SPORTSMANS GUIDE INC - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

For the transition period from to

Commission file number 0-15767
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THE SPORTSMAN'S GUIDE, INC.
(Exact name of registrant as specified in its charter)

MINNESOTA 41-1293081
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

411 FARWELL AVENUE, SOUTH ST. PAUL, MINNESOTA 55075
(Address of principal executive offices)

(651) 451-3030
(Registrant's telephone number, including area code)

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Securities registered pursuant to Section 12 (b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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

As of June 30, 2004, the aggregate market value of the registrant's Common
Stock held by non-affiliates was approximately $109,086,892 based on the last
reported sale price of the Common Stock on such date on the NASDAQ National
Market.

As of March 16, 2005, there were 4,746,070 shares of the registrant's
Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for its Annual Meeting of
Shareholders on May 6, 2005 are incorporated by reference into Part III of this
Form 10-K.

AVAILABLE INFORMATION

The Sportsman's Guide, Inc. makes available on its investor relations
website www.sportsmansguideir.com its annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to these
reports as soon as reasonably practicable after such material is electronically
filed with or furnished to the SEC.
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PART I

ITEM 1. BUSINESS

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

Our business was started in 1970. Originally limited to a small selection
of merchandise targeted to the deer hunter, our product offerings have gradually
evolved to a broader range of merchandise intended to appeal to those interested
in pursuing the outdoor lifestyle in general and the value-oriented outdoorsman
in particular. On June 29, 2004, we acquired 100% of the outstanding membership
interests of The Golf Warehouse, L.L.C., an online and catalog retailer of golf
equipment, apparel and accessories with offices and warehouse facilities in
Wichita, Kansas. TGW was founded in 1997.

We were incorporated under the laws of the State of Minnesota on March 23,
1977. Our principal executive offices are located at 411 Farwell Avenue, South
St. Paul, Minnesota 55075 and our telephone number is (651) 451-3030.

INDUSTRY OVERVIEW

OUTDOOR SPORTS AND SPORTING GOODS. According to the Sporting Goods
Manufacturers Association, "SGMA," the sporting goods industry is estimated to
be more than a $52 billion market in 2004 up approximately 4% from 2003.

The sporting goods industry's estimated growth of 4% in 2004 was just under
the 4.2% growth of the total U.S. non-durable goods (GDP). The sporting goods
industry's growth in 2004 was the highest since 1997. The three major markets of
sporting goods are sporting goods equipment ($18.0 billion), sports apparel
($24.1 billion) and athletic footwear ($10.0 billion). Sports apparel, athletic
footwear and fitness products overall again showed improved growth from 2003 to
the estimated numbers for 2004.

GOLF EQUIPMENT. According to the National Golf Foundation (NGF), sales of
golf equipment -- clubs, balls, bags and gloves -- rose 3% to nearly $2.5
billion, the sport's largest percentage gain in six years. Total rounds played
also enjoyed a slight increase of 1% in 2004 after two years of trending
downward. A somewhat improved economy and less stormy weather as compared with
2003 helped both trends.

CATALOG SALES. Studies conducted by the Direct Marketing Association (DMA)
report that catalog industry sales grew 6.7% in 2004, to approximately $143
billion over $134 billion reported in 2003.

ONLINE SHOPPING. According to Jupiter Research, online sales in 2004 were
reported at $66 billion and are forecast to grow to more than $79 billion in
2005. As Jupiter had previously forecast, a significant portion of the growth in
online retail over the past year was due in part to new online buyers, not just
veteran online buyers. Jupiter reported that online retail spending during the
2004 holiday period (November and December) reached $22.1 billion, an increase
of 22% over the 2003 holiday period. The increase was largely due to new online
buyers. According to Jupiter Research, 17.7 million consumers made an online
holiday purchase for the first time in 2004. Jupiter had also previously
reported that by 2008, it expects one-half of the U.S. population will make
purchases online.

2

OUR CATALOGS

THE SPORTSMAN'S GUIDE

We publish main, Buyer's Club and specialty catalog editions and mailed
approximately 49.0 million catalogs to existing and prospective customers in
2004.

FORMAT. Our Sportsman's Guide catalogs are designed to be fun and
entertaining. Every merchandise offering uses a highly promotional format
emphasizing our "Lowest Prices, Best Quality" philosophy. Unique to us is our
product description, or copy. The catalogs make creative and expansive use of
art and copy to extensively describe products with humorous text, call-outs,
photos and photo captions. Copy is written in the first person from Gary Olen to
the reader. The catalogs are perceived by customers as having entertainment
value and are advertised as The "Fun-to-Read" Catalog(R).

TYPES AND PURPOSES. Main catalog editions are mailed eleven months of the
year and offer selections of our best selling products in a variety of product
categories. We also use our main catalog as our primary prospecting catalog to
test new names and new products. Response data from main catalog mailings are
used to create specialty catalogs.

Specialty catalog editions contain wide selections of products from select
product categories. We identify the product categories for our specialty
catalogs based on demand generated for certain categories in our main catalogs.
During 2004, we published 12 specialty catalogs targeting buyers of government
surplus, camping and outdoor-living equipment, shooting supplies, hunting
equipment and holiday gifts. The specialty titles allow us to utilize a
customized marketing plan for individual consumer groups thereby maximizing
response rates and minimizing advertising costs as a percentage of sales.

The Buyer's Club Advantage(TM) catalog editions offer a wide variety of
product selections with sneak previews and exclusive deals for club members
only. During 2004, we published 12 Buyer's Club Advantage(TM) editions, ranging
from 48 to 64 pages per edition. We believe the club catalogs, as well as the
growth in our club memberships, have been an important component of our sales
and profitability growth.

CREATIVE. All catalogs are created and designed in-house by our creative
services department which produces the advertising copy and layouts for each
catalog. Substantially all of the photographs used in the catalogs are taken at
our in-house photo studio. Artwork and copy for the catalogs are transmitted in
digital format from our desktop publishing systems to a pre-press vendor and
then to the printer, which prints and mails the catalogs. These capabilities
allow us to preserve the catalog's distinctive character and allow us greater
control of the catalog production schedule, which reduces the lead time
necessary to produce catalogs. We are able to prepare and mail a catalog in
approximately 75 days. This allows us to offer new merchandise quickly to our
customers, thereby maximizing pricing opportunities while minimizing inventory
carrying costs. Because we use a value-oriented sales approach, we are able to
use a lower weight and grade of paper than our competitors to reduce our catalog
production and postage costs.

THE GOLF WAREHOUSE

TGW mailed its first catalog in November 2002 to diversify its online
business and build its brand and customer base. In 2004, TGW published four
catalog editions consisting of Spring, Father's Day, Summer and Holiday editions
and mailed approximately 2.8 million catalogs to existing and prospective
customers. The catalogs range from 68 to 100 pages per edition.

The TGW catalogs contain a wide selection of name-brand golf clubs, balls,
accessories, shoes and apparel. The catalogs arrange merchandise by product
category and include color pictures of products with detailed product
descriptions. Creative portions of the catalogs, including photography, page
layout and product selection, are produced in-house. Catalog mailings are timed
to target peak selling seasons. Access to historical customer information,
demographics and purchasing history, within TGW's data warehouse, which was
built by TSG, has assisted TGW in more cost-effectively targeting potential
customers for its catalog mailings.

3

OUR WEBSITES

THE SPORTSMAN'S GUIDE

TSG's websites offer online shopping as well as online content-rich
resources and information for the outdoor enthusiast. Sales generated through
the Internet for TSG in 2004 were approximately 42% of total Internet and
catalog sales compared to 36% in 2003. Sales generated through the Internet are
defined as those that are derived from our websites, catalog orders processed
online and online offers placed by telephone. Internet related sales continue to
grow, period over period, as we continue to make enhancements to our Web sites
and implement and improve upon various marketing and merchandising programs.

SPORTSMANSGUIDE.COM. The sportsmansguide.com site is our online retail
store. The site established its initial internet presence in 1996 and the launch
was completed in April 1998.

Our sportsmansguide.com site is modeled on our print catalogs. The site
translates the distinctive look and editorial voice of our print catalog onto
the Internet, adding interactive functionality to make shopping an entertaining
experience. The site is designed to be fun-to-browse and easy to use, enabling
the ordering process to be completed with a minimum of customer effort. The site
is advertised as The "Fun-to-Browse" Website(R). The site allows customers to
order merchandise from print media, view current catalogs and request mailed
catalog copies. E-mail addresses are collected through an opt-in program. E-mail
broadcast messages, which include a variety of specialized product offerings,
are delivered to approximately 873,000 participants on an average of three times
per week.

The sportsmansguide.com site offers full-line selections of camping,
fishing, footwear, clothing, hunting, archery, marine, all-terrain vehicles,
truck and SUV accessories, snowmobiles and hiking products at discount prices.
The community content within the sportsmansguide.com site provides a broad and
deep selection of resources and information updated regularly covering all
aspects of the outdoor experience. Web pages include articles on hiking,
hunting, fishing and camping experiences, DNR information, local and national
weather forecasts, tips and hints on planning an upcoming outdoor event, photo
galleries and maps.

BARGAINOUTFITTERS.COM. The bargainoutfitters.com site is our online
liquidation outlet site launched in November 1999. The site offers clothing and
footwear products as well as home and domestics, tools, government surplus,
automotive and electronic products that are deeply discounted, discontinued or
overstocked. E-mail addresses are collected through an optional sign-up program.
E-mail broadcast messages, which include a variety of specialized product
offerings, are delivered to approximately 55,000 participants on an average of
three times per week.

