GOLFSMITH INTERNATIONAL HOLDINGS INC

During the three-month periods ended March 31, 2012 and April 2, 2011, the Company recorded income tax benefits of approximately $1.7 million and $0.6 million on pre-tax losses of approximately $5.3 million and $3.7 million, respectively. The Company’s benefit for income taxes reflects an effective tax rate of approximately of 31.5% and 16.8% for the three months ended March 31, 2012 and April 2, 2011, respectively. The increase in the effective tax rate, year over year, was driven primarily by the estimated deferred tax expense from the amortization of our indefinite-lived intangible assets. The amortization of indefinite-lived assets results in deferred tax expense and a deferred tax liability without a corresponding reduction in our valuation allowance. Due to the utilization of net operating loss carryforwards, the Company does not anticipate paying any U.S. federal income taxes in fiscal 2012.

During the three months ended March 31, 2012, we opened three new stores in three new markets and relocated our Walnut Creek location as part of our plan to open ten new stores and relocate four existing retail sites in 2012. On April 12^th, we announced the relocation of our Park Meadows store in Denver, Colorado. On April 13^th, we announced the grand opening of a new, extreme golf retail center in Atlanta, Georgia. On April 30^th, we opened a new store in Cleveland, Ohio, and on May 10^th, we opened another new store in Wilmington, Delaware. In the future, we will continue to explore strategic opportunities to open additional stores in existing and new geographic markets, as well as evaluate our effectiveness in existing markets.

Net Revenues. Net revenues increased 11.0% to $90.5 million for the three months ended March 31, 2012 from $81.5 million for the three months ended April 2, 2011. The increase was primarily due to a $9.7 million increase in our store revenues, partially offset by a $0.6 million decline in sales from our direct-to-consumer channel. Our comparable store revenues increased $5.6 million, or 8.5%, during fiscal 2012, as compared to fiscal 2011. In addition to an increase in sales among our existing retail locations, net revenues benefited from $4.1 million in sales associated with expansion of our store base. Retail revenue also benefited from an improvement in weather conditions and marketing initiatives targeted at our niche customer base. During the three months ended March 2012, golf rounds played, a leading indicator of golf participation tracked by Golf Datatech L.L.C., increased 22.0% compared to the same period in the previous year. The decline in revenue from our direct-to-consumer channel year-over-year is primarily attributable to sales decreases in clubmaking components and clubs. Internet sales also declined 3.5% due to a change in process for delivering clearance apparel from stores.

Gross Profit. Consolidated gross profit, as a percentage of net revenues, decreased to 33.5% for the three months ended March 31, 2012 from 33.6% for the three months ended April 2, 2011. Gross profits for the current period were primarily affected by a decline in merchandise margins of 0.8%, as percentage of net revenues, as compared to the first quarter of fiscal 2011. Margins during the first quarter of fiscal 2012 were also negatively impacted by clearance on apparel which was launched immediately following the holiday shopping season. This decrease in gross profits over the prior year was partially offset by an increase in the amount of vendor funding received in excess of direct advertising expenditures and a decrease in shipping and freight expense, as a percentage of net revenues.

Selling, general and administrative expenses. Selling, general and administrative expenses increased to $33.6 million, or 10.5%, for the three months ended March 31, 2012 from $30.5 million for the three months ended April 2, 2011. As a percentage of net revenues, selling, general and administrative expenses decreased to 37.2% for fiscal 2012 from 37.4% for fiscal 2011. The increase in selling, general and administrative expenses over the previous year in absolute dollars primarily relates to five new stores, three of which opened in the current fiscal quarter, two store relocations and an increase in credit card fees of $0.5 million driven by an increase in sales over the previous year. The first quarter ended March 31, 2012, was also affected by an increase in chargebacks of approximately $0.4 million as a result of credit card processing complexities arising from our system conversion in the fourth quarter of fiscal 2011, partially offset by a $0.3 million reduction in our allowance of doubtful accounts that was recorded at as of December 31, 2011. In addition to these charges, selling, general and administrative expenses include $0.2 million in severance for a former executive and $0.2 million in expenses for legal and other professional services associated with the transaction as discussed under “Recent Developments.” (See also Note 8 to our unaudited condensed consolidated financial statements).