This discussion and analysis of the Big 5 Sporting Goods Corporation ("we", "our", "us") financial condition and results of operations should be read in conjunction with our interim unaudited condensed consolidated financial statements and the notes thereto included herein and our consolidated financial statements and related notes, and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 28, 2008. Overview
We are a leading sporting goods retailer in the western United States, operating 381 stores in 11 states under the name "Big 5 Sporting Goods" at March 29, 2009. We provide a full-line product offering in a traditional sporting goods store format that averages approximately 11,000 square feet. Our product mix includes 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. Executive Summary
The combination of deteriorating macroeconomic conditions and continued uncertainty in the financial sector resulted in a difficult environment for retailers. Our results for the first quarter of fiscal 2009 and the first quarter of fiscal 2008 reflect this economic downturn. The U.S. economy is in a recession, and if measures implemented, or to be implemented, by the federal and state governments fail to stimulate an economic recovery, a prolonged economic downturn could occur.
• Net income for the first quarter of fiscal 2009 declined 33.0% to $2.8 million, or $0.13 per diluted share, compared to $4.1 million, or $0.19 per diluted share, for the first quarter of fiscal 2008. The decline was driven primarily by lower sales levels, including a reduction in same store sales of 4.4%, and lower merchandise margins.

• Net sales for the first quarter of fiscal 2009 decreased 1.2% to $210.3 million compared to $212.9 million for the first quarter of fiscal 2008. The decrease in net sales was primarily attributable to a decrease of $9.3 million in same store sales and $0.8 million in closed store sales, offset by an increase of $7.5 million in new store sales.

• Gross profit as a percentage of net sales for the first quarter of fiscal 2009 decreased by 174 basis points to 31.9%, primarily reflecting lower merchandise margins and higher store occupancy costs compared to the first quarter of fiscal 2008. The increase in store occupancy costs was primarily due to new store openings.

• Selling and administrative expense for the first quarter of fiscal 2009 declined 2.2% to $61.8 million, or 29.4% of net sales, compared to $63.2 million, or 29.7% of net

sales, for the first quarter of fiscal 2008. The decrease was due mainly to lower advertising expense.

• Operating income for the first quarter of fiscal 2009 declined 37.3% to $5.2 million, or 2.5% of net sales, compared to $8.4 million, or 3.9% of net sales, for the first quarter of fiscal 2008. Operating income was adversely impacted by the decline in net sales and gross profit margin. The decrease as a percentage of net sales was primarily due to a reduced gross profit margin partially offset by lower selling and administrative expense as a percentage of net sales.

Results of Operations
   The results of the interim periods are not necessarily indicative of results
for the entire fiscal year.
   13 Weeks Ended March 29, 2009 Compared to 13 Weeks Ended March 30, 2008
   The following table sets forth selected items from our interim unaudited
condensed consolidated statements of operations by dollar and as a percentage of
our net sales for the periods indicated:

                                                            13 Weeks Ended
                                               March 29, 2009            March 30, 2008
                                                  (In thousands, except percentages)

   Net sales                                $ 210,291       100.0 %   $ 212,866       100.0 %
   Cost of sales (1)                          143,219        68.1       141,283        66.4

   Gross profit                                67,072        31.9        71,583        33.6
   Selling and administrative expense (2)      61,838        29.4        63,230        29.7

   Operating income                             5,234         2.5         8,353         3.9
   Interest expense                               713         0.3         1,589         0.8

   Income before income taxes                   4,521         2.2         6,764         3.1
   Income taxes                                 1,761         0.9         2,644         1.2

   Net income                               $   2,760         1.3 %   $   4,120         1.9 %

(1) Cost of sales includes the cost of merchandise, net of discounts or allowances earned, freight, inventory shrinkage, buying, distribution center costs and store occupancy costs. Store occupancy costs include rent, amortization of leasehold improvements, common area maintenance, property taxes and insurance.

(2) Selling and administrative expense includes store-related expense, other than store occupancy costs, as well as advertising, depreciation and amortization and expense associated with operating our corporate headquarters.