THE GOLF WAREHOUSE

TGW.COM. The TGW.com website was launched in 1998. The website was featured
in Forbes Magazine's Best of the Web for 2002 and 2003. Forbes called the
website "the most comprehensive golf equipment site on the web." The majority of
TGW's total sales for 2004 were generated through the Internet.

The TGW.com website features all of TGW's product offerings in a functional
and customer friendly environment. The website homepage prominently displays
featured products and special offers in a promotional format along with in line
product categories. The website is designed to minimize the number of "clicks"
necessary to find a specific product. A redesigned search function enables
product search by keyword(s), item number, manufacturer or quick link to product
categories. An online version of the TGW print catalog is provided on the
website.

4

MERCHANDISING

THE SPORTSMAN'S GUIDE

PRODUCTS. TSG offers a large selection of high value products at low
prices. These products include hunting and shooting accessories, footwear,
clothing and accessories, domestics and furniture, optics, government surplus,
tools and truck/SUV accessories, camping and outdoor recreation equipment, lawn
and garden, gifts, electronics and a diverse range of additional offerings.
Within the sportsmansguide.com website, we are able to carry deeper and more
diverse product lines and merchandise categories than we have traditionally
offered through the catalog. Over time, our product offerings and marketing
efforts have broadened to include those interested in pursuing and living the
outdoor lifestyle in general and the value-oriented outdoorsman in particular.

The table below indicates the percentage of TSG's sales by product category for
2004:

MERCHANDISE MIX. TSG historically offered a changing mix of in-line
products. In-line products are those products regularly available from
manufacturers. As a complement to our value pricing approach, we aggressively
pursue manufacturers' close-outs of name brand shoes, boots, clothing, watches
and other merchandise, which we offer to our customers at savings of 25% to 60%
from original retail prices. We also offer government surplus from around the
world, providing customers a low-cost alternative for items such as wool coats
and pants, shirts, gloves, underwear, blankets, boots, sleeping bags, jackets,
backpacks, skis and snowshoes. We have developed our own private label line of
products through our direct import program including footwear, apparel and
several hard line product categories sold under the Guide Gear(R) name.

Our merchandising strategy has been to shift our merchandise mix to a
larger percentage of manufacturers' close-outs, government surplus, private
label products, and to minimize the number of lower price point items, while
maintaining a broad selection of products. This strategy has added to our
customer base value-oriented customers who may not otherwise be identified as
pure outdoorsmen.

SOURCING. Our buyers actively seek sources for products they believe will
interest our targeted customers. We seek to maintain existing and develop new
relationships with vendors to provide ongoing access to manufacturers'
close-outs, government surplus, direct imports and other items. Buyers regularly
attend trade shows, meet with vendors and make mass mailings and cold calls to
locate high quality, low price, name brand merchandise as well as unusual or
unique products. We frequently purchase large quantities of close-outs and other
individual items on an opportunistic or when-available basis.

We purchase our merchandise from more than 1,450 suppliers and generally
purchase all of our product needs for a particular item from one vendor. No
single supplier accounted for more than 3% of TSG's purchases during 2004, and
we believe there are numerous sources for products in our merchandise
categories.

SELECTION. Our buyers and merchandising staff collectively select the
merchandise to be offered to customers by evaluating product availability,
pricing, historical demand, emerging merchandise trends and expected product
profitability. Each product is hand-picked, and most are field tested by our
buyers to ensure quality, functionality and proper sizing in order to maximize
appeal to customers.

INVENTORY MANAGEMENT. Our inventory analysts are responsible for ordering
all merchandise, determining the quantity and arrival date, managing inventory
levels, assessing customer demand, adjusting

5

estimates, canceling orders for slow-moving merchandise and reordering
merchandise. Utilizing our information systems, buyers and inventory analysts
monitor product sales on a daily basis. Slow-moving merchandise is actively
promoted through websites, telemarketing, clearance sales or, when possible, is
returned to the vendor.

As part of our merchandise liquidation strategy, we maintain a retail
outlet store at our primary warehouse and distribution facility in South St.
Paul from which we sell discontinued, overstocked, returned and regular catalog
merchandise. The retail store along with our websites provide a liquidation
outlet and serve to minimize inventory mark-downs.

THE GOLF WAREHOUSE

PRODUCTS. TGW offers a large selection of golf equipment from leading
manufacturers at low prices. Our products include golf clubs, golf bags, golf
balls, golf gloves, golf shoes, apparel, training aids, multimedia products,
gifts and accessories. We offer products by leading manufacturers including
Adams Golf(R), Calloway(R), Cobra(R), Footjoy(R), Mizuno(R), Nike(R), Ping(R),
TaylorMade(R), Tommy Armour(R)/Ram(R) and Titleist(R). We offer more than 18,000
products.

The table below indicates the percentage of TGW's sales by product category
for 2004:

In 2004, TaylorMade(R), Titleist(R) and Nike(R) supplied 24%, 15% and 12%,
respectively, of TGW's purchases. No other supplier accounted for more than 9%
of TGW's purchases in 2004.

We have developed supplier relationships that provide us with access to the
newest products as well as close-out, clearance and discontinued merchandise.

MARKETING

THE SPORTSMAN'S GUIDE

CUSTOMER DATABASE. We maintain a proprietary customer database in which we
store detailed information on each customer in our customer list, including
demographic data and purchasing history. Our customer database contains over 6.0
million names, including approximately 1.0 million customers who have made
purchases within the last 12 months. In addition, we have approximately 928,000
participants who have provided their e-mail addresses. The customer database is
updated regularly with information as new purchases are recorded.

CUSTOMER SELECTION. We have developed our own customer selection criteria
to segment our customer list according to many variables, allowing our marketing
department to analyze each segment's buying patterns. We review the results of
each of our catalog mailings. The results are used to further update the
customer database to refine the frequency and selectivity of our catalog
mailings in an effort to maximize response rates and profitability.

LIST DEVELOPMENT. New customers are acquired principally through the use of
targeted mailings to individuals identified through mailing lists rented or
exchanged from other catalog companies, retail subscription lists, and lists of
names compiled from businesses whose customers have interests similar to those
of our customers. We are generally entitled to make one mailing to each name
obtained through a rented or exchanged mailing list. If the prospect responds,
the name is added to our database and may be freely used by us in the future.
Through the Internet, we have captured new customers as a result of our

6

affiliate and search marketing programs. We also use our sweepstakes marketing
programs to convert our catalog customers to online purchasers and to increase
our overall number of e-mail addresses. New customers accounted for
approximately 15% of our sales during 2004.

With ongoing refinements in our approach to merchandising and marketing, we
have increased the frequency and quantity of mailings and e-mail broadcasts to
the most profitable segments of our existing customer list. Analyses of
historical purchasing patterns of existing customers, including recency,
frequency and monetary activity, are performed to assist in merchandising and
customer targeting and to increase sales to existing customers. Existing
customers accounted for approximately 85% of our sales during 2004.

MARKETING PROGRAMS AND PROMOTIONAL FORMATS. We strive to develop
promotional formats that will stimulate customer purchases from our catalogs and
websites. Successful promotional formats include different catalog wraps, dollar
discounts on specific order size, and promotional tag lines such as "last
chance" offers. Since our inception on the Internet, we have marketed our online
retail store in our catalogs. In 2004, approximately 49.0 million catalog covers
advertised our online retail store. This marketing channel has been the
principal marketing mechanism to reach our online target audience.

Our most significant, successful marketing program has been the Buyer's
Club. Customers can purchase a one-year membership in TSG's Buyer's Club for a
$29.99 fee. For this annual fee, club members receive a 10% discount on all
regularly priced items except for ammunition which is limited to a 5% discount
and clearance items which have no discount off the advertised price. Our Buyer's
Club offers its members exclusive merchandise not offered to other customers.
Club members are presented with sneak previews of merchandise offers and given
the opportunity to buy limited quantity items prior to non-club customers. Club
members also receive member's only bargains in the catalogs and via e-mail
campaigns.

The purchase activity, on average, of our Buyer's Club customer is two to
three times greater than a non-club member. Consequently, we continually develop
new marketing promotions that have significantly increased the number of new
club members. At the end of 2004, we had approximately 382,000 members in our
Buyer's Club, an 8.8% increase compared to the end of 2003.

Another successful marketing program is our installment payment plan, known
as the "Buyer's Club 4-Pay Plan," which is available to Buyer's Club members
with credit card orders of $100 or more. Payments under the plan consist of 25%
of the merchandise charges, plus 100% of any shipping charges and Buyer's Club
fees, if applicable, at the time of shipment with three equal installments in 30
day increments, which are automatically charged to the customer's credit card.
No interest or additional fees are charged to customers who elect the 4-Pay
Plan.

CUSTOMER SERVICE. We have a toll-free customer service telephone line
separate from our inbound ordering lines. We maintain a separate customer
service department staffed with full-time customer service representatives who
answer customer inquiries, reply to complaints and assist customers in returning
merchandise. Our commitment to customer service is supported by our
unconditional guarantee which allows customers to return merchandise for any
reason and at any time for refund or exchange if they are not satisfied with the
merchandise.

THE GOLF WAREHOUSE

CUSTOMER DATABASE. TGW has developed a proprietary customer database of
over 1.5 million names and email addresses. Our customer list includes
approximately 500,000 households who have made purchases from TGW and
approximately 252,000 who have purchased from TGW within the past 12 months. We
add names and email addresses to, and update information in, our customer
database through our online and catalog ordering process and through contests
and catalog sign-ups on our website. New customers accounted for approximately
27%, and existing customers accounted for approximately 73%, of TGW's sales
during 2004. Approximately 8.9% of TGW's sales in 2004 were to customers outside
the United States.

