Sportsmans Guide (SGDE) 10-Q 2006 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended September 30, 2005

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 No. 015767

The Sportsman’s Guide, Inc.

(Exact name of registrant as specified in its charter)

Minnesota	41-1293081
(State or other jurisdiction	(I.R.S. Employer Identification Number)
of incorporation or organization)

411 Farwell Ave., So. St. Paul, Minnesota 55075
(Address of principal executive offices)

(651) 451-3030
(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. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesþ Noo

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

As of November 8, 2005, there were 7,437,649 shares of the registrant’s Common Stock outstanding.

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 Disclosure About Market Risk.
	Item 4. Controls and Procedures
PART II. OTHER INFORMATION
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6. Exhibits
SIGNATURES
Rule 13a-14(a)/15d-14(a) Certifications
Section 1350 Certifications

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

THE SPORTSMAN’S GUIDE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(In thousands of dollars, except share amounts)

	September 30,		December 31,
	2005		2004
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	2,221	$	8,616
Accounts receivable — net		3,044		3,955
Inventory		44,351		29,148
Promotional material		5,649		3,578
Prepaid expenses and other		3,811		3,123
Deferred income taxes		1,645		1,767
Total current assets		60,721		50,187
PROPERTY AND EQUIPMENT — NET		2,432		2,693
OTHER ASSETS
Goodwill		17,199		17,176
Trade and domain name		10,200		10,200
Other intangibles		1,248		658
Total other assets		28,647		28,034
Total assets	$	91,800	$	80,914
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	24,194	$	23,832
Accrued expenses		6,442		7,146
Note payable — bank		4,135		—
Income taxes payable		—		1,982
Deferred revenue		5,934		7,314
Returns reserve		1,704		2,318
Customer deposits and other liabilities		3,241		3,062
Total current liabilities		45,650		45,654
LONG-TERM LIABILITIES
Note payable — bank		5,000		5,000
Deferred income taxes		786		305
Other		24		83
Total long-term liabilities		5,810		5,388
Total liabilities		51,460		51,042
COMMITMENTS AND CONTINGENCIES		—		—
SHAREHOLDERS’ EQUITY
Common Stock-$.01 par value; 36,800,000 shares authorized; 7,427,649 shares issued and outstanding at September 30, 2005 and 7,097,747 shares issued and outstanding at December 31, 2004		74		71
Additional paid-in capital		11,474		8,024
Accumulated comprehensive income		294		232
Retained earnings		28,498		21,545
Total shareholders’ equity		40,340		29,872
Total liabilities & shareholders’ equity	$	91,800	$	80,914

The accompanying condensed notes are an integral part of these consolidated financial statements.

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THE SPORTSMAN’S GUIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)

For the Three Months and Nine Months Ended
September 30, 2005 and 2004

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
				(Restated)						(Restated)
Net sales	$	61,549		$	57,039		$	189,905		$	141,403
Cost of sales		42,060			40,139			130,938			97,329
Gross profit		19,489			16,900			58,967			44,074
Selling, general and administrative expenses		15,983			14,564			47,931			37,839
Earnings from operations		3,506			2,336			11,036			6,235
Interest expense		(67	)		(168	)		(213	)		(168	)
Other income, net		23			—			182			80
Earnings before income taxes		3,462			2,168			11,005			6,147
Income tax expense		1,273			791			4,052			2,222
Net earnings	$	2,189		$	1,377		$	6,953		$	3,925
Net earnings per share:
Basic	$	.30		$	.20		$	.97		$	.55
Diluted	$	.26		$	.17		$	.84		$	.49
Weighted average common and common equivalent shares outstanding:
Basic		7,314			7,052			7,180			7,078
Diluted		8,457			7,968			8,233			7,980

The accompanying condensed notes are an integral part of these consolidated financial statements.

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THE SPORTSMAN’S GUIDE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

For the Nine Months Ended
September 30, 2005 and 2004

(In thousands of dollars)

	2005			2004
				(Restated)
Cash flows from operating activities:
Net earnings	$	6,953		$	3,925
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization		1,125			1,079
Deferred income taxes		603			2,838
Tax benefit related to exercise of stock options		2,331			832
Other		62			—
Changes in assets and liabilities, net of acquisition:
Accounts receivable		911			389
Inventory		(15,203	)		(13,300	)
Promotional material		(2,071	)		(1,264	)
Prepaid expenses and other		(688	)		(630	)
Other long-term assets		(727	)		—
Accounts payable		362			(2,916	)
Accrued expenses		(704	)		(1,719	)
Income taxes payable		(1,982	)		(4,244	)
Customer deposits and other liabilities		(1,815	)		(732	)
Other long term liabilities		(47	)		(46	)
Cash flows used in operating activities		(10,890	)		(15,788	)
Cash flows from investing activities:
Purchases of property and equipment		(727	)		(464	)
Business acquisition		—			(30,478	)
Other		(23	)		—
Cash flows used in investing activities		(750	)		(30,942	)
Cash flows from financing activities:
Proceeds from term loan		—			12,500
Net proceeds from revolving line of credit and bank overdrafts		4,135			7,716
Payments on capital lease		(12	)		(2	)
Proceeds from exercise of stock options		1,936			907
Repurchase of common stock		(814	)		(5,730	)
Cash flows provided by financing activities		5,245			15,391
Decrease in cash and cash equivalents		(6,395	)		(31,339	)
Cash and cash equivalents at beginning of the period		8,616			32,054
Cash and cash equivalents at end of the period	$	2,221		$	715
Supplemental disclosure of cash flow information
Cash paid during the periods for:
Interest	$	208		$	110
Income taxes	$	3,363		$	2,810

The accompanying condensed notes are an integral part of these consolidated financial statements.

