wide range of outdoor equipment which are shipped to all 50 states and over 190 countries. In 2008 the company shipped over 133 million catalogs. In 1998 the company launched its website, www.cabelas.com. CAB opened its first retail store in 1987 in Kearney, Nebraska and has since grown to 31 stores (30 in the U.S. and one in Canada). The company made an acquisition of S.I.R., a Canadian outdoor retailer, in 2007. In 1995 the company chartered its subsidiary bank, World’s Foremost Bank. Through the banking business CAB issues and manages the Cabela’s CLUB Visa card which helps promote customer loyalty. CAB went public in 2004 (7.8 million shares at $20) and is listed on NYSE.

The , Inc. The Sports Authority is regarded as one of the largest sporting goods store in the United States. The Sports Authority sells sports equipment, general merchandise, shoes and apparel. The company operates over 450 retail stores in 45 states and trades under The Sports Authority, Gart Sports and Sportmart storefronts. The company also operates online retail via an agreement with GSI Commerce and about 40 stores in Japan via a joint venture with AEON. The Sports Authority was established by Jack Smith in 1987. In 1998, the company agreed to be purchased by Venator Group (now Foot Locker) for over $500.0 million. However, Gart Sports placed a counter bid of $442.0 million to merge with the company. In January 2006, Sports Authority agreed to be purchased in a leveraged buyout by affiliates of Leonard Green & Partners a private equity investment firm, in a transaction valued at $1.4 billion. Shareholders approved the deal in 2006 and The Sports Authority went private.

Academy Sports & Outdoors Academy Sports & Outdoors is a private company operating over 100 stores throughout the South and Southwest regions of the U.S in 11 states. Academy's product offerings focus on apparel and equipment for outdoor activities such as camping, hunting, fishing and boating. Academy stores are generally painted white on outside, with red and blue signage. On the inside, they are similarly painted white, giving stores an open, clean appearance. With over 100,000 square feet the floor plan in all stores are similar. Walking into the store, team sports and footwear are on the left wall, camping on the back wall, hunting and fishing on the right wall, apparel in the middle and the registers on the front wall, leading to the exit. Many stores feature a small putting green to test out putters on in its Golf Shop. The company has focused on low prices and a large selection to double revenues from $1 billion in 2004 to $2 billion today. The company was founded in 1938 by Max Gochman in San Antonio, TX.

Steady, Consistent Growth We think BGFV has a proven business model and management team dedicated to operating under a proven plan. We think offering a wide-range of products with emphasis on value produces positive results in good and difficult consumer environments. We think the product mix is a key component to BGFV’s business model. Selling high margin products that are attractive to value-conscious consumers will continue to be a successful venture for Big 5, in our opinion, even with an improving consumer. With approximately 45% of its products being exclusive to Big 5, opportunistic buys or private label goods, we think the company can consistently produce industry leading gross margins. Margins on these items are likely 300-500 basis points higher than branded in-line goods.

The merchandising model for Big 5 has been successful, in our view, due to the wide range of products the company is able to sell. From athletic shoes to apparel and accessories, Big 5 covers most major team and individual sports and many recreational and outdoor activities. With a wide range of products and consistently low prices, we think Big 5 is a one-stop shop for many shoppers. Big 5 stores are typically only 11,000 square feet, but the company manages to sell approximately 25,000 SKU’s.

Advertising Big 5 produces a weekly newspaper flyer that is typically four pages long for advertising. The advertisements are created “in-house” by Big 5 allowing the company to react quickly to trends and move excess inventory while reducing costs. The advertisements are placed in over 13 million newspapers and mailers each week and reach a broad swath of the population in Big 5’s markets. We think Big 5 has high brand awareness and its special offers help create loyal customers and boost sales. Over 45% of sales come from advertised products.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 5 September 20, 2010

Unit growth Big 5 has historically had a conservative unit growth of 5%-6% annually with 20 units added in 2007 being the highest growth in the last six years. Unit growth slowed in 2008 with the recession to only three units, and increased slightly in 2009 to nine units. We think the company is preparing for more normalized growth with guidance for 10-15 net units in 2010. We conservatively model 13 net units added in both 2010 and 2011 and an increase to 16 net units added in 2012. Growth may exceed these estimates if consumer spending increases, but we do not expect the company to grow at more than 5% annually given the conservative nature of management. We think the majority of new growth will be in Big 5’s current footprint to better leverage the distribution center, brand awareness and real estate opportunities.