7

MARKETING AND PROMOTIONAL PROGRAMS. We use a variety of sales and marketing
techniques to build recognition of the TGW.com brand, drive traffic to our
website and expand our customer base. We regularly send email broadcasts to
segments of our customer base. We run television commercials on The Golf Channel
and on-line ads on TheGolfChannel.com. We are a featured merchant in the sports
& outdoors/golf category on Amazon.com. We maintain commission-based affiliate
marketing programs with the major search engines and over 500 affiliate websites
which provide direct links to our website. We maintain exclusive relationships
with PGA Tour, Inc. and The Golf Channel, Inc. to operate online retail golf
stores from each company's website, and we market golf products to each
company's customer database.

Our promotional programs include special offers, free shipping and no
payment for 90 days. Our exclusive "Name Your Price" program allows customers to
make an offer on select groups of products with email notification of whether
the offer is accepted. We offer gift cards and gift certificates. We also offer
corporate logo golf products for businesses, organizations and tournaments.

CUSTOMER SERVICE. We maintain a toll-free customer service number staffed
seven days a week. We provide custom club fitting, a 30-day playability
guarantee that permits customers to return clubs for full in-store credit, a
30-day money back guarantee on new unused merchandise and a club trade-in
program. We offer our customers a low price guarantee.

OPERATIONS AND FULFILLMENT

THE SPORTSMAN'S GUIDE

INBOUND CALLS. We maintain an in-house call center. Approximately 48% of
customer orders are placed through our toll-free telephone lines which are
staffed 24 hours per day, seven days a week, while 10% of orders are received by
mail or facsimile and 42% of orders are received at our websites.

When fully staffed, our in-house call center has the capacity of handling
up to 2,600 calls per hour on average. We also contract with outside call
centers to handle calls on an as-needed basis.

Our in-house call center is staffed with individuals who are familiar with
the products offered in the catalogs and can offer assistance to customers on
availability, color, size, and other information. Call center sales
representatives use a catalog sales system with pre-written merchandise
descriptions and sales offers and are provided monetary incentives to sell
additional merchandise to customers who order by phone.

ORDER ENTRY. Processing of customer orders is coordinated and handled by
our in-house order entry system. Telephone orders are entered directly into the
system. Internet orders are batch loaded every half-hour and uploaded to the
system. Mail orders are batched and, after payment is verified, are then entered
into the system. The system is also used in connection with all other order
entry and fulfillment tasks including credit authorization, order picking,
packing and shipment. During 2004, our order processing system handled
approximately 2.2 million orders up 6.0% over 2003.

FULFILLMENT. We use an integrated computer-driven picking, packing and
shipping system. The system edits orders and generates warehouse pick tickets
and packing slips. We are able to fulfill and ship in excess of 25,000 packages
per day.

We offer next business day shipping on orders received by 6 p.m. CST for
in-stock merchandise and same day shipping for orders taken by 11 a.m. CST via
the Internet or per specific customer request. Virtually all of our merchandise
is stocked at, and shipped from, our warehouse and distribution facilities in
South St. Paul and Inver Grove Heights, Minnesota. In addition, a small, but
growing, percentage of merchandise is shipped directly from the factory to the
customer by specific vendors. We utilize United Parcel Service (UPS) and the
United States Postal Service for shipment of merchandise to customers.
Ammunition is shipped primarily via UPS. Orders are shipped after credit card
charges are approved or checks are deposited and cleared the bank.

8

RETURNS. We maintain an unconditional return policy, which permits
customers to return merchandise for any reason at any time for refund or
exchange. Returned merchandise is restocked, liquidated, sold in the retail
outlet, returned to the supplier or scrapped.

THE GOLF WAREHOUSE

TGW's order fulfillment infrastructure includes an in-house call center, a
shipping and warehouse facility, and management information systems that provide
inventory updates and integrate all aspects of our order fulfillment process.

CALL CENTER. Telephone orders may be placed 24 hours a day, seven days a
week through a toll-free number. Our in-house call center is staffed with
knowledgeable sales representatives who are available during extended hours each
day to assist customers through the order process and provide information about
products. After hours calls are routed to The Sportsman's Guide call center for
processing.

FULFILLMENT. All online and catalog orders are processed and shipped from
our 105,600 square foot office and warehouse facility in Wichita, Kansas. We use
an integrated picking, packing and shipping system connected to our direct order
entry system. The system monitors the in stock status of each item ordered,
processes orders and generates warehouse selection tickets and packing slips. We
are able to fulfill and ship in excess of 4,000 packages per day. We offer same
day shipping on orders placed by 3:00 p.m. CST Monday through Friday. We ship
all merchandise to customers via UPS. Orders are shipped after credit card
charges are approved or checks are deposited and cleared the bank.

INFORMATION SYSTEMS AND TECHNOLOGY

THE SPORTSMAN'S GUIDE

We have developed an integrated management information system. In addition
to on-line order entry and processing, the information system also provides
support for merchandising, inventory management, marketing, and financial and
management reporting. The on-line access to information allows management to
monitor daily trends and the performance of merchandise and planning functions.

Our main hardware platform utilizes IBM RISC 6000 series equipment. This
equipment includes redundant components and a combination of Redundant Array
Independent Disks (RAID) and mirrored disk technology to ensure optimal data
protection.

Our websites are hosted internally utilizing Compaq servers running
Microsoft Server 2000 and IIS for the front-end ASP applications, caching and
image serving. The back-end Oracle database is running on an IBM RS/6000 AIX
system. Currently, we have 42MB of bandwidth dedicated for the web hosting
environment, split across redundant networking equipment and access providers
AT&T and Qwest to maximize uptime. Additional IDP hardware has been implemented
to block hacking and denial of service attacks.

Our telephone system consists of an expandable AT&T G3R digital switch. We
are currently using two DS3 circuits on separate paths for protection with
additional redundancy protection provided using Qwest SHARPS rerouting software.
Our system is running nine T-1 lines split across the two DS3 circuits with a
maximum capacity of 48 T-1 circuits. Computer telephony integration software
identifies the caller and, if known, accesses the customer's records
simultaneously with answering the call.

THE GOLF WAREHOUSE

TGW utilizes Smith Gardner's Ecometry (MACS) software, a catalog/direct
marketing program for managing inventory and order processing, which provides
integrated inventory management, order taking and order processing. Ecometry
operates on an HP 3000 hardware platform.

In 2003, we implemented the Great Plains financial software package that
interfaces with the Ecometry (MACS) order processing system using a third party
software program. All orders are processed through the Ecometry (MACS) system,
which enables the data to be used in conjunction with the Great
9

Plains accounting software. The Great Plains financial reporting package (FRX)
allows TGW to build comprehensive and customizable financial and management
reports that are easy to create and use. Great Plains operates on Microsoft SQL
server.

The TGW.com website is hosted on servers located at The Sportsman's Guide
offices in South St. Paul, Minnesota. All servers operate on the Redhat Linux
system.

COMPETITION

THE SPORTSMAN'S GUIDE

The direct marketing industry includes a wide variety of specialty and
general merchandise retailers in a highly competitive and fragmented business
environment. We sell our products to customers in all 50 states and compete in
the purchase and sale of merchandise with all retailers. TSG's competitors
include:

- other outdoor/hunting mail order catalogs, including Bass Pro Shops Inc.
and Cabela's Inc.;

- discount retailers such as Wal-Mart Stores, Inc.; and

- Websites maintained by online retailers of footwear, clothing and outdoor
gear.

Some of TSG's competitors are larger and have substantially greater
financial, marketing and other resources.

THE GOLF WAREHOUSE

TGW's competitors include other specialty off-course retailers,
conventional sporting goods retailers, mass merchandise retailers, on-course pro
shops and online retailers of golf equipment. TGW's principal competitors in the
specialty off-course segment include retail chains such as Golfsmith, Edwin
Watts, Golf Galaxy, Pro Golf Discount and Dick's Sporting Goods.

Traditional and specialty golf retailers are expanding and aggressively
marketing brand-name golf equipment and competing directly with us for products
and customers. Some of TGW's competitors have been in business longer or have
greater financial, marketing and other resources. We compete on the basis of
product selection, price and customer service.

REGULATION

We are subject to federal, state and local laws and regulations, which
affect our catalog mail order operations. Federal Trade Commission regulations,
in general, govern the solicitation of orders, the information provided to
prospective customers, and the timeliness of shipments and refunds. In addition,
the Federal Trade Commission has established guidelines for advertising and
labeling many of the products we sell.

We are also subject to a variety of state laws and regulations relating to,
among other things, advertising, pricing, charging and collecting state sales or
use tax and product safety/restrictions. Some of these laws prohibit or limit
the sale, in certain states and locations, of certain items we offer such as
black powder firearms, ammunition, bows, knives and similar products. State and
local government regulation of hunting can also affect our business.

Because we import products for sale, we are subject to U.S. customs laws
and regulations pertaining to proper item classification, quotas, payment of
duties and tariffs, and maintenance of documentation and internal control
programs.

There are few laws and regulations directed specifically at electronic
commerce on the Internet. However, given the increased use of the Internet for
both mass communications and commerce, new laws and regulations may be adopted
covering a variety of areas such as collection and use of data from website

10

visitors and related privacy issues, pricing, taxing, content, copyrights,
distribution, unsolicited e-mail and quality of goods and services.

SERVICE MARKS

Our service marks "The Sportsman's Guide", "Bargain Outfitters", "The
'Fun-to-Read' Catalog" and "The 'Fun-to Browse' Website" have been registered
with the United States Patent and Trademark Office. "The Sportsman's Guide" mark
has also been registered in Canada. We own United States registrations and
applications covering other trademarks and service marks used in our TSG
business.