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THE SPORTSMAN’S GUIDE, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1: Basis of Presentation

The Sportsman’s Guide, Inc., or the Company, is a multi-channel direct marketer of value-priced outdoor gear, general merchandise and golf equipment/accessories. The Company markets its high-quality products through ecommerce websites and catalogs. The Company currently has two reportable segments, The Sportsman’s Guide, or TSG, its original business, and The Golf Warehouse, or TGW, acquired in 2004.

TSG markets and sells value-priced outdoor gear and general merchandise, with a special emphasis on outdoor clothing, equipment and footwear through catalogs and two ecommerce websites,www.sportsmansguide.com andwww.bargainoutfitters.com. TGW markets and sells name-brand golf equipment, apparel and accessories through one ecommerce website,www.TGW.com, catalogs and one retail store.

The accompanying financial statements are unaudited and reflect all adjustments which are normal and recurring in nature, and which, in the opinion of management, are necessary for a fair presentation thereof. Reclassifications have been made to prior year financial information wherever necessary to conform to the current year presentation. Results of operations for the interim periods are not necessarily indicative of full-year results.

In preparing the Company’s consolidated financial statements, management is required to make estimates and assumptions that affect reported amounts of assets and liabilities and related revenues and expenses. Actual results could differ from the estimates used by management.

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company’s fiscal quarter ends on the Sunday nearest September 30 for 2005 and 2004, but for clarity of presentation, all periods are described as if the three and nine month periods end September 30. Each fiscal third quarter of 2005 and 2004 consisted of 13 weeks.

The significant accounting policies of both business segments are the same as those described in Note A to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2004 filed with the Securities and Exchange Commission.

Note 2: Restatement of Financial Statements

In May 2005, the staff of the Division of Corporation Finance of the Securities and Exchange Commission, in connection with its review of the Company’s 2004 Annual Report on Form 10-K, issued a comment letter stating it believed the Company’s existing revenue recognition policy relating to the Buyer’s Club membership fees was inconsistent with Staff Accounting Bulletin (SAB) 104.

After discussions with the Commission, the Company’s management made a determination, in consultation with the Company’s independent registered public accounting firm, that the Company would change its accounting for Buyer’s Club membership fees. As a result, the Company’s management and the Audit Committee of the Board of Directors concluded on June 22, 2005 that the Company’s previously issued consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 would be restated.

Historically, the Company’s Buyer’s Club membership fees were deferred and recognized in income as the individual member placed orders and earned discounts during the membership period. At the time merchandise ordered by a club member was shipped, a portion of the club fee in an amount equal to the discount earned by the member on the specific shipment was recognized in income. Any remaining deferred or unearned membership fees were recognized in income after the expiration of the membership period.

The Company has changed its accounting for Buyer’s Club membership fees by applying a SFAS No. 48 based accounting model as described in Question 1 of SAB Topic 13A4. Under this policy, membership fees, net of estimated refunds for club membership cancellations, are deferred and recognized in income on a straight-line basis

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over the remaining membership term. Estimated refunds are recorded as a liability and reduced when refunds are given or upon membership expiration. This change in the Company’s revenue recognition policy relating to the Buyer’s Club membership fees, when compared to the Company’s previous policy, will tend to delay the recognition of fee income especially in the fourth quarter with the first three quarters of the next fiscal year benefiting from the change.

Note 3: Stock Split

On March 1, 2005, the Board of Directors of the Company announced a 3-for-2 stock split of its common stock to be effected in the form of a 50% stock dividend, payable on April 15, 2005 to shareholders of record on March 25, 2005. Per share amounts and shares outstanding have been adjusted to give effect to the 3-for-2 stock split.

Note 4: Stock Options

The Company accounts for its stock options issued to employees under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations, or the intrinsic value method. Stock options are granted at exercise prices equivalent to the fair market value of the underlying common stock on the date of grant. Accordingly, no compensation expense for stock options has been recognized in the Company’s consolidated financial statements. Pro forma information regarding net earnings attributable to common stockholders and net earnings per share attributable to common stockholders is required to be disclosed to show the Company’s net earnings as if the Company had accounted for employee stock options under the fair value method of SFAS No. 123, as amended by SFAS No. 148.