Big 5’s smaller footprint stores (approximately 11,000 square feet) allow the company to open stores quickly and use a variety of store layouts. We think the flexibility and low cost of the stores allows Big 5 to enter markets too small for larger competitors. Big 5 has strong brand equity as a neighborhood sporting goods store and typically has local ties to sell team sports equipment. We think there are ample growth opportunities in Big 5’s existing markets, including further penetration in California, but look forward to growth in the Northwest and .

State Number of stores % of total California 195 50.8% 43 11.2% 34 8.9% 22 5.7% 21 5.5% 16 4.2% 15 3.9% 15 3.9% 11 2.9% Texas 11 2.9% Oklahoma 1 0.3% 384 100.0%

Same-store sales growth Prior to the current recession Big 5 had a substantial track record of producing consistently positive same-store sales. We think the company’s large exposure to California and other states hit especially hard by the recession led to the negative same-store sales in 2007, 2008 and early 2009. Over the last five quarters Big 5 has produced same-store sales ranging from (0.5%) - +2.4% and has guided 3Q:10 same-store sales from flat to positive low-single digits. We think the company has fixed many of the issues that led to negative comps including effectively managing inventory.

We project same-store sales will increase 0.8%, 0.7%, and 1.1% in 2010, 2011, and 2012, respectively. We think the operating environment will remain difficult in Big 5’s key markets and note that an upswing in consumer spending and lower unemployment would lead us to raise our estimates, especially improving trends in California. We think management has

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 6 September 20, 2010

reduced costs and any comp improvements above our estimates would have significant earnings leverage. We do not expect management will deviate from the current business model and will work on the basic “blocking and tackling” of retailing, i.e. opportunistic buying, managing inventory, improving vendor and customer relationships and watching overhead.

Margin improvement Similar to our views on improving same-store sales, we think management will continue to operate stores according to the current business plan and do not expect any significant changes to operations. We model gross margins of 33.3% in 2010 and 33.5% in 2011 and 2012. These estimates are below the company’s historical gross margins which ranged from 33.2% to 36.5% during 2003-2009. We note that our model assumes inflationary pressure as the economy improves and think the company will be able to raise prices to cover any rising costs.

We think the company has more opportunity to leverage SG&A expenses over the next few years and project SG&A expense of 29.0%, 28.7% and 28.2% in 2010 through 2012, respectively. We think the company has tightened its belt and can leverage SG&A with minimal same-store sales and unit growth over the next few years. Historically SG&A has ranged from 26.7% to 29.8% since 2003.

Improving the Financial Profile: Balance Sheet Big 5 has a relatively clean balance sheet with $64.1mm in long-term debt at the end of 2Q:10. Long-term debt was up sequentially from 1Q:10 levels of $45.5mm due to building inventories in anticipation of a strong back to school selling period, but debt has declined from over $107mm at year-end 2007 (including capital leases) to $67.6mm today. We are encouraged by the debt reduction and think the company has a healthy financial profile with LT debt/EBITDA of 1.1x. Big 5 is currently refinancing its current credit agreement which expires in March, 2011 and we expect it will announce a new agreement shortly. We expect minimal increases to the rate of 100-150 basis points; currently LIBOR plus 1%-1.5%. We expect the company will continue using excess cash to reduce debt and project the balance sheet will be debt free in early 2012.

Cash Flow Big 5 produces strong free cash flow due to its industry leading margins, effective management of working capital and low capital expenditures. We project free cash flow per share of $1.09, $1.24 and $1.43 in 2010 through 2012, respectively. Free cash flow was especially strong in 2009 as the company reduced its new store openings and spent only $5.8mm in capital expenditures compared to over $20mm in cap ex in 2008 and 2007. We expect capital expenditures of $15.5mm, $16.5mm, and $19.5mm in 2010 through 2012, respectively, as the company begins opening more new stores. Management has guided 2010 capital expenditures of $14mm-$17mm. The free cash yield is attractive and we think the company produces ample cash to service the current debt. We expect cash will be used to reduce debt in 2010 and 2011 and a shift to share repurchases once the debt is gone. The company currently has a share repurchase authorization of over $14mm and we think management could begin repurchasing shares before the debt is fully repaid (not reflected in our model). We do not anticipate any increases to the current dividend through 2012 and would expect the board to be cautious due to the disappointment of having to reduce the dividend in 2009.

