Hibbett Annual Report 2005

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FY2005 Annual Report · Hibbett

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THIS IS A
FOOTBALL.

How Hibbett Sporting Goods has become
one of the nation’s leading sporting goods retailers.

A N N U A L R E P O R T 2 0 0 5

F I N A N C I A L H I G H L I G H T S
(Dollars in thousands, except per share amounts)

For the Year

Net sales

Operating income

Basic earnings per common share

Diluted earnings per common share

At Year End

Working capital

Total assets

Total debt

Stockholders’ investment

2005
(52 Weeks)

2004
(52 Weeks)

Percent
Change

$ 377,534

$ 320,964

$ 039,422

$ 030,826

$ 0001.08

$ 0000.85

$ 0001.06

$ 0000.83

$ 106,012

$ 096,042

$ 202,105

$ 173,759

$ 000,00–

$ 173,75–

$ 130,039

$ 120,440

18)%

28)%

27)%

28)%

10)%

16)%

– %

8)%

C O R P O R A T E P R O F I L E

Hibbett Spor ting Goods, Inc. is a rapidly-growing operator of spor ting goods stores with 482 locations in small to
mid-sized markets predominantly in the Southeast, Mid-Atlantic and Midwest. The Company’s primary retail format is
Hibbett Spor ts, a 5,000-square-foot store located in enclosed malls or in strip centers which are generally the
center of commerce within the area and which are usually anchored by a Wal-Mart store.

Hibbett is the only sporting goods chain committed to serving small markets. With a low-cost operating philosophy
and a commitment to providing a high level of customer ser vice, Hibbett has successfully grown its store base at
a compounded annual growth rate of 25% over the last nine years.

About the Cover

All the quotes we have featured in the annual report are from Vince Lombardi. Mr. Lombardi’s quotes are provided
courtesy of The Estate of Vince Lombardi. More information on Vince Lombardi can be found on the Internet at
www.vincelombardi.com. © Estate of Vince Lombardi by CMG Worldwide, www.VinceLombardi.com

S A L E S , E A R N I N G S A N D S T O R E G R O W T H

01 Sales, Earnings and

Store Growth

02 Letter to Stockholders

12 Store Locations

13 Financial Statements

NET SALES (In millions)

$209.6

$241.1

$279.2

$321.0

$377.5

$0.49

$0.51

$0.62

$0.83

$1.06

EARNINGS PER DILUTED SHARE(1)(2)

TOTAL STORES

282

329

371

428

482

(1) Fiscal years 2004 and 2003 have been restated to reflect adjustments related to lease accounting that are further discussed in
Note 2 – Restatement of Previously Issued Consolidated Financial Statements of the Notes to Consolidated Financial Statements
included in this report. Periods prior to February 3, 2002, have not been adjusted as the impact was deemed immaterial by management.

(2) All share and per share information has been revised to reflect the effects of the 3-for-2 stock split effective April 16, 2004.

L E T T E R T O S T O C K H O L D E R S

How do we top a year such as fiscal 2004 –

performance in fiscal 2005 and on the strengths of

a year where we set new records in sales, operating

the Hibbett growth stor y. These quotes

margin and earnings per share? The easy answer?

demonstrate what we value most as an organization.

Return in fiscal 2005 and post a 5.7% increase in

It has been noted over the years that Vince

comparable store sales, add a

net 54 new locations to the store

base, enter our 22nd state,

improve the operating margin by

84 basis points to above 10% for

the first time in our history and

increase earnings by 28% to a

record $1.06 per share.

The explanation for our

record year in fiscal 2005 is of

course a little more complicated

than that. We do not underestimate

the contributions of 4,100

associates in 482 stores and in

our store support center as well

We embrace a
daily commitment
to work harder
than anybody else
in the sporting
goods industry to
do the “little”
things well so that
much bigger
results are
possible.

Lombardi was fond of holding up

a football when speaking with his

players at training camp and

reminding them that, “This is a

football.” While no doubt drawing

more than its share of chuckles

from professional athletes who

had devoted their lives to the

sport, we believe that statement

demonstrates the need to focus

on executing the fundamentals.

Coach Lombardi’s teams were

noted for being fundamentally

sound and for their relentless

attention to detail and execution

as the continued execution of a very disciplined

of his game plan. As a result, the Green Bay

growth strategy. In this year’s annual report, we

Packers became one of the most successful NFL

have featured several quotes from NFL Hall of

teams in history.

Fame football coach Vince Lombardi. We hope they

At Hibbett, we embrace the same daily

will help provide insight for our stockholders on our

commitment to work harder than anybody else in

"Winning is not everything,
but wanting to win is."

H I B B E T T S P O R T I N G G O O D S 2 0 0 5

the sporting goods industry to do the “little” things

and ser vice techniques. Hibbett also hires

well so that much bigger results are possible. Our

associates who live and breathe sports so that

associates share a passion, dedication and

they can fully explain the features and benefits of

preparation – the “want to” – for delivering superior

our products to help sell the customer what is best

customer service and growing

Hibbett Sporting Goods. As a

result, we believe that we have

become one of the leading sport-

ing goods retailers in the country.

Customer service is the

number one priority at Hibbett. In

April 2005, we completed an

annual

company meeting

where the featured speaker

was a leading expert in customer

service. The topic was important

enough to us that we wanted

our largest audience of the year

to hear the message again. We

Our associates
share a passion,
dedication and
preparation –
the “want to” –
for delivering
superior customer
service and
growing Hibbett
Sporting Goods.

for them.

Our goal is to provide full

ser vice. To achieve that goal we

may not have to remind our

associates what a football is, but

we do emphasize a desire to win

in customer service, work hard and

work together as a team.

Another area where we

believe we excel is in merchan-

dising. Our strategy is centered

on premium brands, middle to

higher price points, cleaner

inventory and increased inventory

turns. The merchandising team

bring our new managers to our store suppor t

successfully executed this strategy in fiscal 2005.

center for an intensive, four-day training session

Today, we can safely say that we are more on

that we call Hibbett University and provide video

tar get with our mer chandise than we have

training in every store for the latest in technical

ever been and have an improved in-store

details of new products and new operational

visual presentation.

"Individual commitment to a
group effort - that is what
makes a team work."

H I B B E T T S P O R T I N G G O O D S 2 0 0 5

Within our merchandise mix, we have three

apparel that we had planned materialized a quar ter

components – apparel, footwear and equipment –

earlier than we anticipated. To of fset these

and remain laser focused in each of these

trends and the fashion shift away from pro-licensed

categories. Footwear was the stalwart for us in

apparel, we focused more on activewear and urban

fiscal 2005 with high single-

digit to double-digit increases in

comparable store sales through-

out the year. The strength in this

business was led by technical,

performance shoes and classics.

The technology in running and

basketball shoes, such as Nike

Shox, and their popularity among

consumers provided sizable

business in higher price points

while the classics trend continued

its run. Looking ahead to fiscal

2006, we expect that footwear

will once again be a big contributor

We maintain
a tight
geographic
focus that
has enabled us
to leverage our
distribution
capabilities and
focus on the
smaller markets
where we thrive.

apparel brands. We have been

pleased with the results. With

an expected i m p r o v e m e n t i n

a p p a r e l , h i s t o r i c a l l y one of

our strongest of ferings, and

continued strength of brands

such as Under Armour and Nike

i n h i g h - e n d t e c h n i c a l and

per for mance apparel as well as

the success of urban apparel

brands such as Encye and

Rocawear, we believe this

categor y is positioned for a

better year in fiscal 2006.

We have made a concerted

for us.

effort to improve our equipment category over the

Apparel presented particular challenges

last two years, and our results in fiscal 2005

for Hibbett this past year as we were up against

reflected this emphasis. Team equipment is the

very strong comparable sales from the past two

largest piece of this business, and was a major

years, and the expected slowdown in licensed

focus for us. Over the last two years, we eliminated

"The only place success
comes before work is in
the dictionary."

H I B B E T T S P O R T I N G G O O D S 2 0 0 5

categories that meant little to us such as games,

original goal, we have targeted a net of approximately

golf and tennis and rationalized our vendor base in

70 new stores in fiscal 2006. All of our expansion

equipment to highlight vendors that did not

in fiscal 2006 will be in the existing 22 states, with

h a v e b r o a d e x p o s u r e t o d i s c o u n t e r s .

these stores staying within a two-hour driving dis-

The smaller component of our

equipment category is fitness.

Although down for most of the

year due to the lack of compelling

items within the industry as a

whole, we saw an improvement

late in the year with basic weights

and new items such as Ab

Loungers.

Our real estate strategy is

another appealing and important

aspect of the Hibbett growth

stor y. We maintain a tight

geographic focus, which has

enabled us to leverage our

Low-cost
operations have
always been
an integral part
of the Hibbett
culture and one
of the main
reasons we
are successful
in smaller
markets.

tance of existing stores. Even

with the continued growth in

our stor e base, we still have

identified up to an additional

400 markets within our 22 states

where we could locate our stores.

Of course all of this store

growth and the best merchandise

would not be of much use if we

could not support the growth and

did not translate it into increased

earnings. Fortunately for Hibbett

and our stockholders, we have

been able to achieve earnings

growth well in excess of our sales

distribution capabilities and focus on the smaller

and store growth rates. An amazing statistic about

markets where we thrive. During fiscal 2005 we

our 5.7% increase in comparable store sales for fiscal

opened a total of 63 stores, with two of those

2005 is that we were able t o g e n e r a t e t h a t

stores located in New Mexico, our 22nd state.

i n c r e a s e u s i n g l e s s comparable store

Although this total was slightly less than our

inventor y. Building on a strong p e r f o r m a n c e

"People that work together
will win."

H I B B E T T S P O R T I N G G O O D S 2 0 0 5

a year ago, we were able to improve inventor y

o p e r a t i o n h a s t r a n s i t i o n e d from primarily a

turns and reduce average inventory per store.

warehouse to a distribution center. With this

Better quality merchandise and great

improvement in logistics we now expect that we

customer service help increase inventory turns

can suppor t at least 850 stores at our current

and help us sell more at full

price. Our growing importance to

the world’s

leading spor ting

goods vendors also enables us to

increase allocations in their top

merchandise offerings.

The

result has been an expansion in

product margin, which is consistent

with our desire to be a full-price

and full-service leader rather than

a low-price leader. Product margin

is only part of the story. Just as

impor tant is the leverage we

have gained through

lower

occupancy costs, increased

We have
improved in
many areas
over the past
year, and I
promise we will
be striving to
improve in
all areas again
this year.

distribution center. With our

broader distribution network we

have also been able to leverage

freight costs by backhauling

inventor y to our distribution

center, leading to higher utilization

rates and lower deadhead miles.

In fact, our freight costs in fiscal

2005 were fewer dollars than the

previous year.

Low-cost operations have

always been a part of the Hibbett

culture and one of the main

reasons why we can thrive in

smaller markets when others

cross-docking at our distribution center and vendor

cannot. We do not knowingly waste stockholder

assisted management of inventories. For example,

money. We talk about being a low-cost operator in

two years ago approximately 40% of our

every annual report, presentation to investors and

inventor y was cross-docked. At year end, that

with every chance we get with our associates. With

ratio was 84%, which means that our logistics

our full year operating margin reaching 10.4% in

H I B B E T T S P O R T I N G G O O D S 2 0 0 5

fiscal 2005 and our fourth quar ter margin reaching

We have improved in many areas over the

12%, we believe the message is definitely

last year, and I promise you we will be striving to

getting through.

improve in all areas again this year. Hibbett’s

From a balance sheet perspective, we

outlook for fiscal 2006 and beyond is indeed an

ended the year strong with $58

million in cash and no debt, the

third year in a row we have

finished debt-free. We also

spent approximately $19 million

through our stock repurchase

authorization to acquire over

845,000 shares of stock in fiscal

2005. Our capital structure is a

competitive advantage for us in

executing our new store growth

plans. During fiscal 2005, we

were able to fund capital

e x p e n d i t u r e s of over $12

million through cash flow and

expect to fund an additional $15 million of

capital expenditures in fiscal 2006. As we

continue to generate more cash from operations,

we will explore strategic options for utilizing

that cash.

optimistic one. We will continue

to focus in small underserved

m a r k e t s a n d s t a y

t i g h t

geographically. Our major goals

for fiscal 2006 are a minimum 15%

store growth and 20% earnings

growth. Over a seven-year period,

we have averaged better than a

20% increase in earnings. We

look forward to continuing that

record in fiscal 2006.