The following table illustrates the effect on net earnings and earnings per share as if the Company had applied the fair value method of accounting for stock options (in thousands, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
			(Restated)				(Restated)
Net earnings as reported	$	2,189	$	1,377	$	6,953	$	3,925
Deduct: Total stock-based employee compensation expense under the fair value method for all awards, net of related tax effects		422		277		1,190		655
Pro-forma net earnings	$	1,767	$	1,100	$	5,763	$	3,270
Earnings Per Share:
Basic — as reported	$	.30	$	.20	$	.97	$	.55
Basic — pro-forma		.24	$	.16		.80	$	.46
Diluted — as reported	$	.26	$	.17	$	.84	$	.49
Diluted — pro-forma		.21	$	.14		.72	$	.42
Weighted average common and common equivalent shares outstanding:
Basic — as reported		7,314		7,052		7,180		7,078
Basic — pro-forma		7,314		7,052		7,180		7,078
Diluted — as reported		8,457		7,968		8,233		7,980
Diluted — pro-forma		8,268		7,732		8,000		7,794

The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: zero dividend yield; expected volatility of 44% to 48% in 2005 and 48% in 2004; risk-free interest rates of 3.65% in 2005 and 2.87% to 3.87% in 2004; estimated forfeiture of 2% in 2005 and 2004; and expected life of 3 to 5 years for 2005 and 2004.

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Note 5: Net Earnings Per Share

The Company’s basic net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares. Diluted net earnings per share amounts have been computed by dividing net earnings by the weighted average number of outstanding common shares and common share equivalents relating to the stock options, when dilutive.

For the three months and nine months ended September 30, 2005, 1,142,813 and 1,052,261 common share equivalents were included in the computation of diluted net earnings per share.

For the three months and nine months ended September 30, 2004, 916,461 and 900,678 common share equivalents were included in the computation of diluted net earnings per share.

All outstanding stock options during the three months ended September 30, 2005 and 2004 were included in the computation of diluted earnings per share because the average market price of the common shares during the period exceeded the exercise price of the stock options.

Note 6: Repurchase of Common Stock

On May 6, 2005, the Company announced that its board of directors authorized a plan to repurchase up to ten percent of its outstanding common stock in the open market or in privately negotiated transactions over the next 12 months. Under this plan, 39,500 shares of common stock at a total cost of $814,000 were repurchased during the three and nine months ended September 30, 2005.

On May 13, 2004, the Company announced that its board of directors authorized a plan to repurchase up to ten percent of its outstanding common stock in the open market or in privately negotiated transactions over the next 12 months. Under this plan, 43,868 shares of common stock at a total cost of $583,000 were repurchased during the three and nine months ended September 30, 2004.

On May 5, 2003, the Company announced that its board of directors authorized a plan to repurchase up to ten percent of its outstanding common stock in the open market or in privately negotiated transactions over the next 12 months. Under this plan, no shares were repurchased during the three months ended September 30, 2004 and 389,466 shares of common stock at a total cost of $5,148,000 were repurchased during the nine months ended September 30, 2004.

Note 7: Segment Information

The Company operates in two business segments. TSG markets and sells value-priced outdoor gear and general merchandise, with a special emphasis on clothing, equipment and footwear through main, specialty and Buyer’s Club Advantageä catalogs and two ecommerce websites. TGW markets and sells golf equipment, apparel and accessories through one ecommerce website and catalogs. On June 29, 2004, The Sportsman’s Guide, Inc. acquired 100% of the outstanding membership interests of The Golf Warehouse, LLC.

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Business Segment Comparisons (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2005		2004		2005		2004
			(Restated)				(Restated)
Net Sales
The Sportsman’s Guide	$	46,551	$	44,990	$	139,962	$	129,354
The Golf Warehouse		14,998		12,049		49,943		12,049
Total	$	61,549	$	57,039	$	189,905	$	141,403
Earnings From Operations
The Sportsman’s Guide	$	2,160	$	1,965	$	6,590	$	5,864
The Golf Warehouse		1,346		371		4,446		371
Total	$	3,506	$	2,336	$	11,036	$	6,235
Depreciation and Amortization
The Sportsman’s Guide	$	246	$	297	$	772	$	925
The Golf Warehouse		116		154		353		154
Total	$	362	$	451	$	1,125	$	1,079
Capital Expenditures
The Sportsman’s Guide	$	248	$	205	$	574	$	398
The Golf Warehouse		28		66		153		66
Total	$	276	$	271	$	727	$	464

Business Segment Assets (in thousands):

	As of September 30,
	2005		2004
			(Restated)
Assets
The Sportsman’s Guide	$	51,737	$	44,604
The Golf Warehouse		40,063		37,349
Total	$	91,800	$	81,953

Note 8: New Accounting Pronouncements

In 2004, the FASB revised Statement No. 123 (FAS 123R),Accounting for Stock Based Compensation. FAS 123R eliminates the alternative to use APB Opinion No. 25’sAccounting for Stock Issued to Employees, intrinsic value method of accounting that was provided in FAS 123 as originally issued. FAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. For public entities that do not file as small business issuers, this Statement is effective at the beginning of the first fiscal year that begins after June 15, 2005. We have not yet finished our financial assessment of the implementation of FAS 123R, which we will adopt in the first quarter of 2006.

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

Overview

We are a multi-channel direct marketer of value-priced outdoor gear, general merchandise and golf equipment/accessories. We currently have two reportable business segments, The Sportsman’s Guide, or TSG, our original business, and The Golf Warehouse, or TGW, acquired in 2004. TSG markets and sells value-priced outdoor gear and general merchandise, with a special emphasis on outdoor clothing, equipment and footwear through catalogs and two ecommerce websites,www.sportsmansguide.com andwww.bargainoutfitters.com. TGW markets and sells name-brand golf equipment, apparel and accessories through one ecommerce website,www.TGW.com, catalogs and one retail store.