Recent Results We think Big 5 has recovered from the economic malaise and has improved results significantly. 2Q:10 same-store sales declined (0.5%) after four consecutive quarters of same-store sales growth. Despite the comp decline, total revenue still increased 1.8% year over year as Big 5 has begun opening new stores and a calendar shift was beneficial to sales. Gross margins have seen five consecutive quarters of year-over-year improvements despite a still difficult environment. This helped produce significantly better earnings over the last twelve months versus depressed comparisons. Recent results give us confidence that Big 5 is returning to a more normalized performance. Management seems encouraged by recent results and expects strong results from back to school sales as evidenced by a large increase in inventory in 2Q:10. Management ramped up inventory to $252mm at the end of 2Q:10 compared to $241mm at the end of 2Q:09.

Management used debt to fund the larger inventory and debt increased to $64.1mm in 2Q:10 compared to $45.5mm in 1Q:10. Although we typically would be concerned by an inventory increase like this, we are encouraged by management’s confidence in being able to sell through the inventory. Big 5 has been using its strong cash flow to reduce debt and paid down over $40mm in debt in 2009.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 7 September 20, 2010

Outlook and Valuation We think Big 5 is poised to return to mid-teens earnings growth in 2011 and 2012 after 8% projected earnings growth in 2010. We model flat to low-single-digit same-store sales for 2010 through 2012 and think the company’s strategy of value priced items will continue to resonate with customers. Additionally, modest unit growth will help boost revenues leading to 1.0%, 4.1% and 4.6% sales growth for the next three years. We project minor gross margin expansion, but think inflationary pressure and steep competition will keep gross margins below historical levels. We do think the company’s focus on cost controls will allow the company to further leverage SG&A expenses. Reduced interest expense from lowering debt will help boost earnings as we project EPS of $1.08, $1.23 and $1.42 in 2010 through 2012, respectively. The return of earnings growth in the mid-teens will be welcomed by shareholders, in our view.

We expect the financial profile to continue to improve with Big 5’s strong free cash flow being used to further reduce debt. Long-term debt will be eliminated by early 2012 in our model and we think management will then return cash to shareholders through share repurchases or increasing the dividend. Management currently has the ability to repurchase stock and we think any transactions would benefit shareholders. We think the shares look attractive given the double digit free cash flow yield on 2011 and 2012 estimates. We note that the company will have ample cash to fund new unit growth, but we think management will take a conservative approach to unit growth.

Big 5 shares have declined approximately 35% from its 52 week high in April compared to an approximate 13% decline in the Russell 2000 Index. We think the sell-off is overdone and BGFV shares are attractive. We acknowledge that Big 5 operates in strained markets, but we think the company has seen the worst of the economy, our model does not reflect drastically improved consumer spending and we think there is evidence things have begun to improve. Management’s guidance is upbeat, in our view, and we think results will begin to see strong improvement beginning in 2H:10 (excluding the impact of an extra operating week in 2H:09). BGFV shares currently trade at 9.7x our 2011 EPS estimates while its peers trade at approximately 13x forward earnings. We think Big 5 deserves a multiple roughly inline with its peers and inline with our long-term earnings growth rate expectations. We derive our $17 price target by applying a 14x multiple to our 2011 EPS estimate of $1.23. With over 40% price appreciation to our price target we initiate with a STRONG BUY rating.

