Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced
financial results for its fourth quarter and 2013 fiscal year ended
January 25, 2014.
Financial results for the fourth quarter include:
- Net sales for the quarter were $81.3
million compared to $81.7 million in the prior year. Comparable
store sales declined by only 0.3% despite unusually severe winter
weather, which impacted numerous markets.
- Gross profit for the fourth quarter
increased by 190 basis points to 41.0% as compared to 39.1% for the
fourth quarter of the prior year. This follows a 330 basis point
improvement in the fourth quarter of 2012 compared to the same
period of 2011.
- Selling, general and administrative
expenses for the quarter, including depreciation and amortization,
increased to 37.1% of net sales from 35.6% due to additional store
labor, to ensure service levels during the Christmas season, and
additional advertising, partially offset by a reduction in
professional fees.
- Operating income for the quarter was
$3.1 million compared to $2.8 million in the fourth quarter last
year.
- EBITDA, a non-GAAP measure, which is
defined as earnings (loss) before interest, taxes, depreciation and
amortization, improved slightly to $4.3 million for the quarter
from $4.2 million for the same period last year.
- Net income improved $2.3 million to
income of $1.7 million, or $0.07 per diluted share, in the fourth
quarter of fiscal 2013 compared to a net loss of $0.6 million, or
$0.03 per basic share in the fourth quarter of fiscal 2012.
- At quarter end, the Company had
outstanding borrowings under its revolving line of credit of $55.5
million, a term loan balance 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 $16.6 million. The balance of the Company’s subordinated debt
was $8.2 million at quarter end.
Fiscal 2013 financial results include:
- Net sales for fiscal year 2013 were
$276.0 million compared to $278.0 million last year and comparable
store sales declined by 0.1% following a 2.9% increase in the
previous year.
- Gross profit for fiscal 2013 improved
by 270 basis points to 43.0% as compared to 40.3% for the prior
year. A majority of the savings came from improvements to our
pricing strategy, with some savings in freight and
warehousing.
- Selling, general and administrative
expenses for fiscal 2013, including depreciation and amortization
increased to 41.5% of sales from 40.7% from the prior year. This
increase was driven by marketing costs, increased store and
corporate payroll and incentive compensation partially offset by
commission income and reductions in professional fees.
- Operating income improved by $5.2
million for fiscal 2013 to income of $4.0 million from a loss of
$1.2 million for fiscal 2012.
- EBITDA increased 112% or $4.6 million
to $8.7 million for fiscal 2013 compared to $4.1 million for last
year.
- The net loss was reduced by 78% or $6.6
million to $1.9 million, or $0.09 per basic share, for fiscal year
2013, compared to a net loss of $8.5 million, or $0.42 per basic
share for fiscal year 2012.
The board of directors of the Company has approved submitting a
proposal to the Company stockholders at its 2014 annual meeting to
approve an amendment to its certificate of incorporation for the
purpose of effecting a thousand for one reverse stock split. In
lieu of issuing any fractional post-reverse stock split shares that
would result from the reverse stock split, the Company would make a
cash payment for any fractional share interest based on $1.20 per
pre-reverse split share. If approved, the Company expects the
reverse stock split to reduce the number of holders of its common
stock in order to permit the Company to go private by terminating
the registration of its common stock under the Exchange Act and its
requirement to file periodic and other reports with the SEC. The
stockholder vote will take place at the Company’s regularly
scheduled annual meeting, currently anticipated to take place
August 15, 2014.
Steve Morgan, President and Chief Executive Officer commented,
“We are encouraged with the results of the operating income for the
fourth quarter and the improvement for the fiscal year. Operating
income for the fourth quarter of 2013 increased over 11% from
2012’s fourth quarter, which had already improved 171% over the
fourth quarter of 2011. We are especially pleased to have improved
in the fourth quarter despite the unusually severe weather
experienced in the majority of our retail footprint. The
improvements we are achieving continue to be driven by improvements
to gross profit and mitigating increases in SG&A expenses. In
addition to operational improvements, our focus on cash management
is showing results as we have reduced cash used in operations by
$5.6 million in fiscal 2013 compared to last year.”
Morgan continued, “As disclosed in this release, our board of
directors has approved proposing a going private transaction via a
reverse split to our stockholders. We believe that the proposed
transaction would significantly reduce the expenses associated with
being a public company, and allow our management team to focus more
on maintaining and growing our operational improvements as well as
providing liquidity to our smaller stockholders.”
