Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced
continuing improvement in financial results for its first quarter
ended April 27, 2013.
Financial results for the first quarter include:
- Net sales for the quarter were $63.7
million compared to $63.9 million for the first quarter of last
year. Comparable store sales for the quarter were flat after a 3.5%
increase for the first quarter of last year.
- Gross profit for the quarter increased
by 470 basis points to 45.5% compared to 40.8% in the first quarter
of last year. This equates to an improvement of $2.9 million.
- Selling, general and administrative
expenses for the quarter, including depreciation and amortization,
increased this quarter by 80 basis points to 43.5% of sales from
42.7% of sales in the prior year first quarter. The increase is due
to a one-time insurance settlement gain in the first quarter last
year and increasing benefit costs in the current quarter. These
impacts have been partially offset by expense controls that have
been implemented.
- Operating income increased 209% to $1.3
million compared to an operating loss of $1.2 million in the first
quarter last year; this is an increase of $2.5 million and
represents an increase of 390 basis points as a percentage of
sales.
- EBITDA, which is earnings before
interest, taxes, depreciation and amortization, a non-GAAP measure,
increased $2.3 million to $2.5 million this quarter compared to
$207 thousand for the first quarter of last year.
- Net loss was $0.5 million, or $0.02 per
basic share, in the first quarter of fiscal 2013 an improvement of
$1.9 million compared to a net loss of $2.4 million, or $0.12 per
basic share in the first quarter of fiscal 2012.
- At quarter end, the Company had
outstanding borrowings under its revolving line of credit of $46.1
million, term loans of $15.0 million and outstanding letters of
credit of $6.4 million. Additional amounts available to borrow
under its revolving line of credit at the end of the quarter were
$19.8 million. The balance of the Company’s subordinated debt was
$8.2 million at quarter end.
Commenting on the results, Steve Morgan, President and Chief
Executive Officer said, “We are glad to report the ongoing
improvement in operating income. This quarter saw a 209% increase
in operating income and for the first time since 2010, we have had
positive operating income in the first quarter. This is an
encouraging accomplishment, even as top line sales were hurt from
the unusual weather losses we had this spring, we were able to
drive gross profit improvements. These gains continue the trend
from the fourth quarter last year and we continue to strive to
enhance this as we move forward in 2013.”
Store Openings, Closings and
Remodels
During the first quarter 2013, the Company opened one store,
closed one store and relocated one unit, ending the quarter with
261 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 261 retail stores in 37 states and an Internet
store at www.hancockfabrics.com.
Forward-looking Statements
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 the following: our
business and operating results may be adversely affected by the
general economic conditions and the slow economic recovery
following the ongoing financial crisis; intense competition and
adverse discounting actions taken by competitors, which could have
a material effect on our operations; our merchandising initiatives
and marketing emphasis may not provide expected results; changes in
customer demands and failure to manage inventory effectively could
adversely affect our operating results; our inability to
effectively implement our growth strategy and access funds for
future growth may have an adverse effect on sales growth; our
ability to attract and retain skilled people is important to our
success; we have significant indebtedness and interest rate
increases could negatively impact profitability; our business is
dependent on the ability to successfully access funds through
capital markets and financial institutions and any inability to
access funds may limit our ability to execute our business plan and
restrict operations we rely on for future growth; significant
changes in discount rates, actual investment return on pension
assets, changes in consumer demand or purchase patterns and other
factors could affect our earnings, equity, and pension
contributions in future periods; business matters encountered by
our suppliers may adversely impact our ability to meet our
customers’ needs; tightening of purchase terms by suppliers and
their factories may have a negative impact on our business; we are
vulnerable to risks associated with obtaining merchandise from
foreign suppliers; transportation industry challenges and rising
fuel costs may negatively impact our operating results; delays or
interruptions in the flow of merchandise between our suppliers
and/or our distribution center and our stores could adversely
impact our operating results; changes in the labor market and in
federal, state, or local regulations could have a negative impact
on our business; taxing authorities could disagree with our tax
treatment of certain deductions or transactions, resulting in
unexpected tax assessments; our current cash resources might not be
sufficient to meet our expected near-term cash needs; a disruption
in our data processing services would negatively impact our
business; a failure to adequately maintain the security of