Ticker Company (2011) P/E DKS DICK'S SPORTING GOODS INC 16.0 HIBB HIBBETT SPORTS INC 13.6 CAB CABELAS INC 10.2 GOLF GOLFSMITH INTERNATIONAL HOLDINGS 11.8 Average 12.9

BGFV BIG 5 SPORTING GOODS CORP 9.7 Source: First Call and Feltl and Company research

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 8

September 20, 2010

Big 5 Sporting Goods Corp. Income Statement Fiscal Year Mar-10 Jun-10 Sep-10 Dec-10 Fiscal Year Mar-11 Jun-11 Sep-11 Dec-11 Fiscal Year Mar-12 Jun-12 Sep-12 Dec-12 Fiscal Year $ in thousands except per share amounts 2009A Q1 AQ2 AQ3 EQ4 E2010E Q1 EQ2 EQ3 EQ4 E2011E Q1 EQ2 EQ3 EQ4 E2012E Revenue 895,542 218,521 219,828 233,531 232,441 904,321 223,469 229,830 245,312 242,328 940,940 236,067 238,756 255,398 254,061 984,282 Cost of Sales Cost of Sales 597,792 146,971 146,862 155,532 153,411 602,776 149,501 153,527 163,182 159,573 625,783 157,929 159,489 169,840 167,350 654,607 Gross Profit 297,750 71,550 72,966 77,999 79,030 301,545 73,968 76,304 82,131 82,755 315,158 78,138 79,267 85,558 86,711 329,675 Operating Profit Margin 33.2% 32.7% 33.2% 33.4% 34.0% 33.3% 33.1% 33.2% 33.5% 34.2% 33.5% 33.1% 33.2% 33.5% 34.1% 33.5%

General & Administrative 260,068 63,063 65,002 65,930 67,900 261,895 64,550 67,000 68,150 69,900 269,600 67,350 68,550 69,750 72,050 277,700 Operating Income 37,682 8,487 7,964 12,069 11,130 39,650 9,418 9,304 13,981 12,855 45,558 10,788 10,717 15,808 14,661 51,975 Operating Margin 4.2% 3.9% 3.6% 5.2% 4.8% 4.4% 4.2% 4.0% 5.7% 5.3% 4.8% 4.6% 4.5% 6.2% 5.8% 5.3%

Interest Expense, 2,465 404 363 489 400 1,656 350 315 285 235 1,185 255 225 215 220 915 Pretax Income 35,217 8,083 7,601 11,580 10,730 37,994 9,068 8,989 13,696 12,620 44,373 10,533 10,492 15,593 14,441 51,060 Income Tax 13,406 3,050 2,849 4,343 4,024 14,265 3,446 3,416 5,204 4,796 16,862 4,003 3,987 5,926 5,488 19,403 Tax Rate 38.1% 37.7% 37.5% 37.5% 37.5% 37.5% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0% 38.0%

Net Income, Common 21,811 5,033 4,752 7,238 6,706 23,729 5,622 5,573 8,491 7,824 27,511 6,531 6,505 9,668 8,953 31,657 Fully Diluted Common EPS1.010.230.220.330.301.080.250.250.380.351.230.290.290.440.411.42 EPS Growth Rate 56.6% 78.9% 0.5% -10.5% 4.3% 7.5% 10.4% 15.4% 15.2% 14.3% 14.0% 14.6% 16.5% 14.9% 16.2% 15.3% Diluted Shares Outstanding 21,657 21,843 21,893 21,950 22,000 21,922 22,100 22,250 22,350 22,450 22,288 22,400 22,300 22,150 22,100 22,238

Same-store sales -0.6% 2.4% -0.5% 0.1% 1.2% 0.8% -1.2% 1.6% 1.4% 0.8% 0.7% 2.3% 0.5% 0.5% 1.0% 1.1% Number of stores 384 386 388 391 397 397 400 402 405 410 410 413 416 420 426 426 Dividends per share $0.20 $0.05 $0.05 $0.05 $0.05 $0.20 $0.05 $0.05 $0.05 $0.05 $0.20 $0.05 $0.05 $0.05 $0.05 $0.20 EBITDA 57,082 13,034 12,824 16,966 16,026 58,850 14,381 14,266 18,943 17,818 65,408 15,913 15,842 20,933 19,786 72,475

