06/08/2012 | Press release

Hancock Fabrics Announces First Quarter Results

distributed by noodls on 06/08/2012 17:40

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Comparable Store Sales up 3.5%

BALDWYN, Miss.--(BUSINESS WIRE)--Jun. 8, 2012-- Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced financial results for its first quarter ended April 28, 2012.

Financial results for the first quarter include:

• Net sales for the quarter increased 3.5% on a comparable basis to $63.9 million compared to $62.0 million for first quarter of last year. This is an almost five percentage point improvement over the previous year comparable sales decrease of 1.3%.
• Operating loss for the quarter was $1.2 million compared to a $1.0 million loss in the first quarter of last year.
• Net loss was $2.4 million, or $0.12 per basic share, in the first quarter of fiscal 2012 compared to a net loss of $2.2 million, or $0.11 per basic share in the first quarter of fiscal 2011.
• Adjusted EBITDA totaled $207,000 compared to $552,000 for the first quarter of fiscal 2011.
• At quarter end, the Company had outstanding borrowings under its revolving line of credit of $35.5 million and outstanding letters of credit of $6.3 million. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $28.4 million. The balance of the Company's subordinated debt was $21.6 million at quarter end, and the unamortized warrant discount on this debt was $2.9 million.

Steve Morgan, President and Chief Executive Officer commented, "Sales continue to ramp as we move into June, with 7 months of positive comparables in a row. This is the first time that Hancock has achieved a continuous sales increase for that period of time since 2003." Morgan continued, "The first quarter expenses, as committed, were reduced by over $900,000 compared to last year's first quarter, and point of sale gross margin dollars provide a $905,585 increase over last year's first quarter - even though our increased promotional activity driven by competitive pressures decreased the point of sale gross margin rate slightly." Morgan concluded, "Inventories are extremely clean and initiatives put into place over the past 8 months continue to contribute to these positive comparables. We feel optimistic about the remainder of the year."

Operating Results

Our point of sale gross margin provided an additional $0.9 million of product margin dollars for the quarter over the same quarter last year, despite decreasing by 70 basis points. This point of sale gross margin rate softening was a result of the necessity of increased promotional activity as a consequence of consumer sensitivity to pricing. Our product margin dollar improvement was offset by inventory valuation reserve changes year over year. This decline was reduced by a decrease in freight costs and in sourcing and warehousing expenses compared to the first quarter of the prior year.

Selling, general and administrative expenses for the quarter decreased by $0.9 million to $26.4 million or 41.2% of sales compared to $27.3 million or 44.1% of sales for the first quarter of the prior year. Expense savings were experienced in all areas other than advertising during the quarter. The additional advertising spend in order to drive sales and margin dollars was a result of the increased promotional activity.

Store Openings, Closings and Remodels

During the quarter, the Company relocated 2 units, ending the quarter with 263 stores.

Hancock Fabrics, Inc. is committed to being the inspirational authority in fabric and sewing, serving creative enthusiasts with a complete selection of fashion and home decorating textiles, sewing accessories, needlecraft supplies and sewing machines. The Company currently operates 263 retail stores in 37 states and an Internet store at http://www.hancockfabrics.com.

Supplemental Disclosures Regarding Non-GAAP Financial Information

The Company has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") in this press release to provide investors with additional information to evaluate our operating performance and our ability to service our debt. The Company defines Adjusted EBITDA as net earnings before interest, income taxes, discontinued operations, depreciation and amortization, reorganization expenses and significant one-time items. The Company uses Adjusted EBITDA, among other things, to evaluate operating performance, to plan and forecast future periods' operating performance, and as an incentive compensation target for certain management personnel.

As Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with U.S. GAAP, this measure should not be considered in isolation of, or as a substitute for, net income (loss), as an indicator of operating performance, or net cash (used in) provided by operating activities as an indicator of liquidity. Our computation of Adjusted EBITDA may differ from similarly titled measures used by other companies. As Adjusted EBITDA excludes certain financial information compared with net income (loss) and net cash (used in) provided by operating activities, the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded. The table below shows a reconciliation of Adjusted EBITDA to net loss and net cash (used in) provided by operating activities.