We use the "tgw.com", "The Golf Warehouse" and other trade names in our TGW
business.

EMPLOYEES

As of December 31, 2004, TSG had 568 employees and TGW had 126 employees,
including full and part time staff. During our peak selling seasons, which
include the months of November and December, we hire a significant number of
temporary employees. None of our employees are covered by a collective
bargaining agreement. We consider our employee relations to be good.

FINANCIAL INFORMATION ABOUT SEGMENTS

Financial information about our two business segments is summarized in Note
I to our consolidated financial statements.

ITEM 2. PROPERTIES

TSG's principal offices are located at 411 Farwell Avenue, South Saint
Paul, Minnesota 55075. TSG leases approximately 417,000 square feet at this
facility under a net lease expiring March 2009 and leases an additional
distribution facility of approximately 68,000 square feet in Inver Grove
Heights, Minnesota under a net lease expiring January 2007.

TGW's principal offices are located at 8851 East 34th Street North,
Wichita, Kansas 67226. TGW leases approximately 62,000 square feet at this
facility under a net lease, and approximately 43,600 square feet of additional
warehouse space under a sublease, both expiring September 2006.

ITEM 3. LEGAL PROCEEDINGS

The Company has been notified by NCR Corporation ("NCR") that NCR believes
some of the Company's e-commerce website functions are covered by certain
"business method" patents owned by NCR. NCR has stated it is willing to grant a
patent license to the Company on commercially reasonable terms. The Company is
investigating the claims. At the present time, the Company cannot predict the
outcome of this matter or the potential range of loss or expense involved.

In March 2003, the Company was notified by the Bureau of Industry, United
States Department of Commerce (BIS) that BIS had reason to believe the Company
violated Export Administration Regulations by exporting optical sighting devices
for firearms and associated parts to Canada and other destinations without
obtaining required authorization from BIS. BIS asserted the Company committed 61
separate violations for shipments from October 1999 to March 2002. The Company
settled this claim for $183,500 in December 2004.

We are not a party to any pending litigation other than litigation which is
incidental to our business and which we believe is not material.

11

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Set forth below is certain information concerning our executive officers
and key employees.

Gregory R. Binkley has been a director since 1995. Mr. Binkley has been an
employee since 1994 when he was elected Vice President. Mr. Binkley became
Senior Vice President of Operations and Chief Operating Officer in 1995,
Executive Vice President in 1996, President in 1998 and Chief Executive Officer
in 2000. From 1993 to 1994, Mr. Binkley worked as an independent operations
consultant. From 1990 to 1993, Mr. Binkley was Director of Distribution of
Fingerhut Companies, Inc., a mail order catalog business and from 1988 to 1990
was Director of Distribution with Cable Value Network, Inc., a cable television
retailer. Mr. Binkley worked for Donaldsons Department Stores, a division of
Allied Stores Corporation, from 1975 to 1988, serving as Vice President of
Finance and Operations from 1987 to 1988 and Vice President of Operations from
1981 to 1987.

Charles B. Lingen has been a director since 1995. Mr. Lingen has been
Chief Financial Officer, Vice President of Finance and Treasurer since 1994. Mr.
Lingen was elected Secretary in 1995, Senior Vice President of Finance in 1996
and Executive Vice President of Finance and Administration in 2000. From 1973 to
1994, Mr. Lingen worked at Fingerhut Companies, Inc., serving as Vice President
of Finance and Controller from 1989 to 1994.

John M. Casler has been an employee since 1996. He was elected Vice
President of Merchandising in 1997, Senior Vice President of Merchandising in
1999 and Executive Vice President of Merchandising, Marketing and Creative
Services in 2000. Mr. Casler worked for Gander Mountain, Inc, a retail mail
order catalog company, from 1989 to 1995, where he served as Division
Merchandise Manager from 1990 to 1995. Prior to that time, Mr. Casler held
merchandise management positions at Munson Sporting Goods Co., Inc. from 1985 to
1989 and at the Target Stores Division of Dayton Hudson Corp. from 1982 to 1985.

Dale D. Monson has been an employee since 1997. He was elected Vice
President of Software Development in 2000 and Vice President of Information
Systems and Technology and Chief Information Officer in 2001. Mr. Monson worked
for Select Comfort Inc., a manufacturer of sleep support systems, from 1995 to
1997 as Project Manager and for Proex Photo Systems Inc., a retail photography
firm, from 1990 to 1995 as Director of Information Systems.

Douglas E. Johnson joined us in 2000 as Vice President of Marketing. Mr.
Johnson worked at Fingerhut Companies, Inc. from 1982 to 2000, where he held
various marketing positions including Director of Customer List Marketing.

12

Mark S. Marney has been employed since 2004. Mr. Marney co-founded The Golf
Warehouse in 1997 and has served as Chief Executive Officer since 1999. Mr.
Marney was founder and president of Village Charters, Inc., a travel company,
from 1977 to 1997.

R. Michael Marney has been employed since 2004. Mr. Marney co-founded The
Golf Warehouse in 1997 and has served as President since 1999. Mr. Marney was
vice president of Village Charters, Inc., a travel company, from 1982 to 2000
and worked for Fox & Company, a public accounting firm, from 1976 to 1982. R.
Michael Marney and Mark S. Marney are brothers.

13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the Nasdaq National Market under the symbol
"SGDE."

The following table sets forth, for the periods indicated, the high and low
bid prices of our common stock as reported on the Nasdaq National Market.

HOLDERS

As of March 16, 2005, there were approximately 232 holders of record of our
common stock.

DIVIDENDS

We have not previously declared or paid any cash dividends on our common
stock. We currently intend to retain all earnings for use in our business in the
foreseeable future. We are prohibited from paying and declaring cash dividends
without the consent of the bank under the terms of our revolving credit
agreement.

STOCK REPURCHASE PROGRAM

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 29,245 shares of common stock at a total cost of $0.6
million were repurchased during the year ended December 31, 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 259,644 and 98,950 shares of common stock at a total
cost of $5.1 million and $1.2 million were repurchased during the years ended
December 31, 2004 and 2003.

14

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain historical financial and operating
data for the periods indicated. The Consolidated Statement of Operations Data
and Consolidated Balance Sheet Data as of and for each of the years ended
December 31, 2004, 2003, 2002, 2001 and 2000 have been derived from our
consolidated financial statements audited by Grant Thornton LLP, independent
registered public accounting firm. The Selected Operating Data as of and for the
periods indicated were derived or computed from our circulation or accounting
records or the Consolidated Statement of Operations Data identified above. The
information below should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our
consolidated financial statements and notes thereto.

- -------------------------

(1) Our fiscal year ends on the Sunday nearest December 31, but for clarity of
presentation, we describe all periods as if the year end is December 31.
Fiscal year 2004 consisted of 53 weeks and fiscal years 2003, 2002, 2001 and
2000 each consisted of 52 weeks.

(2) On June 29, 2004, the Company acquired 100% of the outstanding membership
interests of The Golf Warehouse, L.L.C. The third quarter of 2004 was the
first quarter for inclusion of The Golf Warehouse's sales, operations and
earnings.

(3) See Note A-11 in the notes to consolidated financial statements.

15

(4) An "active customer" is defined as a customer who has purchased merchandise
from us within 12 months preceding the end of the period indicated.

ITEM 7. 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 market our products
through catalogs and e-commerce web sites. We currently have two reportable
business segments, The Sportsman's Guide ("TSG") and The Golf Warehouse ("TGW").
Each segment is separately managed and utilizes distinct distribution,
marketing, merchandising and inventory strategies.

TSG is a marketer of value priced outdoor gear and general merchandise,
with a special emphasis on outdoor clothing, equipment and footwear. TSG markets
and sells merchandise through main, specialty and Buyer's Club catalogs and two
e-commerce websites. TSG's catalogs as well as its websites offer high quality
products at low prices. TSG's catalogs are advertised as The "Fun-to-Read"
Catalog(R) and the primary website is advertised as the "Fun-to-Browse"
Website(R). TSG's websites include www.sportsmansguide.com, the online retail
store modeled on its print catalogs and www.bargainoutfitters.com, the online
liquidation outlet.

Our business was started in 1970. 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 our Internet presence in 1996 and completed the launch of our online
retail store in April 1998. Sales generated through the Internet have grown
rapidly since that time with product sales on the sites accounting for over 42%
of total catalog and Internet sales for the year ended December 31, 2004. 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 100% of the outstanding membership interests
of 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 Web site, www.TGW.com and through catalogs.
The majority of TGW's sales are generated through the Internet. TGW's first
catalog was published in the winter of 2002.

With the acquisition of TGW on June 29, 2004 and the continued growth of
the Buyer's Club membership and Internet related sales for TSG, the Company
continues to post strong sales and earnings growth.

FISCAL YEAR

Our fiscal year ends on the Sunday nearest December 31, but for clarity of
presentation, we describe all periods as if the year end is December 31. Fiscal
year 2004 consisted of 53 weeks and fiscal years 2003, 2002 and 2001 each
consisted of 52 weeks. The additional week in fiscal 2004 had the effect of
increasing sales by approximately $4 million with minimal effect on the
Company's net earnings.

CRITICAL ACCOUNTING POLICIES

The critical accounting policies of both business segments, where
applicable, are the same as described in the following paragraphs.

16

REVENUE RECOGNITION

Sales are recorded at the time of shipment along with a provision for
anticipated merchandise returns, net of exchanges, which is recorded based upon
historical experience and current expectations. Amounts billed to customers for
shipping and handling are recorded in sales at the time of shipment.