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 9

September 20, 2010

Big 5 Sporting Goods Corp. Balance Sheet Fiscal Year Fiscal Year Mar-09 Jun-09 Sep-09 Fiscal Year Mar-10 Jun-10 Fiscal Year Fiscal Year Fiscal Year 2007A 2008A Q1A Q2A Q3A 2009A Q1A Q2A 2010E 2011E 2012E Current assets: Cash and cash equivalents 9,741 9,058 4,607 3,351 3,903 5,765 5,313 5,581 5,931 6,132 5,134 Receivables 14,927 16,611 8,930 8,690 6,620 13,398 7,742 12,005 14,500 14,900 15,000 Merchandise inventories 252,634 232,962 222,302 241,156 232,393 230,911 240,100 252,040 234,000 242,000 248,500 Prepaid expenses 7,069 8,201 6,978 10,536 7,581 9,683 9,153 10,360 9,350 9,200 9,500 Deferred income taxes 8,051 8,333 7,741 7,989 7,941 7,723 7,475 7,616 7,500 7,750 7,900 Total current assets 292,422 275,165 250,558 271,722 258,438 267,480 269,783 287,602 271,281 279,982 286,034

Long-term assets: Property and equipment, net 93,244 94,241 91,246 87,823 84,593 81,817 80,171 78,377 78,900 79,000 80,500 Deferred income taxes 12,780 13,363 13,144 13,033 17,060 11,327 12,363 13,195 11,500 12,000 12,250 Other assets 1,044 1,155 1,100 1,050 1,041 1,065 1,026 1,091 1,100 1,150 1,200 Goodwill 4,433 4,433 4,433 4,433 4,433 4,433 4,433 4,433 4,433 4,433 4,433 Total assets 403,923 388,357 360,481 378,061 365,565 366,122 367,776 384,698 367,214 376,565 384,417

Current liabilities: Accounts payable 95,310 88,079 86,054 103,451 85,124 85,721 98,307 96,143 85,500 87,000 90,000 Accrued expenses 62,429 55,862 47,545 48,200 60,658 59,314 53,115 49,490 58,000 60,000 61,000 Current portion of capital lease obligations 1,649 1,942 2,303 2,188 1,960 1,904 1,900 1,895 1,880 1,850 1,800 Total current liabilities 159,388 145,883 135,902 153,839 147,742 146,939 153,322 147,528 145,380 148,850 152,800

Long-term liabilities: Deferred rent 22,075 24,960 24,465 24,262 23,639 23,832 23,913 23,544 22,950 22,000 21,000 Capital lease obligations, less current portion 2,279 2,948 3,340 2,815 2,641 2,278 2,005 1,652 1,600 1,500 1,400 Long-term debt 103,369 96,499 76,547 72,608 59,697 54,955 45,504 64,083 38,755 18,515 0 Other long-term liabilities 7,657 6,267 6,328 6,513 6,252 6,257 6,612 6,712 6,500 6,600 6,650 Total liabilities 294,768 276,557 246,582 260,037 239,971 234,261 231,356 243,519 215,185 197,465 181,850

Stockholders' equity: Common stock 228 230 230 230 230 230 232 233 234 237 240 Additional paid-in capital 90,851 92,704 93,119 93,666 94,301 95,259 95,863 96,958 95,994 99,871 104,028 Retained earnings 34,137 40,232 41,916 45,494 52,429 57,738 61,691 65,354 77,167 100,358 127,665 Treasury stock (16,061) (21,366) (21,366) (21,366) (21,366) (21,366) (21,366) (21,366) (21,366) (21,366) (29,366) Total stockholders' equity 109,155 111,800 113,899 118,024 125,594 131,861 136,420 141,179 152,029 179,100 202,567 Total liabilities and stockholders' equity 403,923 388,357 360,481 378,061 365,565 366,122 367,776 384,698 367,214 376,565 384,417

