Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced
financial results for its second quarter ended July 27, 2013 and
first half of fiscal 2013.
Financial results for the second quarter include:
- Net sales for the quarter were $59.1
million compared to $60.5 million for second quarter of last year,
and comparable store sales declined by 1.7% following a 5.0%
increase for the same period of the prior year.
- Gross profit for the second quarter
improved by 200 basis points to 44.9% as compared to 42.9% for the
second quarter of the prior year. Excluding fluctuations in the
inventory valuation reserve from both years the gross profit
improved by 420 basis points.
- Selling, general and administrative
expenses for the quarter, including depreciation and amortization,
decreased by $148,000 but due to top line sales pressure increased
as a percentage of sales to 47.0% from 46.3% in the same period of
the prior year. The second quarter of fiscal 2012 also includes the
one-time benefit of a real estate settlement gain of $156,000.
- Operating loss for the quarter was
reduced to $1.3 million compared to a loss of $2.0 million in the
second quarter last year.
- EBITDA, a non-GAAP measure, which is
defined as earnings (loss) before interest, taxes, depreciation and
amortization improved by 91% or $0.7 million this quarter compared
to the second quarter of last year.
- Net loss was $2.6 million, or $0.13 per
basic share, in the second quarter of fiscal 2013 compared to a net
loss of $3.3 million, or $0.17 per basic share in the second
quarter of fiscal 2012.
- At quarter end, the Company had
outstanding borrowings under its revolving line of credit of $51.8
million, a term loan balance of $15.0 million and outstanding
letters of credit of $8.3 million. Additional amounts available to
borrow under its revolving line of credit at the end of the quarter
were $19.6 million. The balance of the Company’s subordinated debt
was $8.2 million at quarter end.
First half financial results include:
- Net sales for the first half of fiscal
2013 were $122.9 million compared to $124.4 million in the first
half of last year, and comparable store sales declined by 0.8%
following a 4.3% increase in the first half of the previous
year.
- Gross profit for the first half of
fiscal 2013 improved by 340 basis points to 45.2% as compared to
41.8% for the prior year. Excluding the fluctuations in the
inventory valuation reserve from both years, the gross profit
improved 440 basis points.
- Selling, general and administrative
expenses for the first half of fiscal 2013 including depreciation
and amortization, increased by 80 basis points to 45.2% of sales
from 44.4% of sales in the same period of the prior year. One-time
items reduced selling, general and administrative expenses by
$394,000 during the first half of fiscal 2012.
- Operating income for the first half of
fiscal 2013 was $32,000 compared to an operating loss of $3.2
million in the first half of the previous year.
- EBITDA increased $2.9 million to $2.4
million for the first half of fiscal 2013 compared to a loss of
$516,000 for the first half of last year.
- Net loss was $3.1 million, or $0.15 per
basic share, in the first half of fiscal 2013, compared to a net
loss of $5.7 million, or $0.29 per basic share in the first half of
fiscal 2012.
Steve Morgan, President and Chief Executive Officer commented,
“The second quarter numbers follow the trend we have seen since
late last year of good increases in gross profit dollars and rate
as well as near flat SG&A expense dollars. We continue to be
encouraged by these improvements to operating income, as they have
been accomplished despite the sluggish summer sales we and others
in our industry have experienced. We have also focused on cash
management and have reduced cash used in operations by $5.2 million
in the second quarter this year compared to the same period last
year.”
Morgan continued, “As we move into the back half of the year, we
feel confident that these improvements will continue. We are well
positioned with inventory in place and our promotional strategy to
have a successful 3rd and 4th quarter.”