Our business was founded in 1970 and incorporated as TSG in 1977. Over time, our product offerings and marketing efforts have broadened from the deer hunter to include those interested in pursuing and living the outdoor lifestyle in general and the value-oriented outdoorsman in particular. In 1992, we began our value pricing strategy of offering outdoor equipment and supplies at discount prices, later adding government surplus, manufacturers’ close-outs and other merchandise lines. In 1994, we began to publish specialty catalogs which allowed us to utilize a customized marketing plan to individual customer groups. We established TSG’s Internet presence in 1996 and completed the launch of TSG’s online retail store in April 1998. TSG’s orders generated through the Internet have grown rapidly since that time with product orders on the websites accounting for approximately 46.9% and 46.3 % of total catalog and Internet orders for the three and nine months ended September 30, 2005. In the fall of 2000, we began to aggressively promote and sell the Buyer’s Club membership program. In addition, unique catalogs (Buyer’s Club Advantage^TM) were developed and promoted to members only, allowing us to maximize sales and profitability from our best customers.

On June 29, 2004, we acquired The Golf Warehouse, L.L.C. TGW is an on-line and catalog retailer of golf equipment, apparel and accessories. TGW markets and sells golf related merchandise primarily through its ecommerce website, www.TGW.com, and through catalogs. The majority of TGW’s total orders are generated through the Internet. TGW’s first catalog was published in the winter of 2002.

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Restatement of Financial Statements

In May 2005, the staff of the Division of Corporation Finance of the Securities and Exchange Commission, in connection with its review of our 2004 Annual Report on Form 10-K, issued a comment letter stating it believed our existing revenue recognition policy relating to the Buyer’s Club membership fees was inconsistent with Staff Accounting Bulletin (SAB) 104.

After discussions with the Commission, our management made a determination, in consultation with our independent registered public accounting firm, that we would change our accounting for Buyer’s Club membership fees. As a result, our management and the Audit Committee of our Board of Directors concluded on June 22, 2005 that our previously issued consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2005 would be restated.

Historically, our Buyer’s Club membership fees were deferred and recognized in income as the individual member placed orders and earned discounts during the membership period. At the time merchandise ordered by a club member was shipped, a portion of the club fee in an amount equal to the discount earned by the member on the specific shipment was recognized in income. Any remaining deferred or unearned membership fees were recognized in income after the expiration of the membership period.

We have changed our accounting for Buyer’s Club membership fees by applying a SFAS No. 48 based accounting model as described in Question 1 of SAB Topic 13A4. Under this policy, membership fees, net of estimated refunds for club membership cancellations, are deferred and recognized in income on a straight-line basis over the remaining membership term. Estimated refunds are recorded as a liability and reduced when refunds are given or upon membership expiration. This change in our revenue recognition policy relating to the Buyer’s Club membership fees, when compared to our previous policy, will tend to delay the recognition of fee income especially in the fourth quarter with the first three quarters of the next fiscal year benefiting from the change.

Fiscal Year

Our fiscal quarter ends on the Sunday nearest September 30 for 2005 and 2004, but for clarity of presentation, all periods are described as if the quarter end is September 30. Each fiscal third quarter of 2005 and 2004 consisted of 13 weeks.

Critical Accounting Policies and Use of Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, net sales and expenses and related disclosures of contingent assets and liabilities. The estimates and assumptions are evaluated on a periodic basis and are based on historical experiences, if available, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ significantly from these estimates.

The following are the critical accounting policies that we believe require significant estimation and management judgment. The critical accounting policies of both business segments, where applicable, are the same as described in the following paragraphs.

Revenue Recognition

We recognize sales at the time of shipment from our distribution center or from our factory direct vendors’ distribution center. We record sales generated as a result of our factory direct or drop ship arrangements when the third-party factory direct vendor confirms to us the shipment to our customer. We record sales for gift certificates as gift certificates are redeemed for merchandise. Prior to redemption, the certificates are recorded as a liability for the full-face amount of the certificates. We record sales generated under the Buyer’s Club 4-Pay Plan at the time of shipment along with related shipping and handling revenue. Amounts billed to customers for shipping and handling are recorded as sales at the time of shipment and shipping costs are included in cost of sales.

At the time of shipment, we record a provision for anticipated merchandise returns, net of exchanges, based upon historical experience and current expectations. If our estimates for these merchandise returns are too low, and we receive more merchandise returns than we estimate, our reported net sales may not accurately reflect our operating results for a given period and our results of operations in subsequent periods may be adversely affected. Our estimates for merchandise returns have not been materially inaccurate in the past.

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TSG’s customers can purchase one-year memberships in our Buyer’s Club for a $29.99 annual fee. TSG also offers two-year memberships for $59.97. Club members receive merchandise discounts of 10% on regularly priced items and 5% on ammunition. Membership fees, net of estimated membership fee refunds, are deferred and recognized in income on a straight-line basis over the remaining membership term. Estimated refunds are recorded as a liability and reduced when refunds are given or upon membership expiration.