Net Sales. Net sales decreased by $2.6 million, or 1.2%, to $210.3 million in the 13 weeks ended March 29, 2009 from $212.9 million in the same period last year. The decrease in net sales was primarily attributable to the following:
• Net sales for the 13 weeks ended March 29, 2009 continued to be impacted by the challenging consumer environment experienced during fiscal 2008, which resulted in lower customer traffic into our retail stores.

• Same store sales and closed store sales decreased by $9.3 million and $0.8 million, respectively, partially offset by an increase of $7.5 million in new store sales which reflected the opening of 18 new stores, net of relocations, since December 30, 2007. Same store sales decreased 4.4% in the 13 weeks ended March 29, 2009 versus the 13 weeks ended March 30, 2008.

• Net sales in the first quarter of fiscal 2009 reflected a benefit over the prior year from the shift in the timing of the Easter holiday, during which our stores are closed, out of the first fiscal quarter and into the second fiscal quarter.

Store count at March 29, 2009 was 381 versus 364 at March 30, 2008. We opened no new stores in the 13 weeks ended March 29, 2009, and opened one new store in the 13 weeks ended March 30, 2008. We expect new store openings in fiscal 2009 to be substantially lower than fiscal 2008 due to the continued challenging consumer environment.
Gross Profit. Gross profit decreased by $4.5 million, or 6.3%, to $67.1 million, or 31.9% of net sales, in the 13 weeks ended March 29, 2009 from $71.6 million, or 33.6% of net sales, in the 13 weeks ended March 30, 2008. The decrease in gross profit was primarily attributable to the following:
• Net sales decreased by $2.6 million in the 13 weeks ended March 29, 2009 compared to the same period last year.

• Merchandise margins, which exclude buying, occupancy and distribution costs, decreased 88 basis points versus the same period in the prior year, primarily due to shifts in product sales mix, slightly more aggressive promotional pricing to drive sales and reduce merchandise inventory and product cost inflation. In fiscal 2009, we continue to experience inflation in the purchase cost of our products which could impact future margins.

• Store occupancy costs increased by $1.4 million, or 75 basis points, year-over-year due mainly to new store openings.

Selling and Administrative Expense. Selling and administrative expense decreased by $1.4 million to $61.8 million, or 29.4% of net sales, in the 13 weeks ended March 29, 2009 from $63.2 million, or 29.7% of net sales, in the same period last year. The decrease in selling and administrative expense compared to the same period last year was primarily attributable to a decline in advertising expense of $1.2 million and a decline in administrative expense in various categories of $0.9 million. These decreases were partially offset by an increase in store-related expense, excluding occupancy, of $0.6 million, or 53 basis points as a percentage of net sales, due primarily to higher labor and operating costs to support the increase in store count.
Interest Expense. Interest expense decreased by $0.9 million, or 55.1%, to $0.7 million in the 13 weeks ended March 29, 2009 from $1.6 million in the same period last year. This decrease was due to a reduction of average debt levels of approximately $11.2 million to $94.5 million in the first quarter of fiscal 2009 from $105.7 million in the same period last year, combined with a reduction of average interest rates of approximately 340 basis points to 2.4% in the first quarter of fiscal 2009 from 5.8% in the same period last year.
Income Taxes. The provision for income taxes was $1.8 million for the 13 weeks ended March 29, 2009 and $2.6 million for the 13 weeks ended March 30, 2008, reflecting our lower pre-tax income. Our effective tax rate was 39.0% for the first quarter of fiscal 2009 compared with 39.1% for the first quarter of fiscal 2008.