confidential information could have an adverse effect on our
business; failure to comply with various laws and regulations as
well as litigation developments could adversely affect our business
operations and financial performance; we may not be able to
maintain or negotiate favorable lease terms for our retail stores;
changes in accounting principles may have a negative impact on our
reported results; our results may be adversely affected by serious
disruptions or catastrophic events, including geo-political events
and weather; changes in newspaper subscription rates may result in
reduced exposure to our circular advertisement; unexpected or
unfavorable consumer responses to our promotional or merchandising
programs could materially adversely affect our sales, results of
operations, cash flow and financial condition; new regulations
related to “conflict minerals” may force us to incur additional
expenses, may make our supply chain more complex and may result in
damage to our reputation with customers; there are risks associated
with our common stock trading on the OTC Markets, formerly known as
the “Pink Sheets”; our stock price has been volatile and could
decrease in value; future sales of our common stock could adversely
affect the market price and our future capital-raising activities
could involve the issuance of equity securities, which could result
in a decline in the trading price of shares of our common stock; we
do not expect to pay cash dividends on shares of our common stock
for the foreseeable future and other risks and uncertainties
discussed in the Company’s Securities and Exchange Commission
(“SEC”) 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
26, 2013 and the Company’s other reports with the SEC. 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 27, April 28, (in
thousands, except for share amounts)
2013 2012
Assets Current assets: Cash and cash equivalents $ 2,315 $
2,502 Receivables, less allowance for doubtful accounts 3,796 4,262
Inventories, net 100,191 97,753 Prepaid expenses
2,596
3,301 Total current assets 108,898 107,818
Property and equipment, net 33,238 35,384 Goodwill 2,880
2,880 Other assets 2,632
1,468 Total
assets $ 147,648
$ 147,550
Liabilities and Shareholders’
Equity
Current liabilities: Accounts payable $ 17,334 $ 21,303
Accrued liabilities 13,854
14,432 Total
current liabilities 31,188 35,735 Long-term debt
obligations, net 69,338 54,139 Capital lease obligations 2,740
2,921 Postretirement benefits other than pensions 2,493 2,359
Pension and SERP liabilities 34,073 34,453 Other liabilities
5,509
6,257 Total liabilities
145,341
135,864 Commitments and contingencies
Shareholders’ equity:
Common stock, $.01 par value; 80,000,000
shares authorized; 35,038,610, 34,825,211, and 34,978,210 issued
and 21,602,055 21,420,131 and 21,570,797 outstanding,
respectively
351 348 Additional paid-in capital 90,877 90,134 Retained earnings
95,959 102,526
Treasury stock, at cost, 13,436,555,
13,405,080, and 13,407,413 shares held, respectively
(153,754 ) (153,738 ) Accumulated other comprehensive loss
(31,126 )
(27,584 )
Total shareholders’ equity
2,307
11,686
Total liabilities and shareholders’
equity
$ 147,648 $
147,550
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Thirteen Weeks Ended
(in thousands, except per share amounts)
April 27,2013
% ofnet sales
April 28,2012
% ofnet sales
Net sales $ 63,741 100.0 % $ 63,944
100.0 % Cost of goods sold 34,764
54.5
37,843 59.2
Gross profit 28,977 45.5 26,101 40.8 Selling, general and
administrative expense 26,799 42.1 26,351 41.2 Depreciation and
amortization 889
1.4 937
1.5 Operating income
(loss) 1,289 2.0 (1,187 ) (1.9 ) Interest expense
1,756 2.7
1,223
1.9 Loss before income taxes (467 )
(0.7 ) (2,410 ) (3.8 ) Income taxes -
- -
- Net loss
$ (467 ) (0.7 )%
$ (2,410 ) (3.8 )%
Basic and diluted loss per share:
Net loss $ (0.02 )
$
(0.12 )
Weighted average shares outstanding: Basic and diluted
20,440
19,913
Supplemental Disclosures Regarding
Non-GAAP Financial Information
The Company has presented Earnings (Loss) before Interest,
Taxes, Depreciation and Amortization (“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 EBITDA as net earnings before interest,
income taxes, depreciation and amortization. The Company uses
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 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 EBITDA may differ from similarly titled measures
used by other companies. As 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 EBITDA to net loss and
net cash (used in) provided by operating activities.
Hancock Fabrics, Inc. Reconciliation of EBITDA
(unaudited)
Thirteen Weeks Ended April 27, April
28, (in thousands)
2013
2012 Net cash used in operating
activities $ (510 ) $ (3,791 ) Depreciation and amortization,
including cost of goods sold (1,195 ) (1,394 ) Amortization of
deferred loan costs (184 ) (62 ) Amortization of bond discount (379
) (583 ) Stock compensation expense (159 ) (130 )
Directors’ fees paid with shares
- - Inventory valuation reserve (265 ) (342 ) Reserve for sales
returns and bad debts - - Stepped rent accrual - - Other (19 ) (135
) Changes in assets and liabilities 2,244
4,027 Net
loss (467 ) (2,410 ) Interest expense 1,756 1,223 Depreciation and
amortization, including cost of goods sold 1,195
1,394
EBITDA $ 2,484 $
207
Hancock Fabrics, Inc.James B. Brown, 662-365-6112Executive Vice
President and Chief Financial Officer