Promotional Materials and Advertising Costs

Promotional materials consist of prepaid expenses for internal and third party direct costs incurred in the development, production and circulation of our catalogs. All such costs are capitalized as prepaid promotional materials and are amortized as advertising expense over the estimated useful lives of the catalogs. The amortization of our promotional materials is intended to match revenues with expenses. The estimated life of the catalog or expected period of future benefit ranges from four to six months from the in-home date of the catalog with the majority of the costs amortized within the first month. We estimate the in-home date to be one week from the known mailing date of the catalog. The expected life of each catalog is determined based on a detailed marketing forecast, in which we consider our historical experience for similar catalogs as well as current sales trends. These forecasts are updated frequently during the most active period of selling for each catalog to determine the expected future life of each catalog. We monitor changes to the forecast and adjust the amortization amount accordingly. If the expected period of future benefit is not as we estimate, our reported selling, general and administrative costs may not accurately reflect our actual promotional materials and advertising costs, which may adversely affect our results of operations in subsequent periods.

The ongoing cost of developing and maintaining our customer list is charged to operations as incurred. All other advertising costs, such as ads and affiliate commissions, are expensed as incurred.

Stock Options

We account for our stock options issued to employees under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees, and related interpretations, or the intrinsic value method. Stock options are granted at exercise prices equivalent to the fair market value of the common stock on the date of grant. Accordingly, no compensation expense for stock options has been recognized in our consolidated financial statements. Pro forma information regarding net earnings attributable to common stockholders and net earnings per share attributable to common stockholders is required to be disclosed to show our net earnings as if we had accounted for employee stock options under the fair value method of SFAS No. 123, as amended by SFAS No. 148. This information is contained in Note 4 to our consolidated financial statements. The fair values of options issued pursuant to our option plans at each grant date were estimated using the Black-Scholes option-pricing model. Assumptions used in this model to generate estimated fair values include the expected dividend yield and price volatility of the underlying stock, risk-free interest rates, and estimated forfeitures and terms of the options. Differences in any of the above assumptions could change the fair value calculations. In particular, the estimates of the stock price volatility and the expected option terms generally have the most effect on the estimated initial fair value calculation. Material increases in the initial estimates of stock price volatility and/or expected option terms would typically increase the estimated fair value of an option.

Results of Operations

The following table sets forth, for the periods indicated, information from our Consolidated Statements of Earnings expressed as a percentage of sales:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
				(Restated)						(Restated)
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of sales		68.3			70.4			68.9			68.8
Gross profit		31.7			29.6			31.1			31.2
Selling, general and administrative expenses		26.0			25.5			25.2			26.8
Earnings from operations		5.7			4.1			5.9			4.4
Interest expense		—			(0.3	)		(0.1	)		—
Earnings before income taxes		5.7			3.8			5.8			4.4
Income tax expense		2.1			1.4			2.1			1.6
Net earnings		3.6	%		2.4	%		3.7	%		2.8	%

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Comparison of Three Months ended September 30, 2005 and 2004

	The Sportsman’s Guide				The Golf Warehouse				Consolidated
	2005		2004		2005		2004		2005		2004
			(Restated)								(Restated)
Net sales	$	46,551	$	44,990	$	14,998	$	12,049	$	61,549	$	57,039
Earnings from operations	$	2,160	$	1,965	$	1,346	$	371	$	3,506	$	2,336

Net sales.Consolidated net sales for the three months ended September 30, 2005 of $61.5 million were $4.5 million or 7.9% higher than sales of $57.0 million during the same period last year. The increase in net sales for the third quarter was primarily the result of continued strong performance by TGW and increasing Internet related sales by TSG.

As of the end of the third quarter 2005, the Buyer’s Club membership for TSG had increased to 401,000, up 5.0% over the 382,000 members reported at December 31, 2004 and up 8.7% over the membership count one year ago.

Orders generated through the Internet for the three months ended September 30, 2005 were approximately 46.9% of TSG’s total Internet and catalog orders compared to approximately 40.7% during the same period last year. Orders generated through the Internet for the three months ended September 30, 2005 were approximately 83.8% of TGW’s total Internet and catalog orders compared to approximately 81.8% during the same period last year. Orders generated through the Internet are defined as those that are derived from our websites, catalog orders processed through the Internet and Internet advertised product orders placed by telephone. Internet related orders continue to grow, quarter over quarter, as we continue to make enhancements to our websites and implement and improve upon various marketing and merchandising programs.

Gross returns and allowances for the three months ended September 30, 2005 were $3.5 million or 5.4% of gross sales compared to $3.7 million or 6.0% of gross sales during the same period last year. The decrease in gross returns and allowances, as a percentage of gross sales, was primarily due to favorable trends in actual customer return activity.

Gross profit.Consolidated gross profit for the three months ended September 30, 2005 was $19.5 million or 31.7% of net sales compared to $16.9 million or 29.6% of net sales during the same period last year. The increase in consolidated gross profit, as a percentage of net sales, was primarily due to higher product margins at TSG and TGW along with lower shipping costs by TSG. TSG’s higher product margins, as a percentage of net sales, were primarily due to an increase in sales of manufacturers’ closeouts and direct import products, which traditionally have higher margins. TGW’s higher product margins were due to increased sales within the higher margin apparel product category as well as improved margins within the golf club product category. Our gross profit may not be comparable to those of other entities since some entities do not include the same cost elements within their definition of cost of sales.

