Hancock Fabrics reports improved performance

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Published: December 11,2013

Tags: Hancock Fabrics, loss, operating income, profit, retail, sales, Steve Morgan

BALDWYN — Hancock Fabrics Inc. has released financial results for its third quarter ended Oct. 26 and first 39 weeks of fiscal 2013.

Financial results for the third quarter include:

• Comparable store sales increased by 1.1 percent following a 2.3 percent increase in the third quarter of 2012. Net sales were virtually flat at $71.8 million compared to $71.9 million for the third quarter of last year.

• Gross profit improved by 240 basis points to 41.6 percent as compared to 39.2 percent for the third quarter of the prior year. Excluding fluctuations in the inventory valuation reserve from both years the gross profit improved by 270 basis points.

• Selling, general and administrative expenses, including depreciation and amortization, remained flat due to increases in advertising and insurance claims, offset by reductions in professional fees and depreciation.

• Operating income was $0.8 million compared to a loss of $0.9 million in the third quarter last year, representing a reversal of a loss and an improvement of $1.7 million.

• EBITDA, a non-GAAP measure, which is defined as earnings (loss) before interest, taxes, depreciation and amortization increased to $2.0 million, a 369 percent improvement over the same period of 2012.

• Net loss improved $1.6 million to $0.6 million, or $0.03 per basic share, compared to a net loss of $2.2 million, or $0.11 per basic share in the third quarter of fiscal 2012.

• At quarter end, the company had outstanding borrowings under its revolving line of credit of $60.0 million, a term loan balance of $15.0 million and outstanding letters of credit of $6.8 million. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $24.1 million. The balance of the company’s subordinated debt was $8.2 million at quarter end.

First 39 weeks financial results include:

• Net sales were $194.7 million compared to $196.3 million last year and comparable store sales were virtually flat following a 3.6 percent increase in the first thirty-nine weeks of the previous year.

• Gross profit improved by 300 basis points to 43.9 percent as compared to 40.9 percent for the prior year. Excluding the fluctuations in the inventory valuation reserve from both years, the gross profit improved 370 basis points.

• Selling, general and administrative expenses, including depreciation and amortization increased $248,000 but would have come in lower if one-time items that reduced selling, general and administrative expenses by $394,000 in the first thirty-nine weeks of fiscal 2012 were excluded.

• Operating income improved by $4.9 million to income of $0.9 million from a loss of $4.1 million for the first thirty-nine weeks of 2012.

• EBITDA increased $4.5 million to $4.4 million compared to a loss of $91,000 for the first thirty-nine weeks of last year.

• Net loss improved $4.3 million to $3.7 million, or $0.18 per basic share, compared to a net loss of $8.0 million, or $0.40 per basic share in the first thirty-nine weeks of fiscal 2012.

Steve Morgan, president and CEO, said,, “We are pleased with the strong improvement in operating income for the third quarter and fiscal year-to-date periods over last year. Both periods in fiscal 2013 swung to positive operating income from a loss last year, with improvements of $1.7 million and $4.9 million, respectively. This is being driven by the continued improvements to gross margin and nearly flat SG&A expenses coupled with a positive 1.1 percent sales comp in the third quarter. Our focus on cash management remains a top priority and we have reduced cash used in operations by $6.2 million in the first thirty-nine weeks of fiscal 2013 compared to the same period last year.

“As we move into the all-important fourth quarter, we remain confident about the holiday season based on our black Friday weekend performance with comp sales up 18.0 percent on top of a 12.9 percent increase for the same period last year. We believe we are well positioned with inventory in place to have a successful 4th quarter and carry the momentum into fiscal 2014.”

During the third quarter of 2013, Hancock Fabrics opened one new store, closed one store and relocated a store. For the first thirty-nine weeks of fiscal 2013, two new stores opened, two closed and four stores were relocated ending the quarter with 261 stores.

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