Store Openings, Closings and
Remodels
During the fourth quarter of 2013, the Company opened one new
store and relocated two stores. For the 2013 fiscal year, three new
stores opened, two closed, six stores were relocated and nine
remodeled ending the year with 262 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 262 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 ongoing slow economic recovery;
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,
mortality 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
information systems 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; the proposed going private
transaction may not necessarily result in the anticipated cost
savings and benefits; 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 25, 2014 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)
January 25,
January 26, (in thousands, except for share amounts)
2014 2013 Assets
Current assets: Cash and cash equivalents $ 1,806 $ 4,062
Receivables, less allowance for doubtful accounts 5,259 3,817
Merchandise inventories, net 107,180 101,245 Prepaid
expenses 2,107
2,552 Total current assets 116,352 111,676 Property
and equipment, net 33,409 33,571 Goodwill 2,880 2,880 Other assets,
net 2,431 2,405
Total assets $ 155,072
$ 150,532
Liabilities and Shareholders'
Equity Current liabilities: Accounts payable $ 20,466 $ 18,702
Accrued liabilities 13,742
13,995 Total current liabilities 34,208
32,697 Long-term debt obligations, net 78,691 69,374 Capital
lease obligations 2,605 2,807 Postretirement benefits other than
pensions 2,728 2,481 Pension and SERP liabilities 28,407 35,115
Other liabilities 5,351
5,567 Total liabilities
151,990 148,041
Commitments and contingencies Shareholders' equity:
Common stock, $.01 par value; 80,000,000
shares authorized; 35,116,436 and 34,978,210 issued and 21,641,004
and 21,570,797 outstanding, respectively
351 350 Additional paid-in capital 91,360 90,720 Retained earnings
94,484 96,426
Treasury stock, at cost, 13,475,432 and
13,407,413 shares held, respectively
(153,793 ) (153,740 ) Accumulated other comprehensive loss
(29,320 ) (31,265 )
Total shareholders' equity 3,082
2,491 Total liabilities and
shareholders' equity $ 155,072 $
150,532
HANCOCK
FABRICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts) (unaudited)
Thirteen Weeks Ended January 25,
% of
January 26,
% of
2014
net sales
2013
net sales
Net sales $ 81,345 100.0 % $ 81,724 100.0 % Cost of
goods sold 47,988 59.0
49,795 60.9 Gross
profit 33,357 41.0 31,929 39.1 Selling, general and
administrative expenses 29,271 36.0 28,189 34.5 Depreciation and
amortization 941 1.1
911 1.1 Operating
income 3,145 3.9 2,829 3.5 Interest expense, net
1,398 1.8 3,383
4.1 Income (loss) before income
taxes 1,747 2.1 (554 ) (0.6 ) Income taxes -
- - -
Net income (loss) $ 1,747
2.1 % $ (554 ) (0.6 )% Earnings
(loss) per share: Basic earnings (loss) per share $ 0.08 $ (0.03 )
Diluted earnings (loss) per share $ 0.07
$ (0.03 )
Weighted average shares outstanding: Basic 20,776 20,306
Diluted 25,256
20,306
Fifty-two Weeks Ended January 25,
% of
January 26,
% of
2014
net sales
2013
net sales
Net sales $ 276,030 100.0 % $ 277,989 100.0 % Cost of
goods sold 157,275 57.0
165,852 59.7 Gross
profit 118,755 43.0 112,137 40.3 Selling, general and
administrative expenses 111,107 40.2 109,653 39.4 Depreciation and
amortization 3,623 1.3
3,717 1.3
Operating income (loss) 4,025 1.5 (1,233 ) (0.4 ) Interest
expense, net 5,967 2.2
7,277 2.6 Loss
before income taxes (1,942 ) (0.7 ) (8,510 ) (3.0 ) Income taxes
- - -
- Net loss $ (1,942 )
(0.7 )% $ (8,510 ) (3.0
)% Basic and diluted loss per share:
Net loss $ (0.09 )
$ (0.42 )
Weighted average shares outstanding: Basic and diluted
20,562
20,046
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 earnings (loss) 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
provided by (used in) 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
provided by (used in) 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 income (loss) and net cash provided by (used in)
operating activities.
Hancock Fabrics, Inc. Reconciliation
of EBITDA
(unaudited)
Thirteen Weeks Ended Fifty-two Weeks Ended January
25, January 26, January 25, January 26,
(in thousands)
2014 2013 2014
2013 Net cash provided by
(used in) operating activities $ 5,826 $ 6,426 $ (5,700 ) $ (11,278
) Depreciation and amortization, including cost of goods sold
(1,159 ) (1,381 ) (4,693 ) (5,352 ) Amortization of deferred loan
costs (186 ) (280 ) (720 ) (466 ) Amortization of bond discount -
(1,388 ) (379 ) (3,136 ) Stock-based compensation (134 ) (25 ) (623
) (718 ) Inventory valuation reserve 466 95 (431 ) 634 Other (76 )
12 (324 ) (360 ) Changes in assets and liabilities (2,990 )
(4,013 ) 10,928 12,166
Net income (loss) 1,747 (554 ) (1,942 ) (8,510 )
Interest expense, net 1,398 3,383 5,967 7,277 Depreciation and
amortization, including cost of goods sold 1,159
1,381 4,693 5,352
EBITDA $ 4,304 $ 4,210 $ 8,718
$ 4,119
Hancock Fabrics, Inc.James B. Brown, 662-365-6112Executive Vice
President and Chief Financial Officer