TSG's customers can purchase one-year memberships in the Company's 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 are deferred and recognized in income as the
individual members place orders and earn discounts. Any remaining deferred
membership fees are recognized in income after the expiration of the membership.

PROMOTIONAL MATERIALS AND ADVERTISING COSTS

The cost of producing and mailing catalogs is deferred and expensed over
the estimated useful lives of the catalogs. Catalog production and mailing costs
are amortized over periods ranging from four to six months from the in-home date
of the catalog with the majority of the costs amortized within the first month.
The Company estimates the in-home date to be one week from the known mailing
date of the catalog. The ongoing cost of developing and maintaining the customer
list is charged to operations as incurred. All other advertising costs are
expensed as incurred.

STOCK OPTIONS

Stock options issued to employees are accounted for under the intrinsic
value method. Pro-forma disclosures as if the fair value method were used are
included in Note A-10 to the Consolidated Financial Statements.

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:

COMPARISON OF YEARS ENDED DECEMBER 31, 2004 AND 2003

SALES. Consolidated sales for 2004 of $232.5 million were $37.8 million or
19% higher than sales of $194.7 million for 2003. The increase in consolidated
sales for 2004 was primarily a result of including the

17

sales from the newly-acquired The Golf Warehouse and higher sales from The
Sportsman's Guide. The acquisition of The Golf Warehouse was effective June 29,
2004 making the third quarter of 2004 the first quarter for inclusion of TGW's
sales, operations and earnings. Sales for TSG increased 6% when compared to the
year ended 2003 primarily as a result of increased Internet sales. With fiscal
2004 consisting of 53 weeks, the additional week had the effect of increasing
the Company's annual sales by approximately $4 million.

As of December 31, 2004, the Buyer's Club membership had increased to
382,000, up 8.8% over the 351,000 reported as of December 31, 2003.

Sales generated through the Internet for TSG in 2004 were approximately 42%
of total Internet and catalog sales compared to 36% in 2003. The majority of
TGW's total sales for 2004 were generated through the Internet. Sales generated
through the Internet are defined as those that are derived from our websites,
catalog orders processed online and online offers placed by telephone. Internet
related sales continue to grow, period over period, as we continue to make
enhancements to our Web sites and implement and improve upon various marketing
and merchandising programs.

Gross returns and allowances for 2004 were $14.0 million or 5.7% of gross
sales compared to $12.8 million or 6.2% of gross sales in 2003. The decrease in
gross returns and allowances, as a percentage of sales, was primarily due to
favorable trends in actual customer return activity at TSG and overall lower
customer returns, as a percentage of sales, at TGW which traditionally have been
lower than TSG's customer return rates.

GROSS PROFIT. Consolidated gross profit for 2004 was $74.4 million or 32.0%
of sales compared to $64.1 million or 32.9% of sales in 2003. The decrease in
consolidated gross profit percentage for the year was primarily due to the
inclusion of lower product margin sales of The Golf Warehouse and lower product
margins experienced at TSG. The Golf Warehouse's product margins are
traditionally lower than those of TSG. TSG's business product margins, as a
percentage of sales, were lower in 2004 when compared to the prior year
primarily due to promotional pricing, competitive pressure and a higher
percentage of lower margin factory direct merchandise sales.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Consolidated selling, general
and administrative expenses were $62.1 million or 26.7% of sales during 2004
compared to $54.5 million or 28.0% of sales during 2003.

Consolidated selling, general and administrative expenses, as a percentage
of sales, for 2004 were lower compared to 2003 as a result of additional
productivity from the Internet leverage in TSG as well as the inclusion of The
Golf Warehouse's selling, general and administrative expenses which historically
have been lower than those of TSG. TSG's selling, general and administrative
expenses, as a percentage of sales, for 2004 were lower compared to the prior
year as a result of higher Internet sales and lower order processing costs with
the increased sales generated through the Internet. The Golf Warehouse's
selling, general and administrative expenses, as a percentage of sales,
traditionally have been lower than TSG's with a higher percentage of its sales
generated from the Internet coupled with a higher average customer order amount.

The increase in consolidated selling, general and administrative expenses
for 2004, in dollars, compared to the prior year, was primarily due to the
inclusion of The Golf Warehouse's expenses since the acquisition on June 29,
2004 and higher advertising spending by TSG from an increase in catalog
circulation and increased order fulfillment costs by TSG from higher sales
volume. In 2004, the Company incurred $0.6 million of Sarbanes-Oxley related
costs.

Total Company catalog circulation during 2004 was 50.5 million catalogs
compared to 46.4 million catalogs during 2003. The 2004 catalog circulation
includes 1.5 million catalogs (two editions) circulated by The Golf Warehouse
since the acquisition on June 29, 2004. During 2004, we mailed 35 catalog
editions consisting of 11 main catalogs, 12 Buyer's Club Advantage(TM) catalogs
and 12 specialty catalogs compared to 33 catalog editions during 2003 consisting
of 11 main catalogs, 12 Buyer's Club Advantage(TM) catalogs and 10 specialty
catalogs.
18

Consolidated advertising expense for 2004 was $32.9 million or 14.1% of
sales compared to $29.4 million or 15.1% of sales for 2003. The decrease in
consolidated advertising expense, as a percentage of sales, for 2004 compared to
2003 was primarily due to the increase in TSG's sales generated from the
Internet and the inclusion of The Golf Warehouse since the acquisition on June
29, 2004. The Golf Warehouse's advertising expense as a percentage of sales is
lower than the traditional TSG percentage as a result of its higher percentage
of Internet driven sales coupled with a higher average customer order amount.

The increase in consolidated advertising expense for 2004 was primarily due
to an increase in TSG's catalog circulation and the inclusion of The Golf
Warehouse's advertising expense since the acquisition on June 29, 2004.

EARNINGS FROM OPERATIONS. Earnings from operations were $12.3 million or
5.3% of sales during 2004 compared to $9.6 million or 4.9% of sales during 2003.
The increase in earnings from operations was largely due to the inclusion of
TGW's earnings since the acquisition on June 29, 2004, as well as growth and
improved performance in TSG. The additional week in fiscal 2004 had minimal
effect on the Company's earnings from operations.

INTEREST EXPENSE. Interest expense for 2004 was $0.4 million or 0.2% of
sales. There was no interest expense for 2003. Interest expense increased in
2004 over the prior year as a result of the acquisition of The Golf Warehouse. A
portion of the purchase price of approximately $30.5 million was financed by
borrowings under a new credit facility.

INCOME TAXES. Income tax expense for 2004 was $4.3 million compared to $3.5
million for 2003.

NET EARNINGS. As a result of the above factors, net earnings for 2004 were
$7.6 million compared to $6.2 million for 2003.

COMPARISON OF YEARS ENDED DECEMBER 31, 2003 AND 2002

SALES. Sales for 2003 of $194.7 million were $15.4 million or 8.6% higher
than sales of $179.3 million for 2002. The increase in sales was primarily due
to higher sales generated from unique product offerings from both the Internet
and catalogs. Internet related sales continue to grow, year over year, as we
continue to make enhancements to our website and implement and improve upon
various marketing and merchandising programs. For 2003, catalog related sales
increased slightly over the prior year's sales level primarily a result of an
increase in our catalog circulation.

As of December 31, 2003, our Buyer's Club membership had increased to
351,000, up 13% over the 310,000 reported as of December 31, 2002.

Sales generated through the Internet increased in 2003 to approximately 36%
of total Internet and catalog sales compared to approximately 29% in 2002. Sales
generated through the Internet are defined as those that are derived from our
websites, catalog orders processed online and online offers placed by telephone.

Gross returns and allowances for 2003 were $12.8 million or 6.2% of gross
sales compared to $12.7 million or 6.6% of gross sales in 2002. The decrease in
gross returns and allowances, as a percentage of sales, was primarily due to
lower than anticipated customer returns on several 2002 catalogs.

GROSS PROFIT. Gross profit for 2003 was $64.1 million or 32.9% of sales
compared to $58.6 million or 32.7% of sales in 2002. The increase in the gross
profit percentage for the year was primarily due to an improvement in product
margins offset somewhat by higher shipping costs. The increase in product
margins in 2003 was primarily driven by an increase in sales of higher margin,
direct import products. The higher shipping costs were largely due to an
increase in the average weight of our outgoing shipments to our customers.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were $54.5 million or 28.0% of sales during 2003
compared to $52.0 million or 29.0% of sales during 2002.

19

Selling, general and administrative expenses, as a percentage of sales, for
2003 were lower compared to 2002 primarily due to the higher level of Internet
sales, improved catalog productivity and lower order processing costs directly
related to the increase in sales generated through the Internet. The dollar
increase in selling, general and administrative expenses was primarily due to
higher order fulfillment expenses as a result of the increase in sales and
higher incentive compensation as a result of improved Company performance.

Total circulation was 46.4 million catalogs during 2003 compared to 45.8
million catalogs during 2002. During 2003, we mailed 33 catalog editions
consisting of 11 main catalogs, 12 Buyer's Club Advantage(TM) catalogs and 10
specialty catalogs compared to 34 catalog editions during 2002 consisting of 11
main catalogs, 12 Buyer's Club Advantage(TM) catalogs and 11 specialty catalogs.

Advertising expense for 2003 was $29.4 million or 15.1% of sales compared
to $29.2 million or 16.3% of sales for 2002. The decrease in advertising
expense, as a percentage of sales, for 2003 compared to 2002 was primarily due
to higher volume of Internet sales. Advertising expense, in dollars, for 2003
was higher compared to the same period last year primarily as a result of a
minor increase in the catalog circulation, which was largely due to the increase
in our club membership.