Store Openings, Closings and
Remodels
During the second quarter, the Company relocated 2 stores. In
the first half of fiscal 2013, one store was opened, one closed and
3 units relocated 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)
July 27, July
28, (in thousands, except for share amounts)
2013 2012 Assets Current assets: Cash
and cash equivalents $ 2,163 $ 2,415 Receivables, less allowance
for doubtful accounts 3,693 3,742 Inventories, net 108,174 106,106
Prepaid expenses 2,902
3,295 Total current assets 116,932 115,558 Property
and equipment, net 33,099 34,751 Goodwill 2,880 2,880 Other assets
2,500 1,456 Total
assets $ 155,411 $ 154,645
Liabilities and Shareholders' Equity (Deficit) Current
liabilities: Accounts payable $ 23,358 $ 20,993 Accrued
liabilities 13,488 15,068
Total current liabilities 36,846 36,061 Long-term debt
obligations, net 75,041 65,357 Capital lease obligations 2,697
2,866 Postretirement benefits other than pensions 2,375 2,373
Pension and SERP liabilities 33,031 33,222 Other liabilities
5,484 6,048 Total
liabilities 155,474 145,927
Commitments and contingencies Shareholders' equity
(deficit):
Common stock, $.01 par value; 80,000,000
shares authorized; 34,926,325 and 34,827,211 issued and 21,488,940
and 21,421,631 outstanding, respectively
350 348 Additional paid-in capital 90,996 90,377 Retained earnings
93,333 99,219
Treasury stock, at cost, 13,437,385 and
13,405,580 shares held, respectively
(153,755 ) (153,739 ) Accumulated other comprehensive loss
(30,987 ) (27,487 ) Total
shareholders' equity (deficit) (63 )
8,718 Total liabilities and shareholders' equity
(deficit) $ 155,411 $ 154,645
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
Thirteen Weeks Ended July 27,
% of
July 28,
% of
2013
net sales
2012
net sales
Net sales $ 59,134 100.0 % $ 60,455 100.0 % Cost of
goods sold 32,593 55.1
34,530 57.1 Gross profit 26,541 44.9
25,925 42.9 Selling, general and administrative expenses
26,911 45.5 27,010 44.7 Depreciation and amortization 887
1.5 936 1.6
Operating loss (1,257 ) (2.1 ) (2,021 ) 3.4 Interest
expense, net 1,369 2.3
1,286 2.1 Loss before income taxes
(2,626 ) (4.4 ) (3,307 ) (5.5 ) Income taxes -
- - - Net
loss $ (2,626 ) (4.4 )% $ (3,307 ) (5.5 )%
Basic and diluted loss per share:
Net loss $ (0.13 )
$ (0.17 ) Weighted average shares outstanding:
Basic and diluted 20,466
19,925
Twenty-six
Weeks Ended July 27,
% of
July 28,
% of
2013
net sales
2012
net sales
Net sales
$
122,875
100.0 % $ 124,399 100.0 % Cost of goods sold 67,357
54.8 72,373 58.2
Gross profit 55,518 45.2 52,026 41.8 Selling, general
and administrative expenses 53,710 43.7 53,361 42.9 Depreciation
and amortization 1,776 1.5
1,873 1.5 Operating income
(loss) 32 0.0 (3,208 ) (2.6 ) Interest expense, net
3,125 2.5 2,509
2.0 Loss before income taxes (3,093 ) (2.5 ) (5,717 )
(4.6 ) Income taxes - - -
- Net loss $ (3,093 )
(2.5 )% $ (5,717 ) (4.6 )% Basic and diluted
loss per share:
Net loss $ (0.15 ) $ (0.29 )
Weighted average shares outstanding: Basic and diluted
20,453 19,919
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.
Hancock Fabrics, Inc.
Reconciliation of EBITDA
(unaudited)
Thirteen Weeks Ended Twenty-six
Weeks Ended July 27, July 28, July 27,
July 28, (in thousands)
2013 2012
2013 2012
Net cash used in operating activities $ (4,798 ) $ (10,007 ) $
(5,308 ) $ (13,798 ) Depreciation and amortization, including cost
of goods sold (1,194 ) (1,298 ) (2,389 ) (2,692 ) Amortization of
deferred loan costs (177 ) (61 ) (361 ) (123 ) Amortization of bond
discount - (582 ) (379 ) (1,165 ) Stock-based compensation (117 )
(243 ) (276 ) (373 ) Inventory valuation reserve (311 ) 1,000 (576
) 658 Other (95 ) (54 ) (114 ) (189 ) Changes in assets and
liabilities 4,066 7,938
6,310 11,965 Net loss (2,626 )
(3,307 ) (3,093 ) (5,717 ) Interest expense, net 1,369 1,286 3,125
2,509 Depreciation and amortization, including cost of goods sold
1,194 1,298 2,389
2,692 EBITDA $ (63 ) $ (723 ) $
2,421 $ (516 )
Hancock Fabrics, Inc.James B. Brown, 662-365-6112Executive Vice
President and Chief Financial Officer