Thank you for your continued

suppor t and

investment

Hibbett Sporting Goods.

Sincerely,

Mickey Newsome

Chairman of the Board, President and

Chief Executive Officer

S T O R E L O C A T I O N S

F I N A N C I A L S T A T E M E N T S

13 Selected Consolidated Financial and Operating Data

14 Management’s Discussion and Analysis

28 Consolidated Balance Sheets

30 Consolidated Statements of Operations

31 Consolidated Statements of Cash Flows

32 Consolidated Statements of Stockholders’ Investment

33 Report of Independent Registered Public Accounting Firm

34 Notes to Consolidated Financial Statements

52 Report of Management Controls and Procedures

56 Directors and Officers

IBC Corporate Information

S E L E C T E D C O N S O L I D A T E D F I N A N C I A L A N D O P E R A T I N G D A T A
( i n t h o u s a n d s , e x c e p t s h a r e a n d p e r s h a r e i n f o r m a t i o n )

January 29,
2005
(52 Weeks)

January 31,
2004(1)(2)
(52 Weeks)

For the Fiscal Years Ended
February 1,
2003(1)(2)
(52 Weeks)

February 2,
2002(1)(2)
(52 Weeks)

February 3,
2001(1)(2)
(53 Weeks)

Income Statement Data:
Net sales
Cost of goods sold, including warehouse,
distribution and store occupancy costs

Gross profit

$ 377,534

$ 320,964

$ 279,187

$ 241,130

$ 209,626

255,250
122,284

216,938
104,026

192,082
87,105

167,402
73,728

145,800
63,826

Store operating, selling and administrative

expenses

Depreciation and amortization

Operating income

72,923
9,939
39,422

Interest (income) expense, net
Income before provision for income taxes

(475)
39,897

63,514
9,686
30,826

( 106)
30,932

55,748
8,727
22,630

214
22,416

48,891
5,873
18,964

625
18,339

40,789
4,802
18,235

830
17,405

Provision for income taxes
Net income

14,750
$ 325,147

11,290
$ 319,642

8,182
$ 314,234

6,786
$ 311,553

6,593
$ 310,812

Earnings per common share:

Basic:
Diluted:

Weighted average shares outstanding:

$ 3 31.08
$ 3 31.06

$ 3 30.85
$ 3 30.83

$ 3 30.63
$ 3 30.62

$ 3 30.52
$ 3 30.51

$ 3 30.50
$ 3 30.48

Basic:
Diluted:

23,237,121
23,793,575

23,014,449
23,598,059

22,579,529
23,035,518

22,219,160
22,677,840

21,823,692
22,364,058

Selected Operating Data:
Number of stores open at end of period:
Sports & Co.
Sports Additions

Total

461
4
17
482

408
4
16
428

351
4
16
371

309
4
16
329

261
4
17
282

Balance Sheet Data:
Working capital
Total assets
Long-term debt
Stockholders’ investment

$ 106,012
202,105
—
130,039

$ 796,042
173,759
—
120,440

$ 770,204
133,729
—
95,606

$ 756,334
115,315
3,903
80,063

$ 751,684
101,252
9,748
66,665

(1)

Income Statement Data and Balance Sheet Data for fiscal years 2004 and 2003 have been restated to reflect adjustments related
to lease accounting that are further discussed in Note 2 – Restatement of Previously Issued Consolidated Financial Statements
of the Notes to Consolidated Financial Statements included in this report. Periods prior to February 3, 2002, have not been
adjusted as the impact was deemed immaterial by management.

(2) All share and per share information has been revised to reflect the effects of the 3-for-2 stock split effective April 16, 2004.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Overview

Hibbett is a rapidly growing operator of sporting goods stores in small to mid sized markets predominantly
in the Southeast, Mid-Atlantic and Midwest. Our stores offer a broad assortment of quality athletic
equipment, footwear and apparel with a high level of customer service. As of January 29, 2005, we
operated a total of 482 retail stores composed of 461 Hibbett Sports stores, 17 Sports Additions athletic
shoe stores and four Sports & Co. superstores in 22 states. Our primary retail format and growth vehicle
is Hibbett Sports, a 5,000-square-foot store located in enclosed malls and in dominant strip centers
which are generally the center of commerce within the area and which are usually anchored by a Wal-Mart
store. We believe Hibbett Sports stores are typically the primary sporting goods retailers in their markets
due to the extensive selection of traditional team merchandise and a high level of customer service. We
do not expect that the average size of our stores opening in fiscal 2006 will vary significantly from the
average size of stores opened in fiscal 2005. Hibbett historically has comparable store sales in the low
to mid-single digit range and we plan to increase total square footage by approximately 15% in fiscal year
2006. We believe total sales percentage growth will be in the mid teens in fiscal 2006.

Over the past three years, we have increased our product margin due to improved vendor discounts,
increased efficiencies in logistics and favorable leveraging of our store occupancy costs. We expect
gross profit to increase 15 to 20 basis points in fiscal 2006 attributable to an expected decrease in
markdowns as a percent of sales and continued improvement of inventory turns.

Due to our increased sales, we have leveraged our store operating, selling and administrative expenses
and have offset recent increases in certain expenses relating to corporate governance. With our expected
sales increase, we plan to leverage expenses 10 to 20 basis points in fiscal 2006. We also expect to
continue to generate sufficient cash to enable us to expand and remodel our store base, provide capital
expenditures for both warehouse and technology upgrade projects and to repurchase our Company stock
while increasing our cash position.

Hibbett operates on a 52- or 53-week fiscal year ending on the Saturday nearest to January 31 of each
year. The consolidated statements of operations for fiscal years ended January 29, 2005, January 31,
2004, and February 1, 2003, all include 52 weeks of operations.

Restatement of Financial Statements

Following disclosure by several restaurant companies and other retailers in fiscal 2005 and in connection
with performing our fiscal 2005 year-end reporting control processes, we performed a comprehensive
review of our lease accounting practices. We reviewed our lease portfolio and adjusted the amortization
period for leasehold improvements to the shorter of fixed, non-cancelable, initial lease term or the
asset's useful life and have recognized the effect of pre-opening “rent holidays” related to the build-out
period over the related lease term. Landlord reimbursements of leasehold improvements have been
reclassified from a contra asset in property and equipment to other liabilities in the Consolidated
Statements of Operations and from a reduction of capital expenditures to an increase in cash provided

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

by operating activities in the Consolidated Statements of Cash Flows. Retained earnings at the beginning
of the fiscal year ended February 1, 2003, has been adjusted for the after-tax impacts of the restatements
of earlier periods.

While we do not consider the net dollar amounts to be material to net earnings, financial position or net
cash flows for the periods presented, we believe it is appropriate to align our historical accounting
results with the SEC's comments on lease accounting under GAAP, and we have done so, as reflected in
our decision to restate results for certain prior years. These accounting changes reduced net income by
$0.4 million, $0.7 million and $0.5 million for the fiscal years ended January 29, 2005, January 31,
2004, and February 1, 2003, respectively, and resulted in a $1.2 million reduction in retained earnings
at the beginning of fiscal year ended February 1, 2003.

Results of Operations

The following table sets forth the percentage relationship to net sales of certain items included in our
Consolidated Statements of Operations expressed for the periods indicated. Percentages may not add
due to rounding:

Net sales
Cost of goods sold, including warehouse, distribution

and store occupancy costs

Gross profit

Store operating, selling and administrative expenses
Depreciation and amortization

Operating income

Interest income, net

Income before provision for income taxes

Provision for income taxes

Net income

Fiscal 2005 Compared to Fiscal 2004 (as restated)

January 29,
2005

100.0%

For the Fiscal Years Ended
January 31,
2004
(as restated)
100.0%

February 1,
2003
(as restated)
100.0%

67.6
32.4
19.3
2.6
10.4
(0.1)
10.6
3.9
6.7%

67.6
32.4
19.8
3.0
9.6
0.0
9.6
3.5
6.1%

68.8
31.2
20.0
3.1
8.1
0.1
8.0
2.9
5.1%

Net sales. Net sales increased $56.5 million, or 17.6%, to $377.5 million for the 52 weeks ended
January 29, 2005, from $321.0 million for the 52 weeks ended January 31, 2004. We attribute this
increase to the following factors:

• We opened 62 Hibbett Sports stores and 1 Sports Additions store and closed 9 Hibbett

Sports stores for a net stores opened of 54 stores in the 52 weeks ended January 29, 2005.
New stores and stores not in the comparable store net sales calculation accounted for $40.9
million of the increase in net sales.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

• We experienced a 5.7% increase in comparable store net sales for the 52 weeks ended
January 29, 2005. Higher comparable store net sales contributed $15.6 million to the
increase in net sales.

The increase in comparable store sales was driven by an increase in sales in footwear and equipment.

• Apparel was negative in comp stores due to a weakness in the pro-licensed and college apparel categories.
• Footwear was led by women's performance, primarily running shoes, and the children's shoe
categories. Performance and retro styles such as Nike Shox, Nike Air Force 1, Nike Impax,
Nike Miler, K-Swiss and New Balance styles were the most popular in the period.

• Equipment sales were positively impacted by team sports, particularly by baseball and softball
as our premium focus began to take effect. These positive gains were somewhat offset by a
decline in the demand for fitness equipment and individual sports equipment.

Comparable store net sales data for the period reflects sales for our traditional format Hibbett Sports and
Sports Additions stores open throughout the period and the corresponding period of the prior fiscal year.

Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy
and operating costs for the distribution center. Gross profit was $122.3 million, or 32.4% of net sales,
in the 52 weeks ended January 29, 2005, compared with $104.0 million, or 32.4% of net sales, in the
same period of the prior fiscal year. This year's gross margin is primarily attributable to strong footwear
sales which carry a somewhat lower gross margin than apparel and the leveraging of occupancy and
warehouse cost and improved inventory turn. Product margin rate decreased somewhat due to a shift
toward lower margin footwear and markdowns in licensed apparel. Occupancy, as a percent of net sales,
improved by 9 basis points year over year due to above average comparable store sales gains.
Warehouse costs improved by 11 basis points, primarily due to the leveraging of salaries and benefits.

Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $72.9 million, or 19.3% of net sales, for the 52 weeks ended January 29, 2005, compared with
$63.5 million, or 19.8% of net sales, for the comparable period a year ago. We attribute this decrease
in store operating, selling and administrative expenses as a percentage of net sales to the following factors:

• Labor and benefits expenses accounted for a decrease as a percent of net sales of 36 basis

points as compared to the same period last year.

• Business insurance expense experienced a decrease as a percent of net sales of 9 basis

points as compared to the same period last year.

• Returned check expense and net advertising expense accounted for a decrease as a percent
of net sales of 7 and 6 basis points, respectively, as compared to the same period last year.

The decrease in store operating, selling and administrative expenses was somewhat offset by a 22 basis
point increase in professional fees related to Sarbanes-Oxley compliance and testing and a 5 basis point
increase in credit card fees as a result of an increase in Visa and MasterCard interchange rates.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 2.6% in the
52 weeks ended January 29, 2005, and 3.0% in the 52 weeks ended January 31, 2004. The leveraging in
depreciation and amortization expense as a percentage of net sales is due to an increase in sales this
year compared to the same 52 weeks last year.

Provision for income taxes. Provision for income taxes as a percentage of net sales was 3.9% in the 52
weeks ended January 29, 2005, compared to 3.5% for the 52 weeks ended January 31, 2004, due to
an increase in pre-tax income and an increase in the effective tax rate for fiscal 2005. The combined
federal, state and local effective income tax rate as a percentage of pre-tax income was 37.0% for fiscal
2005 and 36.5% for fiscal 2004.

Fiscal 2004 (as restated) Compared to Fiscal 2003 (as restated)

Net sales. Net sales increased $41.8 million or 15.0%, to $321.0 million for the 52 weeks ended
January 31, 2004, from $279.2 million for the comparable period in the prior year. We attribute this
increase to the following factors:

• We opened 63 Hibbett Sports stores and 2 Sports Additions stores and closed 8 Hibbett

Sports stores for a net stores opened of 57 stores in the 52 weeks ended January 31, 2004.
New stores and stores not in the comparable store net sales calculation accounted for $28.7
million of the increase in net sales.