EARNINGS FROM OPERATIONS. Earnings from operations were $9.6 million or
4.9% of sales during 2003 compared to $6.6 million or 3.7% of sales during 2002.
The increase in earnings from operations was primarily due to the higher level
of Internet sales.

INTEREST EXPENSE. There was no interest expense for 2003 compared to $1,000
for the same period last year. During 2003 and 2002, we did not borrow under the
revolving line of credit.

INCOME TAXES. Income tax expense for 2003 was $3.5 million compared to $2.3
million for 2002.

NET EARNINGS. As a result of the above factors, net earnings for 2003 were
$6.2 million compared to $4.0 million for 2002.

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
quarters, TSG incurs significant additional expenses for hiring employees and
building inventory levels.

TGW's business is 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 income than other periods. TGW also
incurs higher expenses related to building inventory to meet higher demand
during these seasons.

20

The following table provides certain unaudited financial information for
each of the quarters shown:

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

LIQUIDITY AND CAPITAL RESOURCES

WORKING CAPITAL. We had working capital of $5.7 million as of December 31,
2004 compared to $24.7 million as of December 31, 2003, with current ratios of
1.1 to 1 and 1.7 to 1, respectively. The decrease of $19.0 million was primarily
due to the utilization of excess cash in the acquisition of The Golf Warehouse
effective June 29, 2004.

We purchase large quantities of manufacturers' close-outs 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 offers its Buyer's Club members an installment credit plan with no
finance fees, known as the "Buyer's Club 4-Pay Plan." Each of the four
consecutive monthly installments is billed directly to customers' credit cards.
TSG had installment receivables of $2.6 million at December 31, 2004 compared to
$2.4 million at December 31, 2003. The installment plan 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 on 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 credit facility, 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 the Company's option, fixed term LIBOR plus
2.5 percentage points, provided certain financial ratios are met. The revolving
credit line and term loan are collateralized by substantially all of our assets.

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

21

fixed charge coverage ratio. The agreement also prohibits the payment of
dividends to shareholders without the consent of the bank. As of December 31,
2004 and 2003, we were in compliance with all applicable covenants under the
amended Credit Agreement. We had no borrowings against the revolving credit line
at December 31, 2004 and 2003. Outstanding letters of credit were $1.9 million
at the end of 2004 compared to $2.5 million at the end of 2003. We had a
remaining balance of $5.0 million against the term loan at December 31, 2004,
which is payable September 30, 2007.

The Company has several long-term operating leases, long-term debt and
other commitments related to facilities and long-distance telephone services
with varying terms. At December 31, 2004, future contractual obligations under
the above agreements are as follows (in thousands):

OPERATING ACTIVITIES. Cash flows provided by operating activities during
2004 were $7.4 million compared to $16.4 million in 2003. The decrease in cash
flows provided by operating activities was primarily the result of an increase
in inventory position at year-end and lower accounts payable to vendors. The
higher inventory position at the end of 2004 was due to higher level of
inventory at TSG and the inclusion of TGW's inventory position for the first
time as a result of the acquisition effective June 29, 2004. TSG's inventory
position was higher at the end of 2004 largely due to the fact that a greater
percentage of the inventory to support the spring business was received by year
end in 2004 than at the end of 2003. The lower accounts payable to vendors at
the end of 2004 was due to the timing of inventory receipts and the subsequent
payments to the vendors. Payment terms from our vendors for 2004 have not
changed significantly from those of 2003.

Cash flows provided by operating activities during 2003 were $16.4 million
compared to $9.2 million in 2002. The increase in cash flows provided by
operating activities was primarily the result of an increase in net earnings, a
lower inventory position at year-end and higher payables to vendors as a result
of current vendor terms.

INVESTING ACTIVITIES. Cash flows used in investing activities during 2004
were $31.2 million compared to $0.9 million in 2003. On June 29, 2004, the
Company acquired 100% of the outstanding membership interests of The Golf
Warehouse, L.L.C. for a purchase price of approximately $30.0 million with an
additional $0.5 million of transaction costs incurred.

Cash flows used in investing activities during 2003 were $0.9 million
compared to $0.9 million in 2002. During 2003, we expended funds for leasehold
improvements, computer equipment and machinery and equipment.

FINANCING ACTIVITIES. Cash flows provided by financing activities during
2004 were $0.4 million compared to cash flows used in financing activities of
$0.5 million during 2003. Cash flows provided by financing activities during
2004 were largely due to the Company's borrowings under the new credit facility
to finance a portion of the total consideration paid for the outstanding
membership interests of The Golf Warehouse, L.L.C. and the receipt of cash
proceeds from the exercise of stock options. The increase in cash flows provided
from the borrowings under the credit facility and the cash proceeds from the
exercise of stock options was virtually offset by payments to repurchase the
Company's common stock. 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 the 2004 plan, 29,245 shares of common stock at a total
cost of approximately $0.6 million were repurchased during the year ended
December 31, 2004. Under the 2003 plan,

22

259,644 shares of common stock at a total cost of approximately $5.1 million
were repurchased during the year ended December 31, 2004.

Cash flows used in financing activities during 2003 were $0.5 million
compared to cash flows provided by financing activities of $0.3 million during
2002. Cash flows used in financing activities during 2003 were primarily
comprised of payments to repurchase the Company's common stock. 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
98,950 shares of common stock at a total cost of approximately $1.2 million were
repurchased during the years ended December 31, 2003. During 2003, we did not
borrow under the revolving line of credit.

We believe that cash flows from operations and borrowing capacity under our
revolving credit facility will be sufficient to fund our 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's, Accounting 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 as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. The Company has not yet
finished its financial assessment of the implementation of FAS 123R, which will
be adopted on July 1, 2005.

FORWARD-LOOKING STATEMENTS

This report contains 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. These forward-looking statements involve risks and
uncertainties. 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 risk factors described
in Exhibit 99 to this report.

23

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company does not have any material, near-term, market rate risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and schedules are included herein:

24

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
The Sportsman's Guide, Inc.

We have audited the accompanying consolidated balance sheets of The
Sportsman's Guide, Inc. and subsidiaries as of December 31, 2004 and 2003, and
the related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Sportsman's Guide, Inc. and subsidiaries as of December 31, 2004 and 2003, and
the results of their operations and their cash flows for the each of the three
years in the period ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The accompanying
Schedule II of The Sportsman's Guide, Inc. and subsidiaries is presented for
purposes of additional analysis and is not a required part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic consolidated financial statements taken as a whole.

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2004,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)
and our report dated March 14, 2005, expressed an unqualified opinion on
management's assessment of the effectiveness of the Company's internal control
over financial reporting and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting.

/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
March 14, 2005

25

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
The Sportsman's Guide, Inc.

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that The
Sportsman's Guide, Inc. and subsidiaries (the Company) maintained effective
internal control over financial reporting as of December 31, 2004, based on the
criteria established in Internal Control -- Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that an audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that The Sportsman's Guide, Inc.
and subsidiaries maintained effective internal control over financial reporting
as of December 31, 2004, is fairly stated, in all material respects, based on
the criteria established in Internal Control -- Integrated Framework issued by
COSO. Also, in our opinion, The Sportsman's Guide, Inc. and subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2004, based on the criteria established in Internal
Control -- Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of The Sportsman's Guide, Inc. and subsidiaries as of December 31, 2004
and 2003, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2004, and our report dated March 14, 2005, expressed an unqualified opinion
on those financial statements.

/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
March 14, 2005

26

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
27

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

The accompanying notes are an integral part of these consolidated financial
statements.
28

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.
29

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
30

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

1. DESCRIPTION OF BUSINESS

The Sportsman's Guide, Inc. (the "Company") is a multi-channel direct
marketer of value priced outdoor gear, general merchandise and golf
equipment/accessories. The Company markets its products through catalogs and
e-commerce web sites. The Company currently has two reportable business
segments, The Sportsman's Guide ("TSG") and The Golf Warehouse ("TGW"). Each
segment is separately managed and utilizes distinct distribution, marketing,
merchandising and inventory strategies.

TSG is a marketer of value priced outdoor gear and general merchandise,
with a special emphasis on outdoor clothing, equipment and footwear. TSG markets
and sells merchandise through main, specialty and Buyer's Club catalogs and two
e-commerce websites. TSG's catalogs as well as its websites offer high quality
products at low prices. TSG's catalogs are advertised as The "Fun-to-Read"
Catalog(R) and the primary website is advertised as the "Fun-to-Browse"
Website(R). TSG's websites include www.sportsmansguide.com, the online retail
store modeled on its print catalogs and www.bargainoutfitters.com, the online
liquidation outlet.

On June 29, 2004, the Company acquired 100% of the outstanding membership
interests of 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 Web site, www.TGW.com and through catalogs.
The majority of TGW's sales are generated through the Internet. TGW's first
catalog was published in the winter of 2002.

The significant accounting policies of both business segments, where
applicable, are the same as described in the following paragraphs.

2. CONSOLIDATION

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

3. REVENUE RECOGNITION

Sales are recorded at the time of shipment along with a provision for
anticipated merchandise returns, net of exchanges, which is recorded based upon
historical experience and current expectations. The net provision charged
against sales was $10.6 million, $9.2 million and $9.0 million during the years
ended December 31, 2004, 2003 and 2002. Reserves for returns, net of exchanges,
were $2.3 million and $2.2 million at December 31, 2004 and 2003.