Liquidity and Capital Resources
Our principal liquidity requirements are for working capital, capital expenditures and cash dividends. We fund our liquidity requirements primarily through cash on hand, cash flow from operations and borrowings from our revolving credit facility. We believe our cash on hand, future funds from operations and borrowings from our revolving credit facility will be sufficient to fund our cash requirements for at least the next twelve months. There is no assurance, however, that we will be able to generate sufficient cash flow or that we will be able to maintain our ability to borrow under our revolving credit facility.
We ended the first quarter of fiscal 2009 with $4.6 million of cash and cash equivalents compared with $7.5 million at the end of the same period in fiscal 2008. Our cash flows from operating, investing and financing activities for the 13 weeks ended March 29, 2009 and March 30, 2008 were as follows:

                                                       13 Weeks Ended
                                                  March 29,       March 30,
                                                     2009            2008
                                                   (Dollars in thousands)

         Net cash provided by (used in):
         Operating activities                    $     26,580     $   20,017
         Investing activities                          (1,133 )       (4,843 )
         Financing activities                         (29,898 )      (17,414 )

         Decrease in cash and cash equivalents   $     (4,451 )   $   (2,240 )

Operating Activities. Net cash provided by operating activities for the 13 weeks ended March 29, 2009 and March 30, 2008 was $26.6 million and $20.0 million, respectively. The increase in cash provided by operating activities for the 13 weeks ended March 29, 2009 compared to the same period last year primarily reflects an increased collection of accounts receivable, primarily credit card receivables, and a reduction in accrued expenses mainly related to employee compensation and benefit plans and advertising. A lower cash flow benefit from reducing merchandise inventory this year was offset by an increased cash flow benefit from higher accounts payable.
Investing Activities. Net cash used in investing activities for the 13 weeks ended March 29, 2009 and March 30, 2008 was $1.1 million and $4.8 million, respectively. Capital expenditures, excluding non-cash property and equipment acquisitions, represented substantially all of the net cash used in investing activities for both periods. This decrease was primarily attributable to a reduction in expansion activity and a corresponding reduction in new store opening expenditures. Due to the current challenging operating and economic environment, we currently expect to substantially reduce our capital expenditures, particularly expansion investments, in fiscal 2009 in comparison to previous years.
Financing Activities. Net cash used in financing activities for the 13 weeks ended March 29, 2009 and March 30, 2008 was $29.9 million and $17.4 million, respectively. For the 13 weeks ended March 29, 2009, cash was used primarily to pay down borrowings under our revolving credit facility and pay dividends. For the 13 weeks ended March 30, 2008, cash

was used primarily to pay down borrowings under our revolving credit facility, repurchase stock and pay dividends.
As of March 29, 2009, we had revolving credit borrowings of $76.5 million and letter of credit commitments of $3.8 million outstanding under our financing agreement. These balances compare to revolving credit borrowings of $96.5 million and letter of credit commitments of $3.0 million outstanding as of December 28, 2008 and revolving credit borrowings of $97.3 million and letter of credit commitments of $1.1 million outstanding as of March 30, 2008.
Quarterly dividend payments of $0.09 per share were paid in fiscal 2008. In the first quarter of fiscal 2009, our Board of Directors determined to reduce our quarterly cash dividend to $0.05 per share of outstanding common stock, and the dividend was paid on March 20, 2009 to stockholders of record as of March 6, 2009. The dividend was reduced in an effort to conserve our capital to maintain a healthy financial condition during the current economic downturn.
Periodically, we repurchase our common stock in the open market pursuant to programs approved by our Board of Directors. Depending on business conditions, we may repurchase our common stock for a variety of reasons, including the current market price of our stock, to offset dilution related to equity-based compensation plans and to optimize our capital structure.
In light of the current economic climate, we did not repurchase any shares of our common stock during the first quarter of fiscal 2009 and repurchased 279,768 shares of our common stock for $2.8 million in the first quarter of fiscal 2008. Since the inception of our initial share repurchase program in May 2006 through March 29, 2009, we have repurchased a total of 1,369,085 shares for $20.8 million, leaving a total of $14.2 million available for share repurchases under our current share repurchase program. However, due to the current economic environment, we do not expect to resume share repurchases in fiscal 2009.
Financing Agreement. Our financing agreement with The CIT Group/Business Credit, Inc. and a syndicate of other lenders, as amended, provides for a line of credit up to $175.0 million. The initial termination date of the revolving credit facility is March 20, 2011 (subject to annual extensions thereafter). The revolving credit facility may be terminated by the lenders by giving at least 90 days prior written notice before any anniversary date, commencing with its anniversary date on March 20, 2011. We may terminate the revolving credit facility by giving at least 30 days prior written notice, provided that if we terminate prior to March 20, 2011, we must pay an early termination fee. Unless it is terminated, the revolving credit facility will continue on an annual basis from anniversary date to anniversary date beginning on March 21, 2011.
Under the revolving credit facility, our maximum eligible borrowing capacity is limited to 73.66% of the aggregate value of eligible inventory during October, November and December and 67.24% during the remainder of the year. An annual fee of 0.325%, payable monthly, is assessed on the unused portion of the revolving credit facility. As of March 29, 2009 and December 28, 2008, our total remaining borrowing capacity under the revolving