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 10

September 20, 2010

Big 5 Sporting Goods Corp. Cash Flow Statement Fiscal Year Fiscal Year Mar-09 Jun-09 Sep-09 Dec-09 Fiscal Year Mar-10 Jun-10 Fiscal Year Fiscal Year Fiscal Year 2007A 2008A Q1 Q2 Q3 Q4 2009A Q1 Q2 2010E 2011E 2012E Cash flow from operations: Net income 28,091 13,904 2,760 4,654 8,011 6,386 21,811 5,033 4,752 23,729 27,511 31,657 Adjustments to net income: Depreciation and amortization 17,687 19,135 4,952 4,764 4,701 4,983 19,400 4,547 4,860 19,200 19,850 20,500 Stock based compensation expense 2,208 1,898 481 550 558 550 2,139 463 477 2,000 2,250 2,400 Excess tax benefits of stock options exercised 29 0 0 0 0 (43) (43) (136) (154) (300) 50 50 Amortization of deferred finance charges 495213141313531313535559 Deferred income taxes (3,691) (865) 811 (137) (3,979) 5,989 2,684 (788) (973) 50 (750) (400) Gain/Loss on disposal of equipment 0 33 0 (11) (48) 0 (59) 0 18 18 0 0 Change in operating assets and liabilities: Receivables (1,781) (1,684) 7,681 240 2,070 (6,778) 3,213 5,656 (4,263) (1,102) (400) (100) Merchandise inventories (23,707) 19,672 10,660 (18,854) 8,763 1,482 2,051 (9,189) (11,940) (3,089) (8,000) (6,500) Prepaid expenses 2,802 (1,285) 1,265 (3,522) 2,951 (2,135) (1,441) 556 (1,285) 333 150 (300) Accounts payable (47) (6,972) 6,405 13,776 (15,480) (3,137) 1,564 16,627 (3,936) (221) 1,500 3,000 Accrued expenses 3,024 (4,385) (8,448) 480 11,298 (615) 2,715 (6,462) (3,467) (1,314) 2,000 1,000 Net cash flow from operations 24,664 39,503 26,580 1,954 18,858 6,695 54,087 16,320 (15,898) 39,357 44,216 51,366

Cash flow from investing: Purchase of property and equipment (20,769) (20,447) (1,133) (1,065) (971) (2,595) (5,764) (1,973) (3,014) (15,500) (16,500) (19,500) Proceeds from disposal of equipment 0 47 0 0 0 0 0 0 4 4 0 0 Net cash flow from investments (20,769) (20,400) (1,133) (1,065) (971) (2,595) (5,764) (1,973) (3,010) (15,496) (16,500) (19,500)

Cash flow from financing: Net principal payments uinder revolving credit facilities 24,437 (4,949) (28,165) (483) (15,798) (1,012) (45,458) (13,359) 20,163 (18,000) (22,000) (19,489) Principle payments on capital lease obligations (2,103) (1,751) (608) (598) (552) (526) (2,284) (497) (524) (2,200) (2,100) (2,050) Proceeds from exercise of stock options 503 0 (47) 55 87 330 425 151 463 655 750 850 Excess tax benefits of stock options 155 0 0 (47) 0 43 (4) (7) 154 150 155 175 Purchase of treasury stock (14,211) (5,305) 0 0 0 0 0 0 0 0 0 (8,000) Dividends paid (8,080) (7,781) (1,078) (1,072) (1,072) (1,073) (4,295) (1,087) (1,080) (4,300) (4,320) (4,350) Net cash flow from financing 701 (19,786) (29,898) (2,145) (17,335) (2,238) (51,616) (14,799) 19,176 (23,695) (27,515) (32,864)

Beginning cash 5,145 9,741 9,058 4,607 3,351 3,903 9,058 5,765 5,313 5,765 5,931 6,132 Change in cash 4,596 (683) (4,451) (1,256) 552 1,862 (3,293) (452) 268 166 201 (998) Ending cash 9,741 9,058 4,607 3,351 3,903 5,765 5,765 5,313 5,581 5,931 6,132 5,134

Free cash flow 3,895 19,056 25,447 889 17,887 4,100 48,323 14,347 (18,912) 23,857 27,716 31,866 FCF/share 0.17 0.88 1.19 0.04 0.82 0.19 2.23 0.66 (0.86) 1.09 1.24 1.43

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 11 September 20, 2010

Analyst Certification I, Mark E. Smith, certify that the views expressed in this research report accurately reflect my personal views about the subject company and its securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation related to the specific recommendations expressed in this report.

Important Disclosures:

The analyst or a member of his/her household does not hold a long or short position, options, warrants, rights or futures of this security in their personal account(s).

As of the end of the month preceding the date of publication of this report, Feltl and Company did not beneficially own 1% or more of any class of common equity securities of the subject company.

There is not any actual material conflict of interest that either the analyst or Feltl and Company is aware of.

The analyst has not received any compensation for any investment banking business with this company in the past twelve months and does not expect to receive any in the next three months.

Feltl and Company has not been engaged for investment banking services with the subject company during the past twelve months and does not anticipate receiving compensation for such services in the next three months.