Selling, general and administrative expenses.Consolidatedselling, general and administrative expenses for the three months ended September 30, 2005 were $16.0 million or 26.0% of net sales compared to $14.6 million or 25.5% of net sales for the same period last year. Consolidated selling, general and administrative expenses, as a percentage of net sales, were higher compared to the same quarter a year ago primarily as a result of TSG’s higher catalog advertising costs, as a percentage of net sales, from lower than anticipated customer response rates coupled with higher Internet marketing costs and offset somewhat with the inclusion of TGW’s selling, general and administrative expenses, which historically have been lower than those of TSG.

The increase in consolidated selling, general and administrative expenses for the third quarter of 2005, in dollars, compared to the third quarter of 2004, was primarily due to additional catalog advertising dollars spent as a result of an increased catalog circulation by TSG.

Total consolidated catalog circulation during the third quarter of 2005 was 11.8 million catalogs compared to 10.9 million catalogs during the same period last year. The catalogs mailed during the third quarter of 2005 and 2004 include 0.7 million catalogs circulated by TGW. TSG mailed ten catalog editions, consisting of three main catalogs, three Buyer’s Club Advantage ™ catalogs and four specialty catalog editions, during the three months ended September 30, 2005. TSG mailed nine catalog editions, consisting of three main catalogs, three Buyer’s Club Advantage ™ catalogs and three specialty catalog editions, during the three months ended September 30, 2004.

Consolidated advertising expense for the third quarter of 2005 was $8.4 million or 13.7% of net sales compared to $7.5 million or 13.2% of net sales for the same period last year. The increase in consolidated advertising expense, as a percentage

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of net sales, compared to the same period last year was primarily due to lower than anticipated customer response rates coupled with higher Internet marketing costs.

Earnings from operations.Earnings from operations for the three months ended September 30, 2005 were $3.5 million compared to $2.3 million during the same period last year. The increase in earnings from operations was largely due to continued growth and profitability by both TGW and TSG.

Interest expense.Interest expense for the three months ended September 30, 2005 was $0.1 million compared to $0.2 million during the same period last year. Interest expense in the third quarter of 2005 and 2004 was related primarily to the debt from the acquisition of TGW.

Net earnings.As a result of the above factors, net earnings for the three months ended September 30, 2005 were $2.2 million compared to $1.4 million for the same period last year.

Comparison of Nine Months ended September 30, 2005 and 2004

	The Sportsman’s Guide				The Golf Warehouse				Consolidated
	2005		2004		2005		2004		2005		2004
			(Restated)								(Restated)
Net sales	$	139,962	$	129,354	$	49,943	$	12,049	$	189,905	$	141,403
Earnings from operations	$	6,590	$	5,864	$	4,446	$	371	$	11,036	$	6,235

Net Sales.Consolidated net sales for the nine months ended September 30, 2005 of $189.9 million were $48.5 million or 34.3% higher than net sales of $141.4 million during the same period last year. The increase in net sales for the nine months ended September 30, 2005 was primarily a result of including the net sales from the newly acquired TGW and higher net sales from TSG. The acquisition of TGW was effective June 29, 2004, making the third quarter of 2004 the first quarter for inclusion of TGW’s net sales, operations and earnings. Net sales for TSG increased approximately 8% when compared to the nine months ended September 30, 2004 as a result of higher Internet sales.

As of the end of the third quarter 2005, the Buyer’s Club membership for TSG had increased to 401,000, up 5.0% over the 382,000 members reported at December 31, 2004 and up 8.7% over the membership count one year ago.

Orders generated through the Internet for the nine months ended September 30, 2005 were approximately 46.3% of TSG’s total Internet and catalog orders compared to approximately 40.8% during the same period last year. Orders generated through the Internet for the nine months ended September 30, 2005 were approximately 81.7% of TGW’s total Internet and catalog orders compared to approximately 81.0% during the same period last year. Orders generated through the Internet are defined as those that are derived from our websites, catalog orders processed through the Internet and Internet advertised product orders placed by telephone. Internet related orders continue to grow, quarter over quarter, as we continue to make enhancements to our websites and implement and improve upon various marketing and merchandising programs.

Gross returns and allowances for the nine months ended September 30, 2005 were $10.7 million or 5.3% of gross sales compared to $9.3 million or 6.2% of gross sales during the same period last year. The decrease in gross returns and allowances, as a percentage of gross sales, was primarily due to favorable trends in actual customer return activity at TSG and overall lower customer returns, as a percentage of gross sales, at TGW which traditionally have been lower than TSG’s customer return rates.

Gross profit.Consolidated gross profit for the nine months ended September 30, 2005 was $59.0 million or 31.1% of net sales compared to $44.1 million or 31.2% of net sales during the same period last year. The decrease in consolidated gross profit, as a percentage of net sales, was primarily due to the inclusion of lower product margin sales of TGW. TGW’s product margins are traditionally lower than those of TSG. For the nine months ended September 30, 2005, TSG’s gross profit, as a percentage of net sales, improved slightly over the prior year same period largely as a result of improved product margins in the third quarter of 2005. While TGW’s product margins, as a percentage of net sales, are lower than TSG’s product margins, TGW’s product margins have improved over the prior year largely as the result of improved product margins experienced in the third quarter of 2005. Our gross profit may not be comparable to those of other entities since some entities do not include the same cost elements within their definition of cost of sales.