credit facility, after subtracting letters of credit, was $64.9 million and $69.1 million, respectively.
The revolving credit facility bears interest at various rates based on our overall borrowings, with a floor of LIBOR plus 1.00% or the JP Morgan Chase Bank prime lending rate and a ceiling of LIBOR plus 1.50% or the JP Morgan Chase Bank prime lending rate. Additionally, if our earnings before interest, taxes, depreciation and amortization ("EBITDA") for the prior four quarters, in the aggregate, falls below $50 million, the interest rate under the revolving credit facility is increased to LIBOR plus 1.75% or the JP Morgan Chase Bank prime lending rate plus 0.25%.
Our financing agreement is secured by a first priority security interest in substantially all of our assets. Our financing agreement contains various financial and other covenants, including covenants that require us to maintain a fixed-charge coverage ratio of not less than 1.0 to 1.0 in certain circumstances, restrict our ability to incur indebtedness or to create various liens and restrict the amount of capital expenditures that we may incur. Our financing agreement also restricts our ability to engage in mergers or acquisitions, sell assets, repurchase our stock or pay dividends. We may repurchase our stock or declare a dividend only if, among other things, no default or event of default exists on the stock repurchase date or dividend declaration date, as applicable, and a default is not expected to result from the repurchase of stock or payment of the dividend. The requirements are described in more detail in the financing agreement and the amendments thereto, which have been filed as exhibits to our previous filings with the Securities and Exchange Commission ("SEC"). We were in compliance with all financial covenants under our financing agreement as of March 29, 2009, and we expect to be in compliance during the remainder of fiscal 2009. If we fail to make any required payment under our financing agreement or if we otherwise default under this instrument, the lenders may (i) require us to agree to less favorable interest rates and other terms under the agreement in exchange for a waiver of any such default or (ii) accelerate our debt under this agreement. This acceleration could also result in the acceleration of other indebtedness that we may have outstanding at that time.
Future Capital Requirements. We had cash on hand of $4.6 million at March 29, 2009. We expect capital expenditures for the last three quarters of fiscal 2009, excluding non-cash property and equipment acquisitions, to range from approximately $6.0 million to $8.0 million, primarily to fund the opening of new stores, store-related remodeling, distribution center equipment and computer hardware and software purchases. In light of the current economic environment, we expect to slow our store expansion efforts substantially in fiscal 2009 in comparison to previous years. Additionally, for the same reasons, in the first quarter of fiscal 2009 our Board of Directors determined to reduce our quarterly cash dividend to $0.05 per share of outstanding common stock, for an annual rate of $0.20 per share, and this was continued for the second quarter of fiscal 2009. Also, although a total of $14.2 million remained available for share repurchases under our share repurchase program at March 29, 2009, we do not expect to resume share repurchases in fiscal 2009. These measures are intended to preserve our capital to maintain a healthy financial condition during the current economic downturn. In the second quarter of fiscal 2009, our Board of Directors declared a quarterly cash dividend of $0.05 per share of outstanding common stock, which will be paid on June 15, 2009 to stockholders of record as of June 1, 2009.