Feltl and Company has not served as a broker, either as agent or principal, buying back stock for the subject company’s account as part of the company’s authorized stock buy-back program in the last twelve months.

No director, officer or employee of Feltl and Company serves as a director, officer or advisory board member to the subject company.

Feltl and Company Rating System: Feltl and Company utilizes a four tier rating system for potential total returns over the next 12 months. Strong Buy: The stock is expected to have total return potential of at least 30%. Catalysts exist to generate higher valuations, and positions should be initiated at current levels. Buy: The stock is expected to have total return potential of at least 15%. Near term catalysts may not exist and the common stock needs further time to develop. Investors requiring time to build positions may consider current levels attractive. Hold: The stock is expected to have total return potential of less than 15%. Fundamental events are not present to make it either a Buy or a Sell. The stock is an acceptable longer-term holding. Sell: Expect a negative total return. Current positions may be used as a source of funds.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 12 September 20, 2010

9/20/2010 Ratings Distribution for Feltl and Company ------Investment Banking ------Number of Percent Number of Percent of Rating Stocksof Total Stocks Rating category SB/Buy 29 67% 2 7% Hold 13 30% 0 0% Sell 1 2% 0 0% 43 100% 2 5%

The above represents our ratings distribution on the stocks in the Feltl and Company research universe, together with the number in (and percentage of) each category for which Feltl and Company provided investment-banking services in the previous twelve months.

9/20/10 Strong Buy Target: $17

Date Nature of Report Rating Price Target 09/20/10 Initiation @ $11.88 Strong Buy $17.00

Feltl and Company does make a market in the subject security at the date of publication of this report. As a market maker, Feltl and Company could act as principal or agent with respect to the purchase or sale of those securities.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 13 September 20, 2010

Valuation and Price Target Methodology: We derive our $17.00 price target by applying a 14x multiple to our 2011 EPS estimate of $1.23.

Risks to Achievement of Estimates and Price Target:

• The retail business is extremely competitive and competition for customers through lower prices may negatively impact BGFV’s returns. Discounted prices at BGFV’s largest competitors may cause the company to lower prices to maintain its market share. • BGFV’s business may be impacted by consumers’ discretionary spending and confidence. Macroeconomic factors such as increasing gasoline prices, unemployment and generally tough economic times may negatively impact consumers’ retail spending. Changing consumer trends could also have a negative impact on sales. • BGFV’s stores are highly concentrated in the Western United States with over 50% of the stores in California. Economic problems in California could impede results. • BGFV has a single distribution center to service its business. Any natural disaster or other serious disruption to the distribution center due to fire, earthquake or any other cause could damage a significant portion of BGFV’s inventory and could materially impair both the ability to adequately stock stores and net sales and profitability. • Severe weather may slow sales for BGFV as this could have a negative impact on outdoor activities. • BGFV’s business is highly seasonal with high revenue and the majority of earnings in the second half of the calendar year. If second half results were somehow impeded it could have a large impact on revenue and earnings. • The company is dependant on its vendors. Any disruption in the supply chain could have a negative impact on results. Geo-political disruptions could impact the supply chain as many of BGFV’s vendors operate in foreign markets. • Readers should recognize that the risks noted here do not represent a comprehensive list of all risk factors or potential issues, nor all factors that may preclude achievement of our forecast or price target. Additional risk factors exist and are outlined in the Company’s SEC filings

Other Disclosures: The information contained in this report is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date, and are subject to change without notice. This report has been prepared solely for informative purposes and is not a solicitation or an offer to buy or sell any security. The securities described may not be qualified for purchase in all jurisdictions. Because of individual requirements, advice regarding securities mentioned in this report should not be construed as suitable for all accounts. This report does not take into account the investment objectives, financial situation and needs of any particular client of Feltl and Company. Some securities mentioned herein relate to small speculative companies that may not be suitable for some accounts. Feltl and Company suggests that prior to acting on any of the recommendations herein, the recipient should consider whether such a recommendation is appropriate given their investment objectives and current financial circumstances. Past performance does not guarantee future results. Additional information is available upon request.

Feltl and Company Research Department Big 5 Sporting Goods. (BGFV) Page 14 EQUITY CAPITAL MARKETS DIRECTORY

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