Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced
financial results for its third quarter ended October 25, 2014 and
first thirty-nine weeks of fiscal 2014.
Financial results for the third quarter include:
- Comparable store sales increased by
0.3% in the third quarter of fiscal 2014 following a 1.1% increase
in the third quarter of fiscal 2013. Net sales for the quarter
increased to $72.0 million compared to $71.8 million for the third
quarter of last year.
- Gross profit for the third quarter
improved by 70 basis points to 42.3% as compared to 41.6% for the
third quarter of the prior year following a 240 basis point
improvement in 2013.
- Selling, general and administrative
expenses for the quarter, including depreciation and amortization,
increased by 90 basis points compared to third quarter of last year
due to increased depreciation expense from investments in stores,
general insurance and outside labor cost to process freight, travel
expenses and occupancy cost, partially offset by a reduction in
advertising and commission income.
- Operating income for the quarter was
$0.7 million compared to $0.8 million in the third quarter last
year.
- EBITDA, a non-GAAP measure, which is
defined as earnings (loss) before interest, taxes, depreciation and
amortization was $1.9 million for the third quarter of fiscal 2014
and $2.0 million for the same period of fiscal 2013.
- Net loss was $0.8 million, or $0.04 per
basic share, in the third quarter of fiscal 2014 compared to a net
loss of $0.6 million, or $0.03 per basic share in the third quarter
of fiscal 2013.
First thirty-nine weeks financial results include:
- Net sales for the first thirty-nine
weeks of fiscal 2014 were $194.3 million compared to $194.7 million
last year and comparable store sales were virtually unchanged for
the past two years.
- Gross profit remained constant at 43.9%
for the first thirty-nine weeks of fiscal 2014 and 2013, on top of
a 300 basis point improvement last year.
- Selling, general and administrative
expenses for the first thirty-nine weeks of fiscal 2014, including
depreciation and amortization increased by 60 basis points over the
same period of fiscal 2013. This increase is the result of
additional depreciation expense from investment in stores,
increases in general insurance and employee health benefits,
utilities, professional fees and labor, partially offset by a
reduction in advertising expense and commission income.
- Operating loss was $287,000 for the
first thirty-nine weeks of fiscal 2014 compared to income of
$880,000 for the first thirty-nine weeks of fiscal 2013.
- EBITDA was $3.3 million for the first
thirty-nine weeks of fiscal 2014 compared to $4.4 million for the
first thirty-nine weeks of last year.
- Net loss was $4.6 million or $0.22 per
basic share for the first thirty-nine weeks of fiscal 2014,
compared to a net loss of $3.7 million, or $0.18 per basic share in
the first thirty-nine weeks of fiscal 2013.
Steve Morgan, President and Chief Executive Officer commented,
“We have worked hard this year to maintain the 300 basis point
improvement in gross margin from last year, despite a more
promotional retail environment. We are encouraged by the
improvement we are seeing in store traffic, but the promotional
activity from other retailers is partially offsetting this by
keeping downward pressure on the net sales. Non-core business
expenses have been a challenge, especially in insurance claims and
health benefits, as we have seen a sharp rise in claims, as have so
many businesses. Depreciation expense is up, but this represents
the investments we are making in updating our current fleet of
stores to drive profit growth.”
Morgan continued, “Despite the lackluster start to the retail
holiday season for most retailers, we were pleased to come through
the Black Friday weekend maintaining the 30% plus sales comp over
the past two years, with sales virtually the same as last year. We
believe there is upside for the remainder of the holiday season and
have our stores positioned to maximize sales.”