Amounts billed to customers for shipping and handling are recorded in
revenues at the time of shipment. Sales include shipping and handling revenues
of $27.1 million, $24.8 million and $23.5 million for the years ended December
31, 2004, 2003 and 2002.

TSG's customers can purchase one-year memberships in the 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 are deferred and recognized in income as the
individual members place orders and earn discounts. Any remaining deferred
membership fees are recognized in income after the expiration of the membership.

31

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

4. CASH AND CASH EQUIVALENTS

The Company considers all highly liquid temporary investments purchased
with an original maturity of three months or less to be cash equivalents. The
Company also considers credit card settlements in-transit as cash for reporting
purposes. Cash equivalents at December 31, 2004 were invested in a money market
fund. Cash equivalents at December 31, 2003 were invested in a money market fund
and a tax-exempt money market fund.

5. ACCOUNTS RECEIVABLE

Accounts receivable consist primarily of amounts owed for merchandise by
customers utilizing an installment payment plan and amounts owed for list rental
and other advertising services provided by the Company to third parties. The
Company had an allowance for doubtful accounts of $124,000 and $146,000 at
December 31, 2004 and 2003.

6. INVENTORY

Inventory consists of purchased finished merchandise available for sale and
is recorded at the lower of cost or market with the first-in, first-out method
used to determine cost.

7. PROMOTIONAL MATERIAL AND ADVERTISING COSTS

The cost of producing and mailing catalogs is deferred and expensed over
the estimated useful lives of the catalogs. Catalog production and mailing costs
are amortized over periods ranging from four to six months from the in-home date
of the catalog with the majority of the costs amortized within the first month.
The Company estimates the in-home date to be one week from the known mailing
date of the catalog. The ongoing cost of developing and maintaining the customer
list is charged to operations as incurred. All other advertising costs are
expensed as incurred.

8. PROPERTY AND EQUIPMENT

Property and equipment are stated at cost less accumulated depreciation and
amortization. The Company capitalizes external and incremental internal costs of
developing computer software for internal use that represent major enhancements
and/or replacements of operating and management systems. Depreciation and
amortization is computed using the straight-line method.

9. GOODWILL, INTANGIBLE AND OTHER LONG-LIVED ASSETS

Intangibles, such as customer lists and non-compete covenants, with a
definite life are amortized over their useful lives. Useful lives are based on
management's estimates of the period that the assets will generate revenue.

The remaining expected amortization of other intangible assets will be
$658,000 for the next five years.

The Company does not amortize goodwill or trade and domain names and
reviews them for impairment on a regular basis, at least annually.

There was no impairment charge recorded by the Company for the year ended
December 31, 2004.

32

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

10. STOCK OPTIONS

Stock options issued to employees are accounted for under the intrinsic
value method. No stock-based compensation cost is reflected in net earnings, as
all options granted had an exercise price equal to the market value of the
underlying common stock on the date of grant. 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):

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 48% in 2004, 62%
in 2003, and 94% in 2002; risk-free interest rates of 2.87% to 3.87% in 2004,
3.18% in 2003, and 2.93% in 2002, estimated forfeiture of 2% to 5% in 2004 and
2% in 2003 and 2002; and expected life of 3 to 5 years for 2004 and 5 years for
2003 and 2002.

11. 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 stock options, when dilutive.

For the years ended December 31, 2004, 2003 and 2002, 604,521, 504,610 and
248,228 common share equivalents were included in the computation of diluted net
earnings per share.

All options to purchase shares of common stock were included in the
computation of diluted net earnings per share for the year ended December 31,
2004.

Options and warrants to purchase 3,738 and 325,032 shares of common stock
with a weighted average exercise price of $8.70 and $7.22 were outstanding at
December 31, 2003 and 2002, but were not included in the computation of diluted
net earnings per share because the exercise price exceeded the average market
price of the common shares during the period.

12. FISCAL YEAR

The Company's fiscal year ends on the Sunday nearest December 31, but for
clarity of presentation, all periods are described as if the year end is
December 31. Fiscal year 2004 consisted of 53 weeks. Fiscal years 2003, 2002 and
2001 each consisted of 52 weeks.

33

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

13. FAIR VALUES OF FINANCIAL INSTRUMENTS

Due to their short-term nature, the carrying value of the Company's
financial assets and liabilities approximates their fair values.

14. USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS

Preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the amounts of revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.

NOTE B -- PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

NOTE C -- CREDIT FACILITY

On June 29, 2004, the Company 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 on 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 credit facility, 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 the Company's option, fixed term LIBOR plus
2.5 percentage points, provided certain financial ratios are met. Under the
terms of the credit agreement, repayments of the term loan were to be payable
annually each September as follows: $2.5 million payable September 30, 2005,
$5.0 million payable September 30, 2006 and $5.0 million payable September 30,
2007. The Company paid $7.5 million on the term loan in December 2004. The
revolving credit line is collateralized by substantially all of our assets.

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 December 31, 2004 and 2003, we were in
compliance with all applicable covenants under the revolving line of credit
agreement. The Company had no borrowings against the revolving credit line at
December 31, 2004 and 2003. The Company had a remaining balance of $5.0 million
against the term loan at December 31, 2004, which is payable September 30, 2007.

34

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C -- CREDIT FACILITY (CONTINUED)

Outstanding letters of credit were $1.9 million at the end of 2004 compared to
$2.5 million at the end of 2003.

The following is a summary of the credit facility (in thousands):

NOTE D -- ACQUISITION

On June 29, 2004, the Company acquired 100% of the outstanding membership
interests of The Golf Warehouse, L.L.C. from Falconhead Capital LLC, a private
investment firm, and members of TGW management pursuant to a Membership Interest
Purchase Agreement dated as of June 29, 2004. The purchase price for TGW was
approximately $30.5 million and was funded from the Company's working capital
and borrowings under the Company's credit facility with Wells Fargo Bank,
National Association. The purchase price for TGW of $30.5 million consisted of
$30 million for 100% of the outstanding membership interests and $0.5 million of
transaction costs.

The acquisition of TGW has been accounted for using the purchase method of
accounting. The fair market value of the net assets acquired resulted in the
following purchase price allocation (in thousands):

Net assets acquired, including:
Current assets.............................................. $ 6,674
Property and equipment...................................... 1,013
Liabilities assumed......................................... (5,371)
-------
Net assets acquired......................................... 2,316
Trade and domain name....................................... 10,200
Customer lists and non-compete agreements................... 750
Goodwill.................................................... 17,176
-------
Total purchase price........................................ $30,442
=======

The acquisition transaction had the following net effect on the
accompanying 2004 consolidated statement of cash flows (in thousands):

Fair value of net working capital acquired.................. $ 1,303
Fair value of property and equipment acquired............... 1,013
Purchase price assigned to:
Goodwill.................................................... 17,176
Identifiable intangibles.................................... 10,950
Escrow liability............................................ (3,010)
-------
Cash purchase price......................................... $27,432
=======

Pursuant to the Membership Interest Purchase Agreement dated June 29, 2004,
$4.0 million of the estimated purchase price was deposited into an escrow
account. In accordance with and subject to the
35

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE D -- ACQUISITION (CONTINUED)

escrow agreement, the escrow agent shall distribute amounts (net of claims) from
the escrow account to the Sellers as follows (in thousands):

90 days after closing date.................................. $ 500
180 days after closing date................................. 500
360 days after closing date................................. 1,500
540 days after closing date................................. Remaining Funds

As of December 31, 2004, there was restricted cash in escrow of
approximately $3.0 million and an offsetting $3.0 million included in current
liabilities.

The following unaudited pro forma summary represents the consolidated
results of operations as if the TGW acquisition had occurred at the beginning of
2003. This presentation does not purport to be indicative of what would have
occurred had the acquisition been made as of that date or of results which may
occur in the future.

For the years ended December 31:

NOTE E -- INCOME TAXES

The provision for income tax expense consists of the following (in
thousands):

Differences between income tax expense and amounts derived by applying the
statutory federal income tax rate to earnings before income taxes are as
follows:

36

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE E -- INCOME TAXES (CONTINUED)

The components of deferred taxes consist of the following (in thousands):

NOTE F -- COMMITMENTS AND CONTINGENCIES

LEASE AND OTHER COMMITMENTS

The Company has several long-term operating leases and other commitments
related to facilities, office equipment and long-distance telephone services
with varying terms.

At December 31, 2004, future minimum commitments under the above agreements
are as follows for the years ended December 31, (in thousands):

2005........................................................ $ 3,681
2006........................................................ 3,584
2007........................................................ 2,636
2008........................................................ 1,810
2009........................................................ 453
Thereafter.................................................. --
-------
$12,164
=======

Rent expense was $2.4 million, $2.3 million and $2.5 million for the years
ended December 31, 2004, 2003 and 2002.

EMPLOYMENT AGREEMENTS

The Company has employment agreements with three of its officers. The
agreements contain various terms and conditions including a provision for the
officers to receive up to three years of base salary upon the occurrence of
certain events as defined in the agreement. The officers' agreements provide for
automatic annual renewal unless two months' prior written notice is provided by
the Company or the officer.

37

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company has employment agreements with three TGW management employees.
The agreements contain various terms and conditions including a provision for
the employees to receive up to two years of base salary if their employment is
terminated by the Company without cause. The agreements continue until
terminated by the employee or the Company.

In June 2002, the Company entered into an agreement with Gary Olen pursuant
to which Mr. Olen provides services to the Company and has granted the Company
the exclusive right to use his name and likeness. The agreement continues until
June 30, 2007 and is automatically renewed for additional one-year terms unless
either party gives one year's notice of non-renewal. Under the agreement, the
Company pays Mr. Olen an annual salary, which is subject to an annual cost of
living adjustment, plus benefits. The Company paid Mr. Olen $53,934 in 2004,
$50,000 in 2003 and $25,000 in 2002.