• We experienced a 5.3% increase in comparable store net sales for the 52 weeks ended
January 31, 2004. Higher comparable store net sales contributed $13.1 million to the
increase in net sales.

The increase in comparable store net sales was primarily due to increased sales in apparel, although
there were some gains in the footwear categories as well.

• Apparel sales, mainly college and pro-licensed products and active wear, were driven by retro
NBA and NFL jerseys, Under Armour and Nike Dri-Fit performance wear, women's active wear
and college apparel and cheerleading shorts.

• Footwear was led by basketball, New Balance running shoes, Nike Shox, K-Swiss athletic

shoes and the retro-classic look.

• Equipment sales were down from prior year's numbers, primarily due to category elimination in
individual sports such as racket sports, golf and in-line skates. Our team sports business,
which consists of baseball, basketball, football and soccer, improved during the fourth quarter
but did not offset the decreases from the eliminated categories and the softness in the fitness
category.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Gross profit. Cost of goods sold includes the cost of inventory, occupancy costs for stores and occupancy
and operating costs for the distribution center. Gross profit was $104.0 million, or 32.4% of net sales,
in the 52 weeks ended January 31, 2004, compared with $87.1 million, or 31.2% of net sales, in the
same period of the prior fiscal year. The improved gross margin is primarily attributed to selling more
merchandise at full price, the leveraging of occupancy and warehouse cost and improved logistics flow.
Product margin improved 89 basis points due to gains in initial mark up, a reduction in markdown rate
and improvements in shrinkage. Occupancy, as a percent of net sales, improved by 13 basis points year
over year due to above average comparable store sales gains. Warehouse costs improved by 18 basis
points, primarily due to the leveraging of salaries and benefits.

Store operating, selling and administrative expenses. Store operating, selling and administrative expenses
were $63.5 million, or 19.8% of net sales, for the 52 weeks ended January 31, 2004, compared with
$55.7 million, or 20.0% of net sales, for the comparable period a year ago. We attribute this
decrease in store operating, selling and administrative expenses as a percentage of net sales to the
following factors:

• Retail store labor decreased as a percent of net sales by 16 basis points this period compared

with the same period last year due to higher than expected comparable store sales and
improved labor controls.

• Store supplies were down 10 basis points year over year and net advertising costs were

reduced by 5 basis points this year compared to the same 52-week-period last year.

Depreciation and amortization. Depreciation and amortization as a percentage of net sales was 3.0% in
the 52 weeks ended January 31, 2004, and 3.1% in the 52 weeks ended February 1, 2003. The reduction
in depreciation and amortization expense as a percentage of net sales is due to an increase in sales
this year compared to the same period last year.

Provision for income taxes. Provision for income taxes as a percentage of net sales was 3.5% in the 52
weeks ended January 31, 2004, compared to 2.9% for the 52 weeks ended February 1, 2003, due to an
increase in pre-tax income. The combined federal, state and local effective income tax rate as a percentage
of pre-tax income was 36.5% for fiscal 2004 and for fiscal 2003.

Liquidity and Capital Resources

As described in Note 2 to the Consolidated Financial Statements, we restated previously issued consolidated
financial statements for the fiscal years ended January 31, 2004, and February 1, 2003, to correct our
accounting for leases, related leasehold improvements and construction allowances. While this restatement
changed several cash flow components, cash and cash equivalents were not impacted for any fiscal year.

Our capital requirements relate primarily to new store openings, stock repurchase and working capital
requirements. Our working capital requirements are somewhat seasonal in nature and typically reach
their peak near the end of the third and the beginning of the fourth quarters of our fiscal year.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Historically, we have funded our cash requirements primarily through cash flow from operations and
occasionally from borrowings under our revolving credit facilities.

Our Statements of Cash Flows are summarized as follows (in thousands):

January 29,
2005

For the Fiscal Years Ended
January 31,
2004
(as restated)

February 1,
2003
(as restated)

Net cash provided by operating activities:

$ 46,123

$ 37,479

$ 19,885

Cash flows provided by (used in) investing activities:

Capital expenditures
Proceeds from sales of property and equipment

(12,671)
45

(11,226)
12

(8,401)
611

Net cash (used in) investing activities

$(12,626)

$(11,214)

$ (7,790)

Cash flows provided by (used in) financing activities:
Revolving loan borrowings and repayments, net
Proceeds from options exercised and purchase of shares

under the employee stock purchase plan

Cash used for stock repurchase

Net cash provided by (used in) financing activities

--
--
1,993
(19,111)
$(17,118)

(3,903)

3,682
--
$ 3,682

1,852
--
$ (2,051)

Net cash provided by operating activities has historically been driven by net income levels combined with
fluctuations in inventory and accounts payable balances. Net income has increased in each of the last three
fiscal years. In addition, we have continued to increase our inventory levels and turns throughout these periods
as the number of stores has increased. However, inventory levels on a per-store basis have decreased. We
financed this increase in total inventory primarily through cash generated from operations in each of the last
three fiscal years. These activities resulted in cash flows provided by operating activities of $46.1 million,
$37.5 million and $19.9 million in fiscal 2005, fiscal 2004 and fiscal 2003, respectively.

With respect to cash flows from investing activities, capital expenditures for fiscal 2005 were $12.6 million
compared with $11.2 million in fiscal 2004 and $8.4 million in fiscal 2003. Capital expenditures for the
52 weeks ended January 29, 2005, were primarily related to the opening of 62 new Hibbett Sports
stores and 1 new Sports Additions store, the refurbishing of existing stores and purchasing corporate
assets, including automobiles, warehouse equipment and technology upgrades.

We estimate the cash outlay for capital expenditures in fiscal 2006 will be approximately $15.0 million,
which relates to the opening of approximately 80 Hibbett Sports stores (exclusive of store closings),
remodeling of selected existing stores and improvements at the Company's headquarters and distribution center.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Net cash provided by (used in) financing activities was ($17.1 million), $3.7 million and ($2.1 million) in
fiscal 2005, fiscal 2004 and fiscal 2003, respectively. Cash flows from financing activities have historically
represented financing of our long-term growth. In fiscal 2005 and 2004, we received $2.0 million and
$3.7 million, respectively, excluding the related tax benefit, from proceeds related to stock options exercised
and shares issued under the employee stock purchase plan. In fiscal 2005, we expended $19.1 million
on the repurchase of our common stock (see Note 1 to the Consolidated Financial Statements).

We have an unsecured revolving credit facility that allows borrowings up to $25.0 million and which will
expire November 5, 2005. The credit facility is subject to renewal every two years. Under the provisions
of this facility, we pay a commitment fee of $10,000 annually and can draw down funds when the balance
of our main operating account falls below $100,000. We plan to renew this facility in November and do
not anticipate any problems in doing so; however, no assurance can be given that we will be granted a
renewal or terms which are acceptable to the Company.

In fiscal 2003, the unsecured revolving credit facility allowed borrowings up to $35.0 million and we also
maintained an unsecured working capital line of credit for $7.0 million, which expired on January 5,
2004 and was not renewed. As of January 29, 2005, January 31, 2004, and February 1, 2003, we had
no debt outstanding under any of these facilities. Based on our current operating and store opening
plans, management believes we can adequately fund our cash needs for the foreseeable future through
cash generated from operations.

The following table lists the aggregate maturities of various classes of obligations and expiration amounts
of various classes of commitments related to Hibbett Sporting Goods, Inc. at January 29, 2005:

Fiscal 2006
Fiscal 2007
Fiscal 2008
Fiscal 2009
Fiscal 2010
Thereafter

Payments due under contractual obligations (in thousands)

Revolving
Credit(1)

Capital Lease
Obligations (2)

$11--
--
--
--
--
--
$11--

Operating
Leases(3)

$127,792
24,434
20,458
15,898
11,773
22,312
$122,667

Total

$127,792
24,434
20,458
15,898
11,773
22,312
$122,667

(1)See “Long-term Debt” - Consolidated Financial Statement Note 3.
(2)As of fiscal year ended 2005, we do not have any capital lease obligations.
(3)See “Lease Commitments” - Consolidated Financial Statement Note 8.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Off-Balance Sheet Arrangements

We have not provided any financial guarantees as of January 29, 2005. All purchase obligations are
cancelable and therefore are not included in the table above.

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose
of raising capital, incurring debt or operating our business. We do not have any arrangements or
relationships with entities that are not consolidated into the financial statements.

Inflation and other Economic Factors

Our ability to provide quality merchandise on a profitable basis may be subject to economic factors and
influences that we cannot control. National or international events, including the war on terrorism, could
lead to disruptions in economies in the United States or in foreign countries where a significant portion
of our merchandise is manufactured. These and other factors could increase our merchandise costs and
other costs that are critical to our operations. Consumer spending could also decline because of
economic pressures.

Merchandise Costs. Based on current economic conditions, we expect that merchandise costs per unit
will remain constant in fiscal 2006.

Freight Costs. Due to rising fuel costs, we may experience increases in freight costs. However, we do
not expect these fuel cost increases to have a material effect on our results of operations as we continue
to leverage the costs associated with inbound freight against the cost of outbound freight.

Minimum Wage. An increase in the mandated minimum wage could significantly increase our payroll
costs. In prior years, proposals increasing the federal minimum wage by at least $1.00 per hour have
narrowly failed to pass both houses of Congress.

Insurance Costs. During fiscal 2004, property, casualty and health insurance costs increased significantly.
In fiscal 2005, general business insurance and health insurance leveraged favorably as a percent to
sales. We expect that these costs will remain relatively stable in fiscal 2006.

Recent Accounting Pronouncements

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-
controlling interests of the VIE initially would be measured at their carrying amounts with any difference
between the net amount added to the balance sheet and any previously recognized interest being recognized
as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable,
fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling
interest of the VIE. There was no impact on our consolidated financial statements upon adoption.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” was issued in May 2003. This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of both liabilities and equity. The
Statement also includes required disclosures for financial instruments within its scope. For us, the
Statement was effective for instruments entered into or modified after May 31, 2003 was effective at
the beginning of the first interim period beginning after June 15, 2003, except for mandatorily
redeemable financial instruments. For certain mandatorily redeemable financial instruments, the
Statement will be effective for us on January 31, 2005. The effective date has been deferred indefinitely
for certain other types of mandatorily redeemable financial instruments. We currently do not have any
financial instruments that are within the scope of this Statement.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” SFAS No. 151 amends the
guidance in Accounting Research Bulletin No. 43, “Inventory Pricing,” to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs and wasted material (spoilage). SFAS No. 151
requires that those items be recognized as current period charges and that the allocation of fixed
production overheads to the cost of conver ting work in process to finished goods be based on the
normal capacity of the production facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a
material impact on our consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” a revision of FASB
issued SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R requires the
measurement of all stock-based payments to employees, including grants of employee stock options and
stock purchase rights granted pursuant to certain employee stock purchase plans, using a fair-value
based method and the recording of such expense in the consolidated statement of operations. The
accounting provisions of SFAS No. 123R are effective for reporting periods beginning after June 15,
2005. Accordingly, we are required to adopt SFAS No. 123R in the third quarter of fiscal 2006. The pro
forma disclosures previously permitted under SFAS No. 123 will no longer be an alternative to financial
statement recognition. See ”Stock-Based Compensation” in Note 1 to Consolidated Financial
Statements. We are currently reviewing the applicability of SFAS No. 123R on our operations and its
potential impact on our consolidated financial statements.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

The amendments also eliminate the narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The adoption of this pronouncement is not expected to have a
significant impact on our consolidated financial statements.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement
Obligations,” that requires an entity to recognize a liability for the fair value of a conditional asset retirement
obligation when incurred if the liability's fair value can be reasonably estimated. This Interpretation is
effective for fiscal years ending after December 15, 2005. Accordingly, we are required to adopt FIN 47
in our fiscal year ended January 28, 2006. We are currently reviewing the applicability of FIN 47 on our
operations and its potential impact on our consolidated financial statements.

Our Critical Accounting Policies

Our critical accounting policies reflected in the consolidated financial statements are detailed below.