Store Openings, Closings and
Remodels
During the third quarter of fiscal 2014, the Company opened four
new stores, closed two stores and relocated three stores. For the
first thirty-nine weeks of fiscal 2014, five new stores opened,
five closed and five stores were relocated ending the quarter 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 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
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) October 25, October 26,
(in thousands, except for share amounts)
2014 2013 Assets Current assets:
Cash and cash equivalents $ 3,124 $ 2,697 Receivables, less
allowance for doubtful accounts 4,796 5,109 Merchandise
inventories, net 121,330 114,743 Prepaid expenses
2,965 2,774
Total current assets 132,215 125,323 Property and equipment,
net 33,735 33,252 Goodwill 2,880 2,880 Other assets, net
1,753 2,113
Total assets $ 170,583
$ 163,568
Liabilities and
Shareholders' Equity (Deficit) Current liabilities: Accounts
payable $ 27,082 $ 25,059 Accrued liabilities
14,055 13,933
Total current liabilities 41,137 38,992 Long-term debt
obligations, net 93,339 83,189 Capital lease obligations 2,455
2,652 Postretirement benefits other than pensions 2,827 2,378
Pension and SERP liabilities 26,204 31,268 Other liabilities
5,329 5,380
Total liabilities
171,291 163,859
Commitments and contingencies Shareholders' equity (deficit):
Common stock, $.01 par value; 80,000,000
shares authorized; 35,429,248 and 35,009,862 issued and 21,946,648
and 21,569,517 outstanding, respectively
354 350 Additional paid-in capital 91,751 91,227 Retained earnings
89,891 92,737
Treasury stock, at cost, 13,482,600 and
13,440,345 shares held, respectively
(153,800 ) (153,758 ) Accumulated other comprehensive
loss (28,904 ) (30,847 )
Total shareholders' equity (deficit)
(708 ) (291 ) Total
liabilities and shareholders' equity (deficit) $
170,583 $ 163,568
HANCOCK FABRICS,
INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
amounts) (unaudited)
Thirteen Weeks Ended October
25,2014 % of
net sales
October 26,2013 %
of
net sales
Net sales $ 72,012 100.0 % $ 71,810 100.0 % Cost of
goods sold 41,548 57.7
41,930 58.4 Gross
profit 30,464 42.3 29,880 41.6 Selling, general and
administrative expenses 28,771 39.9 28,126 39.2 Depreciation and
amortization 1,016 1.4
906 1.2 Operating
income 677 1.0 848 1.2 Interest expense, net 1,498
2.1 1,444
2.0 Loss before income taxes (821 )
(1.1 ) (596 ) (0.8 ) Income taxes - -
- -
Net loss $ (821 ) (1.1 )% $ (596
) (0.8 )% Basic and diluted loss per share:
Net loss $ (0.04 ) $
(0.03 ) Weighted average shares
outstanding: Basic and diluted 21,010
20,565
Thirty-nine Weeks Ended October
25,2014 % of
net sales
October 26,2013 %
of
net sales
Net sales $ 194,323 100.0 % $ 194,685 100.0 % Cost of
goods sold 108,945 56.1
109,287 56.1 Gross
profit 85,378 43.9 85,398 43.9 Selling, general and
administrative expenses 82,700 42.5 81,836 42.0 Depreciation and
amortization 2,965 1.5
2,682 1.4
Operating income (loss) (287 ) (0.1 ) 880 0.5 Interest
expense, net 4,306 2.2
4,569 2.5 Loss
before income taxes (4,593 ) (2.3 ) (3,689 ) (2.0 ) Income taxes
- - -
- Net loss $ (4,593 )
(2.3 )% $ (3,689 ) (2.0
)% Basic and diluted loss per share:
Net loss $ (0.22 )
$ (0.18 )
Weighted average shares outstanding: Basic and diluted
20,931
20,490
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 (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 operating activities for the periods indicated
below.
Hancock Fabrics, Inc. Reconciliation of EBITDA
(unaudited)
Thirteen Weeks Ended
Thirty-nine Weeks Ended October 25, October
26, October 25, October 26, (in thousands)
2014 2013 2014
2013 Net cash used
in operating activities $ (605 ) $ (6,218 ) $ (9,133 ) $ (11,526 )
Depreciation and amortization, including cost of goods sold (1,218
) (1,145 ) (3,583 ) (3,534 ) Amortization of deferred loan costs
(177 ) (173 ) (533 ) (534 ) Amortization of bond discount - - -
(379 ) Stock-based compensation (49 ) (213 ) (394 ) (489 )
Inventory valuation reserve 20 (321 ) (104 ) (897 ) Other (65 )
(134 ) (168 ) (248 ) Changes in assets and liabilities 1,273
7,608 9,322
13,918 Net loss (821 ) (596 ) (4,593 )
(3,689 ) Interest expense, net 1,498 1,444 4,306 4,569 Depreciation
and amortization, including cost of goods sold 1,218
1,145 3,583
3,534 EBITDA $ 1,895 $
1,993 $ 3,296 $ 4,414
Hancock Fabrics, Inc.James B. Brown, 662-365-6112Executive Vice
President andChief Financial Officer