PROFIT SHARING PLAN

The Company has a 401(k) plan covering substantially all employees. The
Plan allows the Company to make discretionary matching contributions to the
plan. The Company made contributions of $138,000, $110,000 and $110,000 for the
years ended December 31, 2004, 2003 and 2002.

The Company has a nonqualified executive deferred compensation plan that
provides supplemental retirement income benefits for a select group of
management. This plan permits eligible employees to make salary and bonus
deferrals that are 100% vested. The Company has an unsecured obligation to pay
in the future the value of the deferred compensation along with a crediting rate
that is adjusted to reflect the performance, whether positive or negative, of
selected investment indices as requested by each participant and available under
the plan, during the deferral period.

LEGAL PROCEEDINGS

The Company has been notified by NCR Corporation ("NCR") that NCR believes
some of the Company's e-commerce website functions are covered by certain
"business method" patents owned by NCR. NCR has stated it is willing to grant a
patent license to the Company on commercially reasonable terms. The Company is
investigating the claims. At the present time, the Company cannot predict the
outcome of this matter or the potential range of loss or expense involved.

In March 2003, the Company was notified by the Bureau of Industry, United
States Department of Commerce (BIS) that BIS had reason to believe the Company
violated Export Administration Regulations by exporting optical sighting devices
for firearms and associated parts to Canada and other destinations without
obtaining required authorization from BIS. BIS asserted the Company committed 61
separate violations for shipments from October 1999 to March 2002. The Company
settled this matter for $183,500 in December 2004.

The Company is not a party to any pending legal proceedings other than
litigation which is incidental to its business and which the Company believes
will not have a material effect on its consolidated financial statements.

OTHER

Several states, where the Company does not currently collect and remit
sales and use taxes, have attempted to enact legislation that seeks to require
out-of-state mail order companies to collect and remit such taxes. No
assessments have been made against the Company and, to its knowledge, none has
been threatened or is contemplated. The United States Supreme Court has held
that such taxes place an

38

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

unconstitutional burden on interstate commerce, which may only be resolved by
actions of the United States Congress.

NOTE G -- RELATED PARTY TRANSACTIONS

Previously, the Company loaned $238,000 to an officer of the Company to be
repaid with interest at 5.69% per annum. In April 2002, the outstanding loan
balance and accrued interest was paid in full.

NOTE H -- SHAREHOLDERS' EQUITY

The Company has 40,000,000 authorized shares; 200,000 of Series A Preferred
Stock, 36,800,000 of Common Stock and 3,000,000 undesignated shares.

STOCK REPURCHASE PROGRAM

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 29,245 shares of common stock at a total cost of $0.6
million were repurchased during the year ended December 31, 2004. The following
table summarizes our repurchases of shares of our common stock under this plan
during the year ended December 31, 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 259,644 and 98,950 shares of common stock at a total
cost of $5.1 million and $1.2 million were repurchased during the years ended
December 31, 2004 and 2003. The following table summarizes our repurchases of
shares of our common stock under this plan during the years ended December 31,
2003 and 2004:

STOCK OPTIONS

The Company has a stock option plan (the "1991 Plan") which provides
participating employees the right to purchase common stock of the Company
through incentive stock options. A total of 35,000 shares of common stock were
reserved for issuance under the 1991 Plan. Options issued under the 1991 Plan
are exercisable over a ten year period from the date of grant. At December 31,
2004, 6,000 options were outstanding, all of which were exercisable.

39

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)

The Company has a non-qualified stock option plan (the "1994 Plan") which
provides for the issuance of options to purchase up to 100,000 shares of the
Company's common stock to certain employees, contingent upon meeting certain
quarterly pre-tax earnings levels. Options under the 1994 Plan are exercisable
over a ten year period from the date of grant. All outstanding options were
exercised during the year ended December 31, 2004.

The Company has an incentive stock option plan (the "1996 Plan") which
provides select key employees the right to purchase common stock of the Company
through the exercise of options granted. A total of 600,000 shares of common
stock were reserved for issuance under the 1996 Plan. Options issued under the
1996 Plan are exercisable over a ten year period from the date of grant. At
December 31, 2004, a total of 323,902 options were outstanding, of which 278,794
options were exercisable.

The Company has an incentive stock option plan (the "1999 Plan") which
provides select key employees the right to purchase common stock of the Company
through the exercise of options granted. A total of 600,000 shares of common
stock were reserved for issuance under the 1999 Plan. Options issued under the
1999 Plan are exercisable over a ten year period from the date of grant. At
December 31, 2004, a total of 521,977 options were outstanding, of which 364,418
options were exercisable.

The Company has a stock incentive plan (the "2004 Plan") under which the
Company may grant to select key employees awards in the form of stock options,
restricted stock, stock equivalent units and cash performance units. A total of
600,000 shares of common stock were reserved for issuance under the 2004 Plan.
Options issued under the 2004 Plan are exercisable over a ten year period from
the date of grant. At December 31, 2004, a total of 491,000 options were
outstanding, none of which were exercisable.

The following applies to options that are outstanding at December 31, 2004:

40

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE H -- SHAREHOLDERS' EQUITY (CONTINUED)

A summary of the stock option transactions during the years ended December
31, 2004, 2003 and 2002 is as follows:

WARRANTS

In connection with a public offering of common stock in 1998, warrants to
purchase 100,000 shares of common stock at $8.45 per share were issued. The
warrants expired in February 2003.

NOTE I -- SEGMENT INFORMATION

The Company operates in two business segments. The Sportsman's Guide
("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 Advantage(TM) catalogs and two e-commerce Web sites.
The Golf Warehouse, Inc. ("TGW") markets and sells golf equipment, apparel and
accessories through one e-commerce Web site and catalogs. On June 29, 2004, The
Sportsman's Guide, Inc. acquired 100% of the outstanding membership interests of
The Golf Warehouse, L.L.C.

41

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Segment Comparisons (in thousands):

NOTE J -- SUBSEQUENT EVENTS

On March 1, 2005, the Company announced that its Board of Directors
declared a 3-for-2 split of the Company's common stock, in the form of a 50%
stock dividend, payable on April 15, 2005 to shareholders of record on March 25,
2005. Cash will be paid in lieu of issuing fractional shares based on the
closing price of the Company's common stock on the record date.

NOTE K -- ADVERTISING EXPENSE

Selling, general and administrative expenses include advertising expenses
of $32.9 million, $29.4 million and $29.2 million for the years ended December
31, 2004, 2003 and 2002.

42

THE SPORTSMAN'S GUIDE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE L -- INTERIM FINANCIAL INFORMATION (UNAUDITED)

The following table provides certain unaudited financial information for
each of the quarters shown:

- -------------------------
(A) Represents the addition of The Golf Warehouse's inventory reserve and
returns reserve as a result of the acquisition on June 29, 2004.

(B) Represents write off of bad debts.

(C) Represents loss on inventory liquidations.

(D) Represents actual net returns from customers.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES -- The Company has
established disclosure controls and procedures to ensure that material
information relating to the Company, including its subsidiaries, is made known
to the officers who verify the Company's financial reports and to other members
of senior management and the Board of Directors.

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. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that it files or submits 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.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING -- The
Company's management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). Under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer,
the Company conducted an evaluation of the effectiveness of internal control
over financial reporting based on the framework in

44

Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on the Company's evaluation
under the framework in Internal Control -- Integrated Framework, the Company's
management concluded the internal control over financial reporting was effective
as of December 31, 2004. The Company's management assessment of the
effectiveness of internal control over financial reporting as of December 31,
2004 has been audited by Grant Thornton LLP, an independent registered public
accounting firm, as stated in their report which is included herein.

ITEM 9B. OTHER INFORMATION

None.

45

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 is set forth under "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Proxy Statement for our Annual Meeting of Shareholders on May 6, 2005 and is
incorporated herein by reference, except for certain information concerning our
executive officers which is set forth in Part I of this report.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item 11 is set forth under "Executive
Compensation" in the Proxy Statement for our Annual Meeting of Shareholders on
May 6, 2005 and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The information required by this Item 12 is set forth under "Executive
Compensation" and "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement for our Annual Meeting of Shareholders on May
6, 2005 and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 is set forth under "Certain
Relationships and Related Transactions" and "Compensation Committee Interlocks
and Insider Participation" in the Proxy Statement for our Annual Meeting of
Shareholders on May 6, 2005 and is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item 14 is set forth under "Ratification
of Engagement of Independent Registered Public Accountants" in the Proxy
Statement for our Annual Meeting of Shareholders on May 6, 2005 and is
incorporated herein by reference.

46

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) 1. FINANCIAL STATEMENTS

The following financial statements of the Company are included herein
at Item 8.

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2004 and 2003

Consolidated Statements of Earnings for the years ended December 31,
2004, 2003 and 2002

Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the years ended December
31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements

2. FINANCIAL STATEMENT SCHEDULES

The following financial statement schedule of the Company is included
herein at Item 8.

Schedule II -- Valuation and Qualifying Accounts for the years ended
December 31, 2004, 2003 and 2002

3. EXHIBITS

See Exhibit Index at page 49 of this report.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

By /s/ GREGORY R. BINKLEY

------------------------------------
Gregory R. Binkley
President and Chief Executive
Date: March 17, 2005 Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

48

EXHIBIT INDEX

Those exhibits marked with an asterisk (*) above constitute management
contracts or compensatory plans or arrangements for management and executive
officers of the Company.

50