Revenue Recognition. Retail merchandise sales occur on-site in our retail stores. The customers have
the option of paying the full purchase price of the merchandise upon sale or paying a down payment and
placing the merchandise on layaway. The customer may make further payments in installments, but the
entire purchase price for merchandise placed on layaway must be received by us within 30 days. We
record the down payment and any installments as deferred revenue until the customer pays the entire
purchase price for the merchandise and takes possession of such merchandise. We recognize merchandise
revenues at the time the customer takes possession of the merchandise.

The cost of coupon sales incentives is recognized at the time the related revenue is recognized by us.
Proceeds received from the issuance of gift cards are initially recorded as deferred revenue and such
proceeds are subsequently recognized as revenue at the time the customer redeems such gift cards and
takes possession of the merchandise.

Inventory Valuation. Cost is assigned to store inventories using the retail inventory method. In using
this method, the valuation of inventories at cost and the resulting gross margins are computed by applying
a calculated cost-to-retail ratio to the retail value of inventories. The retail method is an averaging
method that has been widely used in the retail industry and results in valuing inventories at lower of cost
or market when markdowns are taken as a reduction of the retail value of inventories on a timely basis.

Inventory valuation methods require certain significant management estimates and judgments. These
include estimates of merchandise markdowns and shrinkage, which significantly affect the ending inventory
valuation at cost, as well as the resulting gross margins. The averaging required in applying the retail
inventory valuation method and the estimates of shrink and markdowns may, under certain circumstances,
result in inaccurate cost figures. Inaccurate inventory cost may be caused by applying the retail inventory
method to a group of products that have differing characteristics related to gross margin and turnover.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

We accrue for inventory shrinkage based on the actual historical shrink results of our most recent physical
inventories. These estimates are compared to actual results as physical inventory counts are performed
and reconciled to the general ledger. Store counts are performed on a cyclical basis and the distribution
center's counts are performed mid-year and at the end of December or in early January every year.

Our management believes that the application of the retail inventory method results in an inventory valuation
that reasonably approximates cost and results in carrying inventory at the lower of cost or market.

Accrued Expenses. On a monthly basis, we estimate certain material expenses in an effort to record those
expenses in the period incurred. Our most material estimates relate to payroll and payroll tax expenses,
property taxes, insurance-related expenses, utilities and other expenses. Estimates are primarily based on current
activity and historical results and are adjusted as our estimates change. Differences in our estimates and
assumptions could result in an accrual materially different from the accrual calculated. Historically, the differences
in these accruals have not had a material effect on our financial condition or results of operations.

Income Taxes. On a quarterly basis, we estimate our required tax liability and assess the recoverability
of our deferred tax assets. Our taxes payable are estimated based on enacted tax rates, including estimated
tax rates in states where our store base is growing applied to the income expected to be taxed currently.
We assess the realizability of our deferred tax projections for future taxable income. We cannot guarantee
that we will generate income in future years. Historically, we have not experience significant differences
in our estimates of our tax accrual.

Dividend Policy

We have never declared or paid any dividends on our common stock. We currently intend to retain our
future earnings to finance the growth and development of our business and for our stock repurchase,
and therefore do not anticipate declaring or paying cash dividends on our common stock for the foreseeable
future. Any future decision to declare or pay dividends will be at the discretion of our Board of Directors
and will be dependent upon our financial condition, results of operations, capital requirements and such
other factors as our Board of Directors deems relevant.

Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to
be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer.

Quarterly and Seasonal Fluctuations

We have historically experienced and expect to continue to experience seasonal fluctuations in our net
sales and operating income. Our net sales and operating income are typically higher in the fourth quarter

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

due to sales increases during the holiday selling season. However, the seasonal fluctuations are mitigated
by the strong product demand in the spring and back to school sales periods. Our quarterly results of
operations may also fluctuate significantly as a result of a variety of factors, including the timing of new
store openings, the amount and timing of net sales contributed by new stores, the level of pre opening
expenses associated with new stores, the relative proportion of new stores to mature stores, merchandise
mix, the relative proportion of stores represented by each of our three store concepts and demand for
apparel and accessories driven by local interest in sporting events.

The following tables set forth certain unaudited financial data for the quarters indicated:

UNAUDITED QUARTERLY FINANCIAL DATA
(in thousands, except per share amounts)

Net sales
Gross profit
Operating income
Net income

Fiscal Year Ended January 29, 2005

First
(13 weeks)
(as restated)
$ 96,519
32,261
12,665
7,994

Second
(13 weeks)
(as restated)
$ 81,794
24,153
4,552
2,911

Third
(13 weeks)
(as restated)
$ 92,140
30,899
9,592
6,112

Fourth
(13 weeks)

$107,081
34,971
12,613
8,130

Basic earnings per common share

$0 0 0.34

$0 0 0.12

$0 0 0.26

$0 0 0.36

Diluted earnings per common share

$0 0 0.33

$0 0 0.12

$0 0 0.26

$0 0 0.35

Net sales
Gross profit
Operating income
Net income

First
(13 weeks)
(as restated)
$ 79,593
25,343
7,941
5,057

Fiscal Year Ended January 31, 2004
Third
(13 weeks)
(as restated)
$ 78,418
26,878
8,166
5,206

Second
(13 weeks)
(as restated)
$ 71,731
22,383
4,795
3,057

Fourth
(13 weeks)
(as restated)
$ 91,222
29,422
9,924
6,322

Basic earnings per common share

$0 0 0.22

$0 0 0.13

$0 0 0.23

$0 0 0.27

Diluted earnings per common share

$0 0 0.22

$0 0 0.13

$0 0 0.22

$0 0 0.26

In the opinion of our management, this unaudited information has been prepared on the same basis as
the audited information presented elsewhere herein and includes all adjustments necessary to present
fairly the information set forth therein. The operating results from any quarter are not necessarily indicative
of the results to be expected for any future period.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

As discussed in Note 2 to the Consolidated Financial Statements, we restated our Consolidated Balance
Sheets as of February 3, 2003 and the related quarterly Consolidated Statements of Operations,
Stockholders' Investment and Statements of Cash Flows for fiscal 2004 and the first three quarters of
fiscal 2005. The following tables reconcile the change in net earnings for the restated quarters by fiscal
year. This information should be read in conjunction with Note 2 to the Consolidated Financial Statements:

(dollars in thousands)

Fiscal 2005 Net Income
As previously reported
Cost of goods sold
Store operating expenses
Depreciation
Provision for income taxes

As restated

Fiscal 2004 Net Income
As previously reported
Cost of goods sold
Store operating expenses
Depreciation
Provision for income taxes

As restated

First
Quarter

Second
Quarter

Third
Quarter

Fourth
Quarter

$ 8,060
530
(52)
(584)
40
$ 7,994

$ 5,255
384
(49)
(647)
114
$ 5,057

$ 3,033
474
(76)
(592)
72
$ 2,911

$ 3,242
396
(68)
(619)
106
$ 3,057

$ 6,263
470
(88)
(623)
90
$ 6,112

$ 5,376
431
(114)
(585)
98
$ 5,206

$ 6,475
416
(90)
(567)
88
$ 6,322

Quantitative and Qualitative Disclosure About Market Risk

Our financial condition, results of operations and cash flows are subject to market risk from interest rate
fluctuations on our revolving credit facility and working capital facility, each of which bears interest at
rates that vary with LIBOR, prime or quoted cost of funds rates.

At the end of fiscal 2005, we had no borrowings outstanding under these agreements. There were three
days during the fifty-two weeks ended January 29, 2005, where we incurred borrowings against our credit
facility for an average borrowing of $297,000. During fiscal 2005, the maximum amount outstanding
against these agreements was approximately $435,000 and the weighted average interest rate was
2.63%. There were eighteen days during the fiscal year ended January 31, 2004, where we incurred
borrowings against our credit facility for an average borrowing of $978,000. During fiscal 2004, the
maximum amount outstanding against these agreements was approximately $3,943,000 and the weighted
average interest rate was 1.95%. A 2% increase or decrease in market interest rates would not have a
material impact on our financial condition, results of operations or cash flows.

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S

Special Note Regarding Forward-Looking Statements

This document contains “forward-looking statements” as that term is used in the Private Securities Litigation
Reform Act of 1995. Forward-looking statements address future events, developments and results. They include
statements preceded by, followed by or including words such as “believe,” “anticipate,” “expect,” “intend,”
“plan,” “target” or “estimate.” For example, our forward-looking statements include statements regarding:

• our anticipated sales, including comparable store net sales, net sales growth and earnings growth;
• our growth, including our plans to add, expand or relocate stores and square footage growth;
• the possible effect of inflation and other economic changes on our costs and profitability;
• the possible effect of recent accounting pronouncements;
• our cash needs, including our ability to fund our future capital expenditures and working capital

requirements;

• our gross profit margin and earnings and our ability to leverage store operating, selling and

administrative expenses and offset other operating expenses;

• our seasonal sales patterns;
• the future reliability of, and cost associated with, our sources of supply, particularly imported goods;
• the capacity of our distribution center;
• our ability to renew or replace store leases satisfactorily; and
• our expectations regarding competition.

You should assume that the information appearing in this annual report is accurate only as of the date it
was issued. Our business, financial condition, results of operations and prospects may have changed
since that date.

For a discussion of the risks, uncertainties and assumptions that could affect our future events, develop-
ments or results, you should carefully review the “Risk Factors” described in our Annual Report on Form
10-K dated April 14, 2005, as well as “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” contained herein.

Our forward-looking statements could be wrong in light of these and other risks, uncertainties and
assumptions. The future events, developments or results described in this report could turn out to be
materially different. We have no obligation to publicly update or revise our forward-looking statements
after the date of this annual report and you should not expect us to do so.

Investors should also be aware that while we do, from time to time, communicate with securities analysts
and others, we do not, by policy, selectively disclose to them any material nonpublic information or other
confidential commercial information. Accordingly, stockholders should not assume that we agree with any
statement or report issued by any analyst regardless of the content of the statement or report. We do
not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued
by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

C O N S O L I D A T E D B A L A N C E S H E E T S
( i n t h o u s a n d s , e x c e p t s h a r e a n d p e r s h a r e i n f o r m a t i o n )

January 29,
2005

January 31,
2004
(as restated)

ASSETS
Current Assets:

Cash and cash equivalents
Accounts receivable, net
Inventories
Prepaid expenses and other
Deferred income taxes
Total current assets

Property and Equipment:

Land and building
Equipment
Furniture and fixtures
Leasehold improvements
Construction in progress

Less accumulated depreciation & amortization

Total property and equipment

Non-current Assets:

Deferred income taxes
Other, net

Total non-current assets

Total Assets

$158,342
4,857
103,009
996
149
167,353

245
26,261
15,017
37,869
456
79,848
46,935
32,913

1,684
155
1,839
$202,105

$141,963
3,594
94,777
942
983
142,259

245
22,808
13,584
31,875
365
68,877
38,312
30,565

805
130
935
$173,759

See accompanying notes to consolidated financial statements.

C O N S O L I D A T E D B A L A N C E S H E E T S , c o n t .
( i n t h o u s a n d s , e x c e p t s h a r e a n d p e r s h a r e i n f o r m a t i o n )

LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts payable

Accrued income taxes
Accrued expenses:
Payroll-related
Deferred rent
Other

Total current liabilities

Non-current liabilities:

Deferred rent

Total non-current liabilities

Stockholders' Investment:

Preferred Stock, $.01 par value 1,000,000 shares authorized,

no shares outstanding

Common Stock, $.01 par value, 50,000,000 shares authorized,

23,488,665 and 23,229,660 shares issued at January 29, 2005, 2
and January 31, 2004, respectively

Paid-in capital
Retained earnings
Treasury stock at cost, 845,400 shares at January 29, 2005,

and none at January 31, 2004
Total stockholders' investment

Total Liabilities and Stockholders' Investment

January 29,
2005

January 31,
2004
(as restated)

$150,188
2,763

$137,976
--

4,528
2,625
1,237
61,341

10,725
10,725

4,284
2,874
1,083
46,217

7,102
7,102

235
68,915
80,000

(19,111)
130,039
$202,105

232
65,355
54,853

--
120,440
$173,759

See accompanying notes to consolidated financial statements.