Selling, general and administrative expenses.Consolidated selling, general and administrative expenses for the nine months ended September 30, 2005 were $47.9 million or 25.2% of net sales compared to $37.8 million or 26.8% of net sales for the

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same period last year. Consolidated selling, general and administrative expenses, as a percentage of net sales, were lower compared to the same period a year ago primarily as a result of the inclusion of TGW’s selling, general and administrative expenses which, as a percentage of net sales, historically have been lower than TSG’s because a higher percentage of its sales are generated from the Internet coupled with a higher average customer order amount.

The increase in consolidated selling, general and administrative expenses for the nine months ended September 30, 2005, in dollars, compared to the nine months ended September 30, 2004, was primarily due to the inclusion of TGW’s expenses.

Total consolidated catalog circulation during the first nine months of 2005 was 36.1 million catalogs compared to 31.9 million catalogs during the same period last year. The catalogs mailed during the first nine months of 2005 and 2004 include 3.7 million and 0.7 million catalogs, respectively, circulated by TGW. TSG mailed 27 catalog editions, consisting of nine main catalogs, nine Buyer’s Club Advantage ™ catalogs and nine specialty catalog editions, during the nine months ended September 30, 2005 compared to 26 catalog editions, consisting of nine main catalogs, nine Buyer’s Club Advantage ™ catalogs and eight specialty catalog editions, during the same period last year.

Consolidated advertising expense for the first nine months of 2005 was $25.2 million or 13.3% of net sales compared to $20.0 million or 14.1% of net sales for the same period last year. The decrease in consolidated advertising expense, as a percentage of net sales, compared to the same period last year was primarily due to the inclusion of TGW which traditionally has a lower effective advertising rate than TSG.

Earnings from operations.Earnings from operations for the nine months ended September 30, 2005 were $11.0 million compared to $6.2 million for the same period last year.

Interest expense.Interest expense for the nine months ended September 30 2005 and 2004 was $0.2 million. Interest expense in the first nine months of 2005 and 2004 was related to the debt from the acquisition of TGW.

Net earnings.As a result of the above factors, net earnings for the nine months ended September 30, 2005 were $7.0 million compared to $3.9 million for the same period last year.

Seasonality and Quarterly Results

The majority of TSG’s sales historically occur during the second half of the year. The seasonal nature of the business is due to TSG’s focus on outdoor merchandise and related accessories for the fall, as well as winter apparel and gifts for the holiday season. We expect this seasonality will continue in the future. In anticipation of increased sales activity during the third and fourth fiscal quarters, TSG incurs significant additional expenses for hiring employees and building inventory levels.

TGW’s business is also seasonal. Sales leading up to and during Father’s Day and the Christmas holiday selling seasons have historically contributed to a higher percentage of TGW’s annual sales and net earnings than other periods. TGW also incurs higher expenses related to building inventory to meet higher demand during these seasons.

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The following table sets forth certain unaudited financial information for each of the quarters shown (in thousands, except per share data):

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
2005
Net sales	$	64,578	$	63,778	$	61,549
Gross profit		20,034		19,444		19,489
Earnings from operations		3,562		3,968		3,506
Net earnings		2,257		2,507		2,189
Net earnings per share:
Basic		.32		.35		.30
Diluted		.28		.31		.26
2004
Net sales	$	44,811	$	39,553	$	57,039	$	91,062
Gross profit		14,345		12,829		16,900		30,310
Earnings from operations		1,999		1,900		2,336		6,027
Net earnings		1,308		1,240		1,377		3,668
Net earnings per share:
Basic		.18		.18		.20		.52
Diluted		.16		.16		.17		.46

Per share amounts set forth above have been adjusted to give effect to the 3-for-2 stock split of our common stock paid on April 15, 2005 to shareholders of record on March 25, 2005.

Note: The acquisition of The Golf Warehouse, LLC was effective June 29, 2004. The third quarter of 2004 was the first quarter for inclusion of TGW’s net sales, operations and earnings.

Liquidity and Capital Resources

We meet our operating cash requirements through funds generated from operations and borrowings under our revolving credit facility.

Working Capital.We had working capital of $15.1 million as of September 30, 2005 compared to $4.5 million as of December 31, 2004, with current ratios of 1.3 to 1 and 1.1 to 1, respectively. The increase in working capital of $10.6 million was primarily due to increased inventory levels, which traditionally occurs prior to the fourth quarter.

We purchase large quantities of manufacturers’ closeouts and direct imports, particularly in footwear and apparel merchandise categories. The seasonal nature of the merchandise may require that it be held for several months before being offered in a catalog. This can result in increased inventory levels and lower inventory turnover, thereby increasing our working capital requirements and related carrying costs.

TSG’s Buyer’s Club members are entitled to participate in a credit plan with no finance charges, known as the “Buyer’s Club 4-Pay Plan”. Under this plan, TSG charges Club members’ credit cards for four consecutive monthly payments. TSG had outstanding customer receivables of $1.7 million at September 30, 2005 compared to approximately $2.6 million at December 31, 2004. This 4-Pay program will continue to require the allocation of working capital, which we expect to fund from operations and availability under our revolving credit facility.