Statements in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward looking statements. These risks and uncertainties include, but are not limited to, general economic trends, adverse discounting actions taken by competitors, changes in consumer demand or purchase patterns, delays or interruptions in the flow of merchandise between the Company's suppliers and/or its distribution center and its stores, rising fuel costs, tightening of purchase terms by suppliers and their factories, our significant indebtedness, a disruption in the Company's data processing services and other risks and uncertainties discussedin the Company's Securities and Exchange Commission filings, including the risk factors set forth in Item 1A of the Company's Annual Report on Form 10-K for the year ended January 28, 2012. The Company undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events.

		HANCOCK FABRICS, INC.
		CONSOLIDATED BALANCE SHEETS
										(unaudited)
										April 28,				April 30,					January 28,
		(in thousands, except for share amounts)								2012				2011					2012(1)
	Assets
	Current assets:
		Cash and cash equivalents								$	2,502			$	2,363				$	2,648
		Receivables, less allowance for doubtful accounts									4,262				3,203					3,993
		Inventories, net									97,753				86,729					95,925
		Prepaid expenses									3,301				2,416					3,069
		Total current assets									107,818				94,711					105,635
	Property and equipment, net										35,384				38,279					36,275
	Goodwill										2,880				3,139					2,880
	Other assets										1,468				1,850					1,597
		Total assets								$	147,550			$	137,979				$	146,387
	Liabilities and Shareholders' Equity
	Current liabilities:
		Accounts payable								$	21,303			$	19,758				$	19,350
		Accrued liabilities									14,432				13,390					16,306
		Other pre-petition obligations									-				725					-
		Total current liabilities									35,735				33,873					35,656
	Long-term debt obligations, net										54,139				28,847					49,373
	Capital lease obligations										2,921				3,040					2,947
	Postretirement benefits other than pensions										2,359				2,392					2,429
	Pension and SERP liabilities										34,453				29,376					35,683
	Other liabilities										6,257				7,699					6,428
		Total liabilities									135,864				105,227					132,516
	Commitments and contingencies
	Shareholders' equity:
		Common stock, $.01 par value; 80,000,000 shares authorized; 34,825,211, 33,468,455 and 33,914,711 issued and 21,420,131, 20,068,543 and 20,511,123 outstanding, respectively									348				335					339
		Additional paid-in capital									90,134				89,764					90,013
		Retained earnings									102,526				114,082					104,936
		Treasury stock, at cost, 13,405,080, 13,399,912 and 13,403,588 shares held, respectively									(153,738	)			(153,733	)				(153,737	)
		Accumulated other comprehensive loss									(27,584	)			(17,696	)				(27,680	)
		Total shareholders' equity									11,686				32,752					13,871
		Total liabilities and shareholders' equity								$	147,550			$	137,979				$	146,387
(1) - From audited balance sheet included in our annual report on Form 10-K for the fiscal year ended January 28, 2012.

HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
		Thirteen Weeks Ended
		April 28,					April 30,
(in thousands, except per share amounts)		2012					2011
Net sales		$	63,944				$	61,977
Cost of goods sold			37,843					34,605
Gross profit			26,101					27,372
Selling, general and administrative expense			26,351					27,340
Depreciation and amortization			937					1,037
Operating loss			(1,187	)				(1,005	)
Interest expense, net			1,223					1,147
Loss from continuing operations before income taxes			(2,410	)				(2,152	)
Income taxes			-					-
Net loss		$	(2,410	)			$	(2,152	)
Net loss per common share, basic and diluted			($0.12	)				($0.11	)
Weighted average shares outstanding, basic and diluted			19,913					19,781

Hancock Fabrics, Inc.
Reconciliation of Adjusted EBITDA
(unaudited)
		Thirteen Weeks Ended
		April 28,					April 30,
(in thousands)		2012					2011
Net cash (used in) provided by operating activities		$	(3,791	)			$	1,115
Depreciation and amortization, including cost of goods sold			(1,394	)				(1,557	)
Amortization of deferred loan costs			(62	)				(62	)
Amortization of bond discount			(583	)				(583	)
Stock compensation expense			(130	)				(94	)
Inventory valuation reserve			(342	)				860
Other			(135	)				(78	)
Changes in assets and liabilities			4,027					(1,753	)
Net loss			(2,410	)				(2,152	)
Interest expense, net			1,223					1,147
Depreciation and amortization, including cost of goods sold			1,394					1,557
Adjusted EBITDA		$	207				$	552

Source: Hancock Fabrics, Inc.

Hancock Fabrics, Inc.
Robert W. Driskell, 662-365-6112
Executive Vice President and Chief Financial Officer

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