C O N S O L I D A T E D S T A T E M E N T S O F O P E R A T I O N S
( i n t h o u s a n d s , e x c e p t s h a r e a n d p e r s h a r e i n f o r m a t i o n )

January 29,
2005

For the Fiscal Years Ended
January 31,
2004
(as restated)

February 1,
2003
(as restated)

Net sales
Cost of goods sold, including warehouse, distribution

and store occupancy costs

Gross profit

Store operating, selling and administrative expenses
Depreciation and amortization

Operating income

Interest income
Interest expense

Income before provision for income taxes

Provision for income taxes

Net income

Basic earnings per share
Diluted earnings per share

Weighted average shares outstanding:

Basic
Diluted

$377,534

$320,964

$279,187

255,250
122,284

216,938
104,026

192,082
87,105

72,923
9,939
39,422

(517)
42
39,897

14,750
$125,147

$1111.08
$1111.06

63,514
9,686
30,826

( 165)
59
30,932

55,748
8,727
22,630

( 26)
240
22,416

11,290
$119,642

8,182
$114,234

$1110.85
$1110.83

$1110.63
$1110.62

23,237,121
23,793,575

23,014,449
23,598,059

22,579,529
23,035,518

See accompanying notes to consolidated financial statements.

C O N S O L I D A T E D S T A T E M E N T S O F C A S H F L O W S
( i n t h o u s a n d s )

January 29,
2005

For the Fiscal Years Ended
January 31,
2004
(as restated)

February 1,
2003
(as restated)

Cash flows from operating activities:

Net income
Adjustments to reconcile net income to net cash

provided by operating activities:
Depreciation and amortization
Deferred income taxes (credit)
(Gain) loss on disposal of assets
(Increase) decrease in operating assets:

Accounts receivable, net
Inventories
Prepaid expenses and other
Other non-current assets

Increase (decrease) in operating liabilities

Accounts payable
Accrued income taxes

Accrued expenses
Deferred rent

Total adjustments

Net cash provided by operating activities

Cash flows from investing activities:

Capital expenditures
Proceeds from sales of property and equipment

Net cash used in investing activities

Cash flows from financing activities:
Cash used for stock repurchase
Proceeds from options exercised and purchase of 2
shares under the employee stock purchase plan

Revolving loan borrowings and repayments, net
Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

Supplemental Disclosures of Cash Flow Information:

Cash paid during the period for:

Interest
Income taxes, net of refunds

See accompanying notes to consolidated financial statements.

$25,147

$19,642

$14,234

9,939
(45)
531

(1,263)
(8,232)
(56)
(37)

12,212
3,196
957
3,774
20,976
46,123

(12,671)
45
(12,626)

(19,111)

1,993
--
(17,118)

16,379
41,963
$58,342

9,686
72
336

(223)
(8,531)
(182)
(27)

13,107
731
349
2,519
17,837
37,479

(11,226)
12
(11,214)

3,682
--
3,682

8,727
1,178
(465)

(1,018)
(5,163)
138
64

1,148
(264)
539
767
5,651
19,885

(8,401)
611
(7,790)

1,852
(3,903)
(2,051)

29,947
12,016
$41,963

10,044
1,972
$12,016

$58,342
$10,388

$41,959
$11,120

$41,194
$17,220

C O N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S ’ I N V E S T M E N T
( i n t h o u s a n d s , e x c e p t s h a r e i n f o r m a t i o n )

Common Stock

Number
of Shares

Amount

Paid-In
Capital

Retained
Earnings

Treasury Stock

Number
of
Shares

Amount

BALANCE, February 2, 2002
(as previously reported)

22,336,463

$224

$57,614

$22,225

-- $ --

Restatement adjustments

( 1,248)

BALANCE, February 2, 2002

(as restated)
Net income
Issuance of shares from the
employee stock purchase plan
and the exercise of stock options,
net of tax benefit $706

BALANCE, February 1, 2003

(as restated)
Net income
Issuance of shares from the
employee stock purchase plan
and the exercise of stock options,
net of tax benefit $1,510

BALANCE, January 31, 2004

(as restated)
Net income
Issuance of shares from the
employee stock purchase plan
and the exercise of stock options,
net of tax benefit $1,569
Purchase of shares under the
stock repurchase program

22,336,463
--

224
--

57,614
--

20,977
14,234

346,162

2,555

22,682,625
--

227
--

60,169
--

35,211
19,642

547,035

5,186

23,229,660
--

232
--

65,355
--

54,853
25,147

259,005

3,560

--
--

845,400

(19,111)

BALANCE, January 29, 2005

23,488,665

$235

$68,915

$80,000

845,400 $(19,111)

See accompanying notes to consolidated financial statements.

R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C
A C C O U N T I N G F I R M

The Board of Directors and Stockholders
Hibbett Sporting Goods, Inc.:

We have audited the accompanying consolidated balance sheets of Hibbett Sporting Goods, Inc. and
subsidiaries (the Company) as of January 29, 2005, and January 31, 2004, and the related consolidated
statements of operations, stockholders’ investment, and cash flows for each of the years in the three-
year period ended January 29, 2005. These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an opinion on these consolidated 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 Hibbett Sporting Goods, Inc. and subsidiaries as of January 29, 2005,
and January 31, 2004, and the results of their operations and their cash flows for each of the years in
the three-year period ended January 29, 2005, in conformity with U.S. generally accepted accounting
principles.

As discussed in Note 2 to the consolidated financial statements, the Company has restated its 2004
and 2003 consolidated financial statements.

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
January 29, 2005, 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 April
13, 2005, expressed an unqualified opinion on management’s assessment of, and an adverse opinion
on the effective operation of, internal control over financial reporting.

Birmingham, Alabama
April 13, 2005

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Hibbett Sporting Goods, Inc. (the "Company") is an operator of sporting goods retail stores in small to
mid-sized markets predominately in the Southeast, Mid-Atlantic and Midwest. The Company’s fiscal year
ends on the Saturday closest to January 31 of each year. The consolidated statements of operations for
fiscal years ended January 29, 2005, January 31, 2004, and February 1, 2003, include 52 weeks of
operations. The Company’s merchandise assortment features a core selection of brand name merchandise
emphasizing team sports complemented by a selection of localized apparel and accessories designed to
appeal to a wide range of customers within each market.

Principles of Consolidation

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

Certain reclassifications have been made to conform previously reported data to the current presentation.
Such reclassifications had no impact on total assets or on stockholders’ investment.

Use of Estimates in the Preparation of Consolidated Financial Statements

The preparation of consolidated financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect (1) the reported amounts of certain assets and liabilities and disclosure of certain contingent
assets and liabilities at the date of the consolidated financial statements and (2) the reported amounts
of certain revenues and expenses during the reporting period. Actual results could differ from those
estimates.

Reportable Segments

Hibbett is an operator of sporting good stores in small to mid-sized markets predominately in the
Southeast, Mid-Atlantic and Midwest. Given the economic characteristics of the store formats, the similar
nature of products offered for sale, the types of customers and the methods of distribution, the operations
of Hibbett constitute only one reportable segment.

Customers

No customer accounted for more than 5% of the Company’s sales during the 52-week periods ended
January 29, 2005, January 31, 2004, or February 1, 2003.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Vendor Arrangements

The Company enters into arrangements with many of its vendors that entitle it to a partial refund of the cost of
merchandise purchased during the year or payments for reimbursement of certain costs it incurs to advertise
or otherwise promote its product. The volume based rebates, supported by a vendor agreement, are estimated
throughout the year and reduce the cost of inventory and cost of goods sold during the year. This estimate is
regularly monitored and adjusted for current or anticipated changes in purchase levels and for sales activity.

Advertising

The Company expenses advertising costs when incurred. The Company participates in various advertising and marketing
cooperative programs with its vendors, who, under these programs, reimburse it for certain costs incurred. A receivable
for cooperative advertising to be reimbursed is recorded as a decrease to expense as the reimbursements are earned.

The following table presents the components of the Company’s advertising expense (in thousands):

Gross advertising costs
Advertising reimbursements
Net advertising costs

Stock Repurchase Plan

January 29,
2005
$4,471
(2,785)
$1,686

For the Fiscal Years Ended
January 31,
2004
$3,533
(1,921)
$1,612

February 1,
2003
$2,948
(1,396)
$1,552

In August 2004, the Board of Directors authorized the repurchase of up to $30.0 million of the
Company’s outstanding common stock. In November 2004, the Board of Directors increased the maximum
authorization to $40.0 million. Stock repurchases may be made until August 19, 2005, and may be
made in the open market or in negotiated transactions, with the amount and timing of repurchases
dependent on market conditions at the discretion of Company management. As of January 29, 2005,
the Company had repurchased 845,400 shares at a cost of approximately $19.1 million.

Stock Splits

On March 10, 2004, the Board of Directors declared a 3-for-2 stock split on the Company’s Common
Stock to holders of record on April 1, 2004, effective April 16, 2004. All share and per share data has
been revised to reflect the effects of the stock split retroactively for all periods presented.

Cash and Cash Equivalents

The Company considers all short term, highly liquid investments with original maturities of three months
or less to be cash equivalents.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Trade and Other Accounts Receivable

Trade accounts receivable at fiscal year-end consist primarily of amounts due to the Company from sales
to educational institutions and youth associations as related to Team Sales. The Company does not
require collateral and maintains reserves for potential uncollectible accounts based on historical losses
and existing economic conditions, when relevant. The allowance for doubtful accounts at January 29,
2005 and January 31, 2004 was $59,000 and $107,000, respectively.

Other accounts receivable consists primarily of tenant allowances due from landlords.

Inventories

Inventories are valued at the lower of cost or market using the retail inventory method of accounting,
with cost determined on a first in, first out basis and market based on the lower of replacement cost or
estimated realizable value. The Company’s business is dependent to a significant degree upon close
relationships with its vendors. The Company’s largest vendor, Nike, represented approximately 39%,
34% and 36% of its purchases in fiscal 2005, 2004 and 2003, respectively. The Company’s next
largest vendor in fiscal 2005 represented approximately 10%, 9% and 11% of its purchases in fiscal
2005, 2004 and 2003, respectively. The Company’s third largest vendor in fiscal 2005 represented
approximately 8%, 11% and 9% of its purchases in fiscal 2005, 2004 and 2003, respectively.

Property and Equipment

Property and equipment are recorded at cost. It is the Company's policy to depreciate assets acquired
prior to January 28, 1995, using accelerated and straight-line methods over their estimated service lives
(3 to 10 years for equipment, 5 to 10 years for furniture and fixtures and 10 to 31.5 years for buildings)
and to amortize leasehold improvements using the straight-line method over the shorter of the initial
term of the underlying leases or the estimated economic lives of the improvements. Depreciation on
assets acquired subsequent to January 28, 1995, is provided using the straight-line method over their
estimated service lives (3 to 5 years for equipment, 7 years for furniture and fixtures and 39 years for
buildings) or, in the case of leasehold improvements, the shorter of the initial term of the underlying
leases or the estimated economic lives of the improvements.

Construction in progress is primarily comprised of property and equipment related to unopened stores at
period end.

Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of
assets sold, retired or otherwise disposed of are removed from the accounts and the related gain or
loss is credited or charged to income.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Deferred Rent from Landlords

Deferred rent from landlords consist of step rent and allowances from landlords related to the
Company’s leased properties. Step rent represents the difference between actual operating lease payments
due and straight-line rent expense, which is recorded by the Company over the term of the lease, including
the build-out period. This amount is recorded as deferred rent in the early years of the lease, when cash
payments are generally lower than straight-line rent expense, and reduced in the later years of the lease
when payments begin to exceed the straight-line expense. Landlord allowances are generally comprised
of amounts received and/or promised to the Company by landlords in the form of leasehold improvements.
These allowances are part of the negotiated terms of the lease. The Company records a receivable from
the landlord and a deferred rent liability when the allowances are earned. This deferred rent is amortized
into income (through lower rent expense) over the term (including the pre-opening build-out period) of the
applicable lease and the receivable is reduced as amounts are received from the landlord. The liability
for the unamortized landlord allowances, including the current portion, was approximately $13,350,000
and $9,976,000 at January 29, 2005, and January 31, 2004, respectively.

Revenue Recognition

Retail merchandise sales occur on-site in the Company’s retail stores. Customers have the option of
paying the full purchase price of the merchandise upon sale or paying a down payment and placing the
merchandise on layaway. The customer may make further payments in installments, but the entire purchase
price for merchandise placed on layaway must be received by Hibbett within 30 days. The down payment
and any installments are recorded by the Company as deferred revenue until the customer pays the
entire purchase price for the merchandise and takes possession of such merchandise. The Company
recognizes merchandise revenues at the time the customer takes possession of the merchandise.