We believe we will be able to fund our cash requirements, for at least the next twelve months, from cash on hand, operating cash flows and borrowings from our revolving credit facility. However, our ability to satisfy such cash requirements depends upon our future performance, which in turn is subject to general economic conditions and regional risks, and to financial, business and other factors affecting our operations, including factors beyond our control. See Part II, Item 1A, Risk Factors, included in this report and Part I, Item 1A, Risk Factors, included in our Annual Report on Form 10-K for the fiscal year ended December 28, 2008.
If we are unable to generate sufficient cash flow from operations to meet our obligations and commitments, we will be required to refinance or restructure our indebtedness or raise additional debt or equity capital, which would likely result in increased interest expense. Additionally, we may be required to sell material assets or operations, suspend or further reduce dividend payments or delay or forego expansion opportunities. We might not be able to implement successful alternative strategies on satisfactory terms, if at all.
Off-Balance Sheet Arrangements and Contractual Obligations. Our material off-balance sheet contractual commitments are operating lease obligations and letters of credit. We excluded these items from the balance sheet in accordance with generally accepted accounting principles in the United States of America ("GAAP").
Operating lease commitments consist principally of leases for our retail store facilities, distribution center and corporate office. These leases frequently include options which permit us to extend the terms beyond the initial fixed lease term. With respect to most of those leases, we intend to renegotiate those leases as they expire.
Issued and outstanding letters of credit were $3.8 million at March 29, 2009, and were related primarily to importing of merchandise and funding insurance program liabilities.
We also have capital lease obligations which consist principally of leases for our distribution center delivery trailers and management information systems hardware. Included in our other liabilities is a contractual obligation to the surviving spouse of Robert W. Miller, our co-founder, and asset retirement obligations related to the removal of leasehold improvements from our stores upon termination of our store leases.
Included in the Liquidity and Capital Resources section of Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2008, is a discussion of our future obligations and commitments as of December 28, 2008. In the first 13 weeks of fiscal 2009, our revolving credit borrowings declined by 20.7% from the end of fiscal 2008, as a result of our positive operating cash flow. We entered into new operating lease agreements in relation to our business operations, but do not believe that these operating leases would materially change our contractual obligations or commitments presented as of December 28, 2008.
In the ordinary course of business, we enter into arrangements with vendors to purchase merchandise in advance of expected delivery. Because most of these purchase

orders do not contain any termination payments or other penalties if cancelled, they are not included as outstanding contractual obligations. Critical Accounting Estimates
As discussed in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended December 28, 2008, we consider our estimates on inventory valuation, impairment of long-lived assets and self-insurance reserves to be the most critical in understanding the judgments that are involved in preparing our consolidated financial statements. There have been no significant changes to these estimates in the 13 weeks ended March 29, 2009. Seasonality and Impact of Inflation
We experience seasonal fluctuations in our net sales and operating results and typically generate higher sales in the fourth quarter, which includes the holiday selling season as well as the winter sports selling season. As a result, we incur significant additional expense in the fourth quarter due to normally higher purchase volumes and increased staffing. Seasonality influences our buying patterns which directly impacts our merchandise and accounts payable levels and cash flows. We purchase merchandise for seasonal activities in advance of a season. If we miscalculate the demand for our products generally or for our product mix during the fourth quarter, our net sales can decline, resulting in excess inventory, which can harm our financial performance.
In fiscal 2009, we continue to experience inflation in the purchase cost of our products. If we are unable to adjust our selling prices, our merchandise margins will decline, which could adversely impact our operating results. We do not believe that inflation had a material impact on our operating results for fiscal 2008.
Recently Issued Accounting Pronouncements See Note 2 to interim unaudited condensed consolidated financial statements included in Part I, Item 1, Financial Statements, of this Quarterly Report on Form 10-Q.

Forward-Looking Statements
This document includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, our financial condition, our results of operations, our growth strategy and the business of our company generally. In some cases, you can identify such statements by terminology such as "may", "could", "project", "estimate", "potential", "continue", "should", "expects", "plans", "anticipates", "believes", "intends" or other such terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, continued or worsening weakness in the consumer spending environment and the U.S. financial and credit markets, the competitive environment in the sporting goods industry in general and in our specific market areas, inflation, product availability and growth opportunities, seasonal fluctuations, weather conditions, changes in cost of goods, operating expense fluctuations, disruption in product flow, changes in interest rates, credit availability, higher costs associated with current and new sources of credit resulting from uncertainty in financial markets and economic conditions . . .