On June 29, 2004, we entered into an amended Credit Agreement with Wells Fargo Bank, National Association, providing a revolving line of credit up to $15.0 million and a term loan of $12.5 million, expiring September 30, 2007. The revolving line of credit is for working capital and letters of credit and the proceeds from the term loan are for financing acquisitions of other business operations. Letters of credit may not exceed $10.0 million at any one time. Funding under the line of credit, if combined borrowings under the line of credit and term loan exceed $20.0 million, is limited to a collateral base of 50% of eligible inventory plus 75% of eligible trade accounts receivable. Borrowings from the revolving line of credit and term loan bear interest at the bank’s prime rate less 0.15% or, at our option, fixed term LIBOR plus 2.5 percentage points, provided certain financial ratios are met. The revolving line of credit and the term loan are collateralized by substantially all of our assets.

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All borrowings are subject to various covenants (while the term loan remains outstanding), which include funded debt to earnings before interest, income taxes, depreciation and amortization ratio and a fixed charge coverage ratio. The agreement also prohibits the payment of dividends to shareholders, without the consent of the bank. As of September 30, 2005 and December 31, 2004, we were in compliance with all applicable covenants under the amended Credit Agreement. We had borrowings of $4.1 million against the revolving line of credit at September 30, 2005. We had no borrowings against the revolving line of credit as of December 31, 2004. Outstanding letters of credit were $1.2 million at September 30, 2005 compared to $1.9 million at December 31, 2004. We had a remaining balance of $5.0 million against the term loan at September 30, 2005 and December 31, 2004, which is payable September 30, 2007.

Operating Activities.Cash flows used in operating activities for the nine months ended September 30, 2005 were $10.9 million compared to $15.8 million for the same period last year. The decrease in cash flows used in operating activities of $4.9 million was primarily due to an increase in net earnings.

Investing Activities.Cash flows used in investing activities for the nine months ended September 30, 2005 were $0.8 million compared to $30.9 million for the same period last year. Capital expenditures during the first nine months of 2005 included computer equipment, leasehold improvements and warehouse and office equipment. In 2004, TSG acquired 100% of the outstanding membership interests of The Golf Warehouse, LLC for a purchase price of approximately $30 million with an additional $0.5 million of transaction costs incurred.

Financing Activities.Cash flows provided by financing activities during the nine months ended September 30, 2005 were $5.2 million compared to $15.4 million during the same period last year. The decrease in cash flows provided by financing activities during the nine months ended September 30, 2005, compared to the prior year, was largely due to proceeds from the term loan related to the acquisition of TGW received in 2004.

We believe that cash flows from operations and borrowing capacity under our revolving credit facility will be sufficient to fund operations for the next 12 months and the foreseeable future. Future acquisitions or other transactions may require us to obtain additional sources of financing.

New Accounting Pronouncements

In 2004, the FASB revised Statement No. 123 (FAS 123R),Accounting for Stock Based Compensation. FAS 123R eliminates the alternative to use APB Opinion No. 25’sAccounting for Stock Issued to Employees, intrinsic value method of accounting that was provided in FAS 123 as originally issued. FAS 123R requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. For public entities that do not file as small business issuers, this Statement is effective at the beginning of the first fiscal year that begins after June 15, 2005. We have not yet finished our financial assessment of the implementation of FAS 123R, which we will adopt in the first quarter of 2006.

Forward-Looking Statements

This report may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We use words such as “may,” “believe,” “estimate,” “plan,” “expect,” “intend,” “anticipate” and similar expressions to identify forward looking statements. Actual results could differ materially from those projected in the forward-looking statements due to a number of factors, including general economic conditions, a changing market environment for our products and the market acceptance of our product offerings as well as the factors set forth in Exhibit 99 “Risk Factors” to the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2004 filed with the Securities and Exchange Commission.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

We do not have any material, near-term, market rate risk.

Item 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures are control and other procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Based on that

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evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

					Total Number of		Maximum Number
					Shares Repurchased		Of Shares that May
	Total Number				as Part of Publicly		Yet be Repurchased
	of Shares		Average Price		Announced Plans		Under the Plans
Period	Repurchased		Paid per Share		or Programs (1)		or Programs (1)
July 1 – 31, 2005		—		—		—		712,058
August 1 – 31, 2005		39,500	$	20.61		39,500		672,558
September 1 – 30, 2005		—		—		—		672,558
Total		39,500	$	20.61		39,500		672,558

(1) On May 6, 2005, the Company announced that its Board of Directors authorized a plan to repurchase up to ten percent of the Company’s outstanding common stock in the open market or in privately negotiated transactions over the next 12 months.

Item 6. Exhibits

     Exhibits

31	Rule 13a-14(a)/15d-14(a) Certifications
32	Section 1350 Certifications

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SIGNATURES

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 thereunto duly authorized.

		THE SPORTSMAN’S GUIDE, INC.
Date: November 8, 2005	/s/ Charles B. Lingen
		Charles B. Lingen
		Executive Vice President of Finance
		and Administration/Chief Financial Officer

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