The cost of coupon sales incentives is recognized at the time the related revenue is recognized by the
Company. Proceeds received from the issuance of gift cards are initially recorded as deferred revenue
and such proceeds are subsequently recognized as revenue at the time the customer redeems such gift
cards and takes possession of the merchandise.

Store Opening and Closing Costs

New store opening costs, including pre-opening costs, are charged to expense as incurred. Store opening
costs primarily include payroll expenses, training costs and straight line rent expenses. All pre-opening
costs are included in store operating, selling and administrative expenses as a part of operating expenses.

The Company considers individual store closings to be a normal part of operations and regularly reviews
store performance against expectations and closes stores not meeting its investment requirements.
Costs associated with store closings are recognized at the time of closing or when a liability has been
incurred. Store assets are also reviewed for possible impairment or reduction of their useful lives.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Self-Insurance Reserve

The Company is self-insured for a significant portion of its health insurance. Liabilities associated with the
risks that are retained by the Company are estimated, in part, by considering historical claims of the Company.
The estimated accruals for these liabilities could be affected if future occurrences and claims differ from these
assumptions. As of Januar y 29, 2005, and Januar y 31, 2004, these reser ves were $367,000 and
$400,000, respectively, and were included in accrued expenses in the consolidated balance sheets.

Sales Returns, net

Net sales returns were $10.5 million for fiscal 2005, $8.5 million for fiscal 2004 and $7.4 million for
fiscal 2003. The effect of the reserve for estimated returns on pre-tax income at January 29, 2005 was
$83,000 and was zero at January 31, 2004.

Stock-Based Compensation

The Company discloses stock-based compensation information in accordance with the Financial Accounting
Statement Board’s (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 148,
“Accounting for Stock-Based Compensation – Transition and Disclosure – an Amendment of FASB Statement
No. 123” and FASB issued SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 148
provides additional transition guidance for companies that elect to voluntarily adopt the provisions of SFAS
No. 123. SFAS No. 148 does not change the provisions of SFAS No. 123 that permit entities to continue to
apply the intrinsic value method of Accounting Principles Board (“APB”) No. 25, “Accounting for Stock Issued
to Employees.” Hibbett has elected to continue to account for its stock-based plans under APB No. 25, as well
as to provide disclosure of stock-based compensation as outlined in SFAS No. 123, as amended by SFAS
No. 148. No compensation expense has been recognized related to its stock-based plans. SFAS No. 123
requires disclosure of pro forma net income, earnings per share (“EPS”) and other information as if the fair
value method of accounting for stock options and other equity instruments described in SFAS No. 123 had
been adopted. All pro forma disclosures include the effects of all options granted by the Company.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” a revision of SFAS No.
123. As a result, the pro forma disclosures previously permitted under SFAS No. 123 will no longer be
an alternative to financial statement recognition. The Company is required to adopt SFAS No. 123R in
the third quarter of fiscal 2006. See “Recent Accounting Standards.”

At January 29, 2005, the Company had three active stock-based plans: the Amended and Restated
1996 Stock Option Plan, the Employee Stock Purchase Plan and the Stock Plan for Outside Directors.

The Company uses the Black-Scholes option pricing model to estimate the fair value at the date of grant
of stock options granted under its stock option plans and stock purchase rights associated with the
Employee Stock Purchase Plan. A summary of the assumptions used for stock option grants and stock
purchase right grants follows:

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

For the Fiscal Years Ended

January 29,
2005

January 31,
2004

February 1,
2003

Stock option plans:
Dividend yield
Expected volatility(1)
Risk free interest rate(2)
Expected lives

Employee Stock Purchase Plan:

Dividend yield
Expected volatility(1)
Risk free interest rate(2)
Expected lives

0.0%

0.0%
48.7% to 54.5% 54.7% to 57.0%
2.9% to 3.2%
7 years

3.0% to 3.9%
7 years

0.0%

0.0%
49.2% to 53.2% 55.0% to 57.0%
2.4% to 3.4%
.25 years

2.9% to 3.8%
.25 years

0.0%
57.6%
4.0% to 5.1%
7 years

0.0%
58.0%
3.7% to 5.4%
.25 years

(1) Volatility is estimated as of date of grant or purchase date and is calculated on 4 years as the Company believes that period of

time captures the relative volatility of its stock.

(2) Risk free interest rate is based on the U.S. Treasury rate with maturities approximating the expected lives of the options. The

rate is determined as of the date of grant or purchase date.

A reconciliation of net income, as reported in the consolidated statements of operations, to pro forma
net income including compensation expense for its stock-based plans as calculated in accordance with
the provisions of SFAS No. 123, as amended by SFAS No. 148, as well as a comparison of as reported
in the consolidated statements of operations and pro forma basic and diluted EPS follows (in thousands,
except per share information):

For the Fiscal Years Ended

January 29,
2005

$25,147
--
--
--
--
(1,759)
$23,388

$231.08
$231.01

$231.06
$231.00

January 31,
2004
(as restated)
$19,642

February 1,
2003
(as restated)
$14,234

(1,251)
$18,391

(983)
$13,251

$180.85
$180.80

$180.83
$180.78

$180.63
$180.59

$180.62
$180.58

Net income – as reported
Add: Stock-based employee compensation expense,

included in the determination of net income, net of tax
Deduct: Stock-based employee compensation expense,

determined under the fair value based method for all awards,
net of tax

Net income – pro forma

Basic earnings per share – as reported
Basic earnings per share – pro forma

Diluted earnings per share – as reported
Diluted earnings per share – pro forma

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The effects on pro forma net income and pro forma EPS of the estimated stock-based compensation
expense, net of tax, calculated using the fair value of stock options and stock purchase rights in accordance
with the Black-Scholes options pricing model for fiscal 2005, fiscal 2004 and fiscal 2003 are not necessarily
representative of the effects of the Company’s results of operations in the future. In addition, the
compensation expense estimates utilize an option pricing model developed for traded options with relatively
short lives. Hibbett stock option grants typically have a life of up to ten years and are not transferable.
Therefore, the actual fair value of a stock option grant may be different from the Company’s estimates.
The Company believes that its estimates incorporate all relevant information and represent a reasonable
approximation in light of the difficulties involved in valuing non-traded stock options.

Beginning in the third quarter of fiscal 2006, the Company will include the expense associated with
share-based payments in its consolidated statements of operations.

Fair Value of Financial Instruments

In preparing disclosures about the fair value of financial instruments, the Company believes that the
carrying amount approximates fair value for cash and cash equivalents, receivables, inventories, short
term borrowings and accounts payable, because of the short maturities of those instruments.

Earnings Per Share

Basic EPS excludes dilution and is computed by dividing net income by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock are exercised or converted into common stock or
resulted in the issuance of common stock that then shared in earnings. Diluted EPS has been computed
based on the weighted average number of shares outstanding, including the effect of outstanding stock
options, if dilutive, in each respective year.

A reconciliation of the weighted average shares for basic and diluted EPS is as follows:

Weighted average shares outstanding:

Basic
Diluted effect of stock options
Diluted

January 29,
2005

23,237,121
556,454
23,793,575

Fiscal Year Ended
January 31,
2004

February 1,
2003

23,014,449
583,610
23,598,059

22,579,529
455,989
23,035,518

For the 52 weeks ended January 29, 2005, January 31, 2004, and February 1, 2003, the anti-dilutive
options appropriately excluded from the computation were 45 shares, 12,971 shares and 1,805 shares,
respectively.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Accounting for the Impairment of Long-Lived Assets

The Company continually evaluates whether events and circumstances have occurred that indicate the
remaining balance of long-lived assets and intangibles may be impaired and not recoverable. The
Company’s policy is to recognize any impairment loss on long-lived assets as a charge to current income
when certain events or changes in circumstances indicate that the carrying value of the assets may not
be recoverable. Impairment is assessed considering the estimated undiscounted cash flows over the
asset’s remaining life. If estimated cash flows are insufficient to recover the investment, an impairment
loss is recognized based on a comparison of the cost of the asset to fair value less any costs of disposition.

Recent Accounting Pronouncements

In December 2003, the FASB issued Interpretation No. 46 (revised 2003), “Consolidation of Variable
Interest Entities,” (FIN 46R), which addresses how a business enterprise should evaluate whether it has
a controlling financial interest in an entity through means other than voting rights and accordingly should
consolidate the entity. FIN 46R replaces Interpretation 46, “Consolidation of Variable Interest Entities,”
which was issued in January 2003. The Company was required to apply FIN 46R to variable interests in
variable interest entities (“VIEs”) created after December 31, 2003. For variable interests in VIEs created
before January 1, 2004, the Interpretation was applied beginning on January 1, 2005. For any VIEs that
must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities
and non-controlling interests of the VIE initially would be measured at their carrying amounts with any
difference between the net amount added to the balance sheet and any previously recognized interest
being recognized as the cumulative effect of an accounting change. If determining the carrying amounts
is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities
and non-controlling interest of the VIE. There was no impact to the Company’s consolidated financial
statements upon adoption.

SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” was issued in May 2003. This Statement establishes standards for the classification and
measurement of certain financial instruments with characteristics of both liabilities and equity. The
Statement also includes required disclosures for financial instruments within its scope. For the
Company, the Statement was effective for instruments entered into or modified after May 31, 2003 and
otherwise was effective at the beginning of the first interim period beginning after June 15, 2003, except
for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments,
the Statement will be effective for the Company on January 31, 2005. The effective date has been
deferred indefinitely for certain other types of mandatorily redeemable financial instruments. The
Company currently does not have any financial instruments that are within the scope of this Statement.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

production overheads to the cost of conver ting work in process to finished goods be based on the
normal capacity of the production facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. The adoption of this statement is not expected to have a
material impact on the Company’s consolidated financial statements.

In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,” a revision of FASB issued
SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R requires the measurement
of all stock-based payments to employees, including grants of employee stock options and stock purchase
rights granted pursuant to certain employee stock purchase plans, using a fair-value based method and
the recording of such expense in our consolidated statements of operations. The accounting provisions
of SFAS No. 123R are effective for reporting periods beginning after June 15, 2005. Accordingly, we are
required to adopt SFAS No. 123R in the third quarter of fiscal 2006. The pro forma disclosures previously
permitted under SFAS No. 123 will no longer be an alternative to recognition in the financial statements.
See “Stock-Based Compensation” in Note 1 to Consolidated Financial Statements. The Company is
currently reviewing the applicability of SFAS No. 123R on its operations and its potential impact on its
consolidated financial statements.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets: an Amendment
of APB Opinion No. 29.” The amendments made by SFAS No. 153 are based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.
The amendments also eliminate the narrow exception for nonmonetary exchanges of similar productive
assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have
commercial substance. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement
Obligations,” that requires an entity to recognize a liability for the fair value of a conditional asset
retirement obligation when incurred if the liability’s fair value can be reasonably estimated. This
Interpretation is effective for fiscal years ending after December 15, 2005. Accordingly, The Company is
required to adopt FIN 47 in its fiscal year ended January 28, 2006. The Company is currently reviewing
the applicability of FIN 47 on its operations and its potential impact on its consolidated financial statements.

2. RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

Following disclosure by several restaurant companies and other retailers in fiscal 2005 and in connection
with per forming it fiscal 2005 year-end repor ting control processes, the Company per formed a
comprehensive review of its lease accounting practices. Historically, the Company recorded rent
expense on a straight-line basis over the initial non-cancelable lease term commencing upon location
opening. The Company has concluded that any build-out period should also be included in its determination
of straight-line rent expense. Additionally, the Company reassessed the depreciable lives of leasehold
improvements to be the shorter of their estimated useful lives or the initial non-cancelable lease term at
the inception of the lease. The Company also concluded that landlord allowances for normal tenant

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

improvements, which had previously been recorded as a reduction to related leasehold improvements,
should be reflected as deferred rent and amortized over the lease term, including the build-out period, as
a reduction to rent expense rather than depreciation.

The Company evaluated the materiality of these corrections on its financial statements and concluded
that the incremental impact of these corrections is not material to any quarterly or annual period; however,
the cumulative effect of these corrections is material to the fourth quarter of fiscal 2005. As a result,
the Company has recorded the cumulative effect as of the beginning of fiscal year 2003 and has restated
previously issued consolidated financial statements for the fiscal years ended January 31, 2004 and
February 1, 2003 to recognize the impact of including the build-out period in our straight line rent
expense, recording depreciation on leasehold improvements over the shorter of their estimated useful
lives or the initial, non-cancelable lease term and to classify landlord allowances for normal tenant
improvements as deferred rent and amortize them over the lease term as a reduction to rent expense
rather than depreciation.

The after tax cumulative effect of the restatement through fiscal year ended Februar y 2, 2002, of
$1.2 million was recorded as a reduction to the Company’s beginning retained earnings balance at
February 3, 2002, as reflected in its consolidated statements of stockholders’ investment. The cumulative
effect of the restatement through fiscal 2004 increased property and equipment by $4.4 million,
increased deferred rent liability by $8.2 million and increased deferred income taxes by $1.4 million.
Expenses related to store occupancy and pre-opening costs for fiscal 2004 and fiscal 2003 decreased by
$1.6 million and $1.3 million, respectively, while depreciation expenses for the same fiscal periods
increased by $2.4 million and $1.9 million, respectively. As a result of the restatements, operating profit
for fiscal 2004 and fiscal 2003 decreased by $1.1 million and $0.8 million, respectively, as did income
before the provision for income taxes. Net income decreased by $0.7 million in fiscal 2004 and $0.5
million in fiscal 2003.

The restatement did not impact the Company’s previously repor ted net increase in cash and cash
equivalents, revenues or compliance with revolving line of credit covenants.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The following table shows the impact of these changes on the consolidated balance sheet and the
consolidated statement of operations for the fiscal year ended January 31, 2004 (in thousands, except
per share information):

Consolidated Balance Sheet

Equipment
Furniture and fixtures
Leasehold improvements
Property and equipment
Accumulated depreciation
Total property and equipment
Deferred income taxes
Total non-current assets
Total assets

Deferred rent, short-term
Total current liabilities
Deferred rent, long-term
Total non-current liabilities
Retained earnings
Total stockholders’ investment
Total liabilities and stockholders’ investment

Consolidated Statement of Operations

Cost of goods sold, including warehouse, distribution

and store occupancy costs

Gross profit
Store operating, selling and administrative expenses
Depreciation and amortization
Operating income
Income before provision for income taxes
Provision for income taxes
Net income

Basic earnings per share
Diluted earnings per share

Consolidated Statement of Cash Flows

Net cash provided by operating activities
Net cash used in investing activities

As Previously
Reported

Adjustments

As Restated

$122,590
13,376
19,721
56,297
30,124
26,173
--
130
$168,562

$1,726
45,069
--
603
57,303
122,890
$168,562

$218,565
102,399
63,194
7,267
31,938
32,044
11,696
$120,348

$1110.88
$1110.86

$1111218
208
12,154
12,580
8,188
4,392
805
805
$175,197

$111,148
1,148
7,102
6,499
(2,450)
(2,450)
$115,197

$1 (1,627)
1,627
320
2,419
(1,112)
(1,112)
(406)
$111(706)

$122,808
13,584
31,875
68,877
38,312
30,565
805
935
$173,759

$112,874
46,217
7,102
7,102
54,853
120,440
$173,759

$216,938
104,026
63,514
9,686
30,826
30,932
11,290
$119,642

$111(0.03)
$111(0.03)

$1110.85
$1110.83

$133,816
$1 (7,551)

$113,663
$1 (3,663)

$137,479
$ (11,214)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

The following table shows the impact of these changes on the consolidated balance sheet and the
consolidated statement of operations for fiscal year ended February 1, 2003 (in thousands, except per
share information):

As Previously
Reported

Adjustments

As Restated

Consolidated Balance Sheet

Equipment
Furniture and fixtures
Leasehold improvements
Property and equipment
Accumulated depreciation
Total property and equipment
Deferred income taxes
Total non-current assets
Total assets

Consolidated Statement of Operations

Cost of goods sold, including warehouse, distribution

and store occupancy costs

Gross profit
Store operating, selling and administrative expenses
Depreciation and amortization
Operating income
Income before provision for income taxes
Provision for income taxes
Net income

Basic earnings per share
Diluted earnings per share

Consolidated Statement of Cash Flows

Net cash provided by operating activities
Net cash used in investing activities

$120,549
12,531
18,681
52,868
26,663
26,205
60
184
$129,580

$111,565
32,230
--
--
36,954
97,350
$129,580

$193,383
85,804
55,529
6,866
23,409
23,195
8,466
$114,729

$1110.65
$1110.64

$1111121
142
8,654
8,917
5,769
3,148
1,001
1,001
$114,149

$1111755
755
5,137
5,137
(1,743)
(1,744)
$114,149

$1 (1,301)
1,301
219
1,861
(779)
(779)
(284)
$111(495)

$120,670
12,673
27,335
61,785
32,432
29,353
1,061
1,185
$133,729

$112,320
32,985
5,137
5,137
35,211
95,606
$133,729

$192,082
87,105
55,748
8,727
22,630
22,416
8,182
$114,234

$1 1 (0.02)
$1 1 (0.02)

$1110.63
$1110.62

$118,203
$1 (6,108)

$111,682
$1 (1,682)

$119,885
$1 (7,790)

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

3. LONG-TERM DEBT

The Company has an unsecured revolving credit facility, which will expire November 5, 2005. The facility
allows borrowings up to $25.0 million at a rate of LIBOR plus 80 basis points or prime at our election.
As of Januar y 29, 2005, the Company had no borrowings outstanding under this facility. Under the
provisions of this facility, the Company pays a commitment fee of $10,000 annually and can draw down
on the line of credit when its main operating account balance falls below $100,000.

The following table sets forth a summary of key information for the credit facility as of the periods indicated:

January 29,
2005

For the Fiscal Years Ended
January 31,
2004

February 1,
2003

Average amount of borrowings outstanding
Maximum balance outstanding
Weighted average interest rate

$11,297,000
$11,435,000
2.63%

$11,978,000
$13,943,000
1.95%

$15,227,000
$11,823,000
2.75%

The average amount of borrowings outstanding is averaged using only the total number of days the
Company had borrowings against its facility. For fiscal 2005, the Company had utilized its credit facility
for a total of three days for an average borrowing of $297,000.

The Company's revolving credit facility contains certain restrictive covenants common to such agreements.
The Company was in compliance with respect to its covenants at January 29, 2005.

4. PROFIT SHARING PLAN

The Company maintains a 401(k) profit-sharing plan (the "Plan") which permits participants to make pretax
contributions to the Plan. The Plan covers all employees who have completed one year of service and
who are at least 21 years of age. Participants of the Plan may voluntarily contribute from 1% to 100% of
their compensation subject to certain yearly dollar limitations as allowed by law. These elective contributions
are made under the provisions of Section 401(k) of the Internal Revenue Code which allows deferral of
income taxes on the amount contributed to the Plan. The Company's contribution to the Plan equals
(1) an amount determined at the discretion of the Board of Directors plus (2) a matching contribution
equal to a discretionary percentage of up to 6% of a participant's compensation. For fiscal 2005, the
Company matched 75% of contributions made to the plan by the employees up to 6% of the employee’s
compensation. Contribution expense amounts for fiscal years 2005, 2004 and 2003 were approximately
$462,000, $366,000 and $404,000, respectively.

5. RELATED PARTY TRANSACTIONS

The Company's former largest stockholder, The SK Equity Fund, L.P. and SK Investment Fund, L.P., diluted

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

their holdings in the Company with a public offering on May 1, 2003, and the subsequent exercise of the
underwriters’ over allotment option on May 13, 2003. Prior to this date, The SK Equity Fund, L.P. and
SK Investment Fund, L.P., provided financial advisory services to the Company. Such services included,
but were not necessarily limited to, advice and assistance concerning any and all aspects of the operation,
planning and financing of the Company. There were no management fees associated with this arrangement
in fiscal 2005. Management fee expense under this arrangement was approximately $50,000 in fiscal
2004 and $200,000 in fiscal 2003.

The Company leases one store under a sublease arrangement from Books-A-Million, Inc., of which Clyde
B. Anderson, a director of Hibbett, is a stockholder. This sublease agreement expires in June 2008.
Minimum lease payments were $191,000 in fiscal 2005, fiscal 2004 and fiscal 2003. Future minimum
lease payments under this non-cancelable sublease aggregate approximately $652,000.

6. INCOME TAXES

A summary of the components of the provision (benefit) for income taxes is as follows (in thousands):

January 29,
2005

For the Fiscal Years Ended
January 31,
2004
(as restated)

February 1,
2003
(as restated)

Federal:

Current
Deferred

State:

Current
Deferred

$ 13,556
(161)
13,395

$ 10,442
(12)
10,430

$ 16,536
999
7,535

1,239
116
1,355

776
84
860

468
179
647

$ 14,750

$ 11,290

$ 18,182

A reconciliation of the statutory federal income tax rate as a percentage of income tax rate as a percent-
age of income before income taxes follows:

Tax provision computed at the federal statutory rate
Effect of state income taxes, net of federal benefits
Other

January 29,
2005

For the Fiscal Years Ended
January 31,
2004
(as restated)
35.00%
1.81%
(0.30%)
36.51%

February 1,
2003
(as restated)
35.00%
1.88%
(0.38%)
36.50%

35.00%
2.21%
(0.24%)
36.97%

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

In fiscal 2004, the Company settled favorably an examination with state taxing authorities. A tax contingency
liability had been provided in previous years. As a result of the settlement, state tax expense was
reduced by approximately $700,000 in fiscal 2004.

Temporary differences that create deferred taxes are detailed below (in thousands):

Rent
Depreciation
Inventory
Accruals
Other

Deferred taxes

January 29, 2005

Current
$1,14--
--
79
66
4

Non-current
$5,247
(3,563)
--
--
--

January 31, 2004
(as restated)

Current
$3,98--
--
349
710
(76)

Non-current
$3,011
(2,206)
--
--
--

$1,149

$1,684

$3,983

$3,805

The Company has not recorded a valuation allowance for deferred taxes as realization is considered
more likely than not based on the amount of income taxes paid in prior years.

7. STOCK OPTION AND STOCK PURCHASE PLANS

Stock Option Plans

The Company maintains the Hibbett Sporting Goods, Inc. 1996 Stock Option Plan, as amended (the
“1996 Option Plan”). The 1996 Option Plan authorizes the granting of stock options for the purchase of
up to 2,998,910 shares of common stock. Options granted vest over a five-year period and expire on
the tenth anniversary of the date of grant.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

A summary of the status of the Company’s stock option plan is as follows:

January 29, 2005

For the Fiscal Years Ended
January 31, 2004

February 1, 2003

Outstanding at beginning

of year

Granted
Exercised
Forfeited
Outstanding at end of year

999,850
232,875
(213,975)
(11,509)
1,007,241

Weighted
Average
Exercise
Price

$ 8.87
22.69
7.56
14.99
$12.27

Weighted
Average
Exercise
Price

$ 7.33
11.11
6.50
9.69
$ 8.87

Weighted
Average
Exercise
Price

$ 6.28
9.83
5.17
7.67
$ 7.33

1,293,684
309,768
(331,641)
(61,526)
1,210,285

1,210,285
298,911
(501,426)
(7,920)
999,850

Exercisable at end of year

224,954

$17.99

157,323

$ 7.48

392,073

$ 6.36

Weighted average fair value

of options granted

$14.74

$ 7.41

$ 6.83

The following table summarizes information about stock options outstanding at January 29, 2005:

Range of
Exercise Prices

$01.81 to $04.74
$05.26 to $08.29
$08.85 to $09.82
$10.21 to $11.11
$18.41 to $25.71

Options
Outstanding
at
January 29,
2005

Options Outstanding
Weighted
Average
Remaining
Contractual
Life (years)

93,665
41,928
374,120
269,078
228,450

4.35
4.33
6.60
8.12
9.07

Weighted
Average
Exercise
Price

$24.37
$26.01
$29.42
$11.10
$22.69

Options Exercisable
Options
Exercisable
at
January 29,
2005

Weighted
Average
Exercise
Price

42,697
37,203
111,110
33,944
--

$24.02
$25.90
$29.27
$11.09
2222--

The tax benefit associated with the exercise of stock options is credited to paid-in capital and amounted
to approximately $1,569,000 in fiscal 2005, $1,510,000 in fiscal 2004 and $706,000 in fiscal 2003.

Other Plans

The Company maintains an Employee Stock Purchase Plan and an Outside Director Stock Plan and has
reserved 253,125 shares and 393,750 shares of the Company’s common stock, respectively, for purchase
by the employees and directors at 85% and 100% of the fair value of the common stock, respectively.

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

During fiscal 2005, the Company granted 7,500 options (in August 2004) under the Outside Director
Stock Plan at an exercise price of $18.41 (market value at date of grant) and 20,435 options (in January
2005) at an exercise price of $24.67 (market value at date of grant) for total options granted under the
Plan of 27,935 for fiscal 2005. During fiscal 2004, the Company granted a total of 35,169 options
under the Outside Director Stock Plan at an exercise price of $20.73 (market value at date of grant,
adjusted for applicable stock splits). During fiscal 2003, the Company granted 33,750 options on
January 31, 2003, under the Outside Director Stock Plan at an exercise price of $9.51 (market value at
date of grant, adjusted for applicable stock splits) and 16,875 options on June 5, 2002, at an exercise
price of $11.55 (market value at date of grant, adjusted for applicable stock splits). Director options
vest immediately and expire on the earlier of the tenth anniversary of the grant or one year from the date
on which an optionee ceases to be an Eligible Director.

The Employee Stock Purchase Plan became effective on April 1, 1997, and as of January 29, 2005,
111,065 shares have been issued and 142,060 shares are reserved for future purchase.

8. COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases the premises for its retail sporting goods stores under non-cancelable operating
leases having initial or remaining terms of more than one year. Many of its leases contain scheduled
increases in annual rent payments and the majority of its leases also require it to pay maintenance,
insurance and real estate taxes. Additionally, certain of its leases include provisions for the payment of
additional rent based on a percentage of sales over an established minimum.

The Company also leases certain computer hardware, office equipment and transportation equipment
under non-cancelable operating leases having initial or remaining terms of more than one year.

In February 1996, the Company entered into a sale-leaseback transaction to finance its warehouse and
office facilities. In December 1999, the related operating lease was amended to include the fiscal 2000
expansion of these facilities. The amended lease rate is $784,000 per year and will expire in December
2014. At January 29, 2005, the future minimum lease payments for leased properties and equipment,
excluding maintenance, insurance and real estate taxes, for operating leases having a remaining term in
excess of one year at such date were as follows (in thousands):

Fiscal 2006
Fiscal 2007
Fiscal 2008
Fiscal 2009
Fiscal 2010
Thereafter
TOTAL

$127,792
24,434
20,458
15,898
11,773
22,312
$122,667

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

Rental expense for all operating leases consisted of the following (in thousands):

Minimum rentals
Contingent rentals

January 29,
2005

$ 24,086
1,230
$ 25,316

Fiscal Year Ended
January 31,
2004

$ 20,066
1,553
$ 21,619

February 1,
2003

$ 17,189
1,342
$ 18,531

Most of the Company’s retail store leases contain provisions that allow for early termination of the lease
by either party if certain predetermined annual sales levels are not met. Generally, these provisions
allow the lease to be terminated between the third and fifth year of the lease. Should the lease be
terminated under these provisions, in some cases, the unamortized portion of any landlord allowances
related to that property would be payable to the landlord.

Legal Proceedings and other Contingencies

The Company is a par ty to various legal proceedings incidental to its business. In the opinion of
management, after consultation with legal counsel responsible for such matters, the ultimate liability, if
any, with respect to those proceedings is not presently expected to materially affect the financial position,
results of operations or cash flows of the Company.

R E P O R T O F M A N A G E M E N T C O N T R O L S A N D P R O C E D U R E S

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information
required to be disclosed in its reports is recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange Commission, and that such
information is accumulated and communicated to its management, including its principal executive
officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, the Company recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and management necessarily is required to apply
its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company carried out an evaluation, with the participation of its principal executive officer and principal
financial officer, of the effectiveness of its disclosure controls and procedures as of January 29, 2005.
Based on this evaluation and due to the material weakness in internal control over financial reporting
described below in “Management’s Report on Internal Control Over Financial Reporting,” its principal
executive officer and principal financial officer concluded that, as of January 29, 2005, its disclosure
controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the
“Exchange Act”), were not effective to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Exchange Act are 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 defined in Exchange Act Rule 13a-15(f). Under the supervision and with the
participation of its management, including its principal executive officer and principal financial officer, the
Company carried out an evaluation of the effectiveness of its internal control over financial reporting as
of January 29, 2005, based on the Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO”).

In performing this assessment, management concluded that the Company’s controls over the selection,
monitoring and review of assumptions and factors affecting lease accounting practices were ineffective
in ensuring that the related transactions were accounted for in accordance with generally accepted
accounting priciples, and as a result, management determined that the Company’s financial statements
for fiscal 2004 and fiscal 2003 were misstated. Specifically, amounts previously reported for annual
rent expense and depreciation expense were understated. On March 9, 2005, the Company announced
its decision to restate its financial statements as of and for the years ended January 31, 2004 and
February 1, 2003, and for the previously issued interim financial information for fiscal year 2005 and fiscal
year 2004 to reflect the aforementioned correction of errors in lease accounting.

R E P O R T O F M A N A G E M E N T C O N T R O L S A N D P R O C E D U R E S ,
c o n t .

Management evaluated the impact of the aforementioned deficiencies on the Company’s assessment of
internal control over financial reporting and concluded that the control deficiency that resulted in the
incorrect lease accounting represented a material weakness in internal control over financial reporting as
of January 29, 2005. As a result of this material weakness, management concluded that, as of January
29, 2005, the Company’s internal control over financial reporting was not effective based on the criteria
set forth in the COSO framework.

In accordance with the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2,
a material weakness in internal control over financial reporting is a control deficiency or combination of
control deficiencies that results in there being more than a remote likelihood that a material misstatement
of the annual or interim financial statements will not be prevented or detected. PCAOB Auditing
Standard No. 2 identifies a number of circumstances that, because of their likely significant negative
effect on internal control over financial reporting, are to be regarded as at least significant deficiencies
as well as strong indicators that a material weakness exists, including the restatement of previously
issued financial statements to reflect the correction of a misstatement.

The Company’s independent registered public accounting firm, KPMG LLP, has issued an attestation
report on management’s assessment of the Company’s internal control over financial reporting. This
report appears below.

Changes in Internal Control Over Financial Reporting

In connection with its evaluation of the Company’s internal control over financial reporting described
above, management has determined that no change in internal control over financial reporting occurred
during the fourth quarter of fiscal 2005 that materially affected, or is reasonably likely to materially
affect, its internal control over financial reporting.

Subsequent to January 29, 2005, and in response to the material weakness in internal control over
financial reporting noted above, the Company has implemented additional review procedures over the
selection and monitoring of appropriate assumptions and factors affecting its lease accounting practices.
The Company has taken these steps which are intended to remediate the material weakness in internal
control over financial reporting and the ineffectiveness of its disclosure controls and procedures.

Mickey Newsome
Chairman of the Board, President and Chief Executive Officer

Gary A. Smith
Vice President and Chief Financial Officer

April 14, 2005

R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C
A C C O U N T I N G F I R M

The Board of Directors and Stockholders
Hibbett Sporting Goods, Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on
Internal Control Over Financial Reporting), that Hibbett Sporting Goods, Inc. and subsidiaries (the
Company) did not maintain effective internal control over financial repor ting as of Januar y 29, 2005,
because of the effect of the material weakness in internal controls over the selection, monitoring, and
review of assumptions and factors affecting lease accounting practices, based on the criteria
established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Management of the Company 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 internal control over financial reporting of the
Company 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 repor ting,
evaluating management’s assessment, testing and evaluating the design and operating effectiveness
of internal control, and per forming such other procedures as we considered necessar y in the
circumstances. We believe that our 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.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more
than a remote likelihood that a material misstatement of the annual or interim financial statements will

R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C
A C C O U N T I N G F I R M , c o n t .

not be prevented or detected. The following material weakness has been identified and included in
management’s assessment as of Januar y 29, 2005: Management identified deficiencies in the
Company’s internal control over financial reporting regarding the selection, monitoring, and review of
assumptions and factors affecting its lease accounting practices. As a result of these deficiencies in
the Company’s internal control, previously reported annual rent expense and depreciation was understated,
resulting in the restatement of the consolidated financial statements as of and for the years ended
January 31, 2004, and February 1, 2003, and for the previously issued interim financial information for
fiscal 2005 and 2004.

We audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Hibbett Sporting Goods, Inc. and subsidiaries as of January
29, 2005, and January 31, 2004, and the related consolidated statements of operations, stockholders’
investment, and cash flows for each of the years in the three-year period ended January 29, 2005. The
aforementioned material weakness was considered in determining the nature, timing, and extent of audit
tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect
our report dated April 13, 2005, which expressed an unqualified opinion on those financial statements.
In our opinion, management’s assessment that Hibbett Sporting Goods, Inc. and subsidiaries did not
maintain effective internal control over financial reporting as of January 29, 2005, is fairly stated, in all
material respects, based on criteria established in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion,
because of the effect of the material weakness described above on the achievement of the objectives
of the control criteria, the Company has not maintained effective internal control over financial reporting
as of January 29, 2005, based on the criteria established in Internal Control – Integrated Framework
issued by COSO.

Birmingham, Alabama
April 13, 2005

D I R E C T O R S A N D O F F I C E R S

Board of Directors

Officers

Michael J. Newsome
Chairman of the Board,

President and Chief Executive Officer

Gary A. Smith
Vice President and Chief

Financial Officer

Cathy E. Pryor
Vice President of Store Operations

Jeffry O. Rosenthal
Vice President of Merchandising

Hibbett Sporting Goods, Inc.

Clyde B. Anderson
Chairman of the Board
Books-A-Million, Inc.

H. Ray Compton
Former Executive Vice President
Dollar Tree Stores, Inc.

Carl Kirkland
Chairman Emeritus
Kirkland’s, Inc.

Ralph T. Parks
Former President and Chief

Executive Officer

FOOTACTION USA

Thomas A. Saunders, III
Partner
Saunders Karp & Megrue, L.P.

Alton E. Yother
Executive Vice President and Controller
AmSouth Bancorporation

C O R P O R A T E I N F O R M A T I O N

Corporate Offices
451 Industrial Lane
Birmingham, Alabama 35211
(205) 942-4292
(205) 912-7290 Fax
www.hibbett.com

Stock Transfer Agent and Registrar
SunTrust Bank
Corporate Trust Department
58 Edgewood Avenue
Atlanta, Georgia 30303
(800) 568-3476
Shareholders seeking information concerning stock transfers, change of
address, and lost certificates should contact SunTrust directly.

Annual Report on Form 10-K
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended January 29,
2005, as filed with the Securities and Exchange Commission, may be obtained without
charge upon written request to the Company’s Investor Relations department.

Annual Meeting
The 2005 Annual Meeting of Stockholders will be held at 10:00 A.M. Central Daylight Time on
May 31, 2005, at The Harbert Center, 2019 Fourth Avenue North, Birmingham, Alabama.

Stock Market Information
The Company’s common stock is traded on the NASDAQ National Market under the
symbol HIBB. The following table sets forth, for the periods indicated, the high and low
sales prices of shares of the common stock as reported by NASDAQ:

Fiscal 2005:
Quarter ended May 1, 2004
Quarter ended July 31, 2004
Quarter ended October 30, 2004
Quarter ended January 29, 2005

Fiscal 2004:
Quarter ended May 3, 2003
Quarter ended August 2, 2003
Quarter ended November 1, 2003
Quarter ended January 31, 2004

High
$26.43
$28.44
$22.37
$27.27

High
$12.64
$16.50
$19.33
$22.33

Low
$21.07
$16.80
$16.12
$21.61

Low
$08.56
$11.58
$14.23
$16.20

Independent Registered Public
Accounting Firm
KPMG LLP
Birmingham, Alabama

General Counsel
Williams Mullen Hofheimer Nusbaum, P.C.
Norfolk, Virginia

Hibbett Sporting Goods, Inc.

451 Industrial Lane

Birmingham, Alabama 35211

205.942.4292