BALDWYN, Miss. -- Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced financial results for its first quarter ended April 30, 2011.
Financial summary for the first quarter include:
* Net sales for the quarter were $62.0 million compared to $63.1 million for the first quarter of last year. Comparable store sales decreased 1.3% compared to a 2.0% decrease in the first quarter of last year.
* Operating loss for the quarter was $1.0 million, compared to break-even for the previous year's first quarter.
* Adjusted EBITDA totaled $0.6 million, a decrease of $1.0 million over the first quarter of fiscal 2010.
* Net inventories have been reduced by $6.3 million compared to the same period last year, ending the quarter at $86.7 million.
* At quarter end, the Company had outstanding borrowings under its revolving line of credit of $12.6 million, which is a reduction of $1.1 million compared to the end of the first quarter of fiscal 2010. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $42.6 million. At quarter end, the balance of the Company's Floating Rate Secured Notes was unchanged at $21.6 million and the warrant discount on the Notes was $5.3 million.
Steven R. Morgan, Interim President and Chief Executive Officer commented, "Our first quarter results were impacted by the investment required to focus on the areas we outlined at the end of the fiscal year. We have made significant progress during the quarter in improving our store presentation, refining our craft business, refocusing our merchandise organization, and expanding our replenishment process. We have also undertaken the liquidation of our aged products. While these activities have come at an initial short term cost, we are positioning our organization for improved fall and winter seasons."
Operating Results
Gross margin for the quarter of 44.2% was a 30 basis point improvement compared to the 43.9% of the prior year's first quarter. This increase reflects a 120 basis point reduction in merchandise cost offset by a 20 basis point increase in freight costs and a 70 basis point increase in sourcing and warehousing.
Selling, general and administrative expenses for the quarter have increased by $0.7 million to $27.3 million (44.1% of sales) from $26.6 million (42.2% of sales) last year. Increases have been driven by additional investment in initiatives to improve our store standards in preparation for the second half of the year.
Store Openings, Closings and Remodels
During the quarter, the Company closed one store and ended the quarter with 264 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 264 retail stores in 37 states and an Internet store at www.hancockfabrics.com.
Supplemental Disclosures Regarding Non-GAAP Financial Information
The Company has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted 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 Adjusted EBITDA as net earnings before interest, income taxes, discontinued operations, depreciation and amortization, reorganization expenses and significant one-time items. The Company uses Adjusted 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 Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with generally accepted accounting principles in the United States of America ("GAAP"), this measure should not be considered in isolation of, or as a substitute for, net earnings (loss), as an indicator of operating performance, or net cash provided by operating activities as an indicator of liquidity. Our computation of Adjusted EBITDA may differ from similarly titled measures used by other companies. As Adjusted EBITDA excludes certain financial information compared with net earnings (loss) and net cash 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 Adjusted EBITDA to net earnings (loss) and net cash provided by operating activities.
Comments in this news release that are not historical facts, including statements about our management team, 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, general economic trends, intense competition in our industry, adverse discounting actions taken by competitors, changes in consumer demand or purchase patterns, the terms of our significant indebtedness, delays or interruptions in the flow of merchandise between the Company's suppliers and/or its distribution center and its stores, rising fuel costs, tightening of purchase terms by suppliers and their factors, a disruption in the Company's data processing services and other risks and uncertainties discussed in the Company's Securities and Exchange Commission filings. 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 30, | May 1, | January 29, | |||||||||
| (in thousands, except for share amounts) | 2011 | 2010 | 2011( (1)) | ||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $2,363 | $2,573 | $2,372 | ||||||||
| Receivables, less allowance for doubtful accounts | 3,203 | 3,165 | 3,841 | ||||||||
| Inventories, net | 86,729 | 93,003 | 87,804 | ||||||||
| Prepaid expenses | 2,416 | 2,162 | 2,465 | ||||||||
| Total current assets | 94,711 | 100,903 | 96,482 | ||||||||
| Property and equipment, net | 38,279 | 41,700 | 39,335 | ||||||||
| Goodwill | 3,139 | 3,210 | 3,139 | ||||||||
| Other assets | 1,850 | 4,325 | 1,967 | ||||||||
| Total assets | $137,979 | $150,138 | $140,923 | ||||||||
| Liabilities and Shareholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $19,758 | $23,271 | $17,842 | ||||||||
| Accrued liabilities | 13,390 | 12,859 | 14,937 | ||||||||
| Other pre-petition obligations | 725 | 824 | 730 | ||||||||
| Total current liabilities | 33,873 | 36,954 | 33,509 | ||||||||
| Long-term debt obligations, net | 28,847 | 27,627 | 28,784 | ||||||||
| Capital lease obligations | 3,040 | 3,159 | 3,072 | ||||||||
| Postretirement benefits other than pensions | 2,392 | 2,199 | 2,337 | ||||||||
| Pension and SERP liabilities | 29,376 | 27,286 | 30,506 | ||||||||
| Other liabilities | 7,699 | 6,892 | 7,878 | ||||||||
| Total liabilities | 105,227 | 104,117 | 106,086 | ||||||||
| Commitments and contingencies | |||||||||||
| Shareholders' equity: | |||||||||||
| Common stock, $.01 par value; 80,000,000 shares authorized; 33,468,455, 33,308,944 and 33,283,944 issued and 20,068,543, 19,915,813 and 19,902,148 outstanding, respectively | 335 | 333 | 335 | ||||||||
| Additional paid-in capital | 89,764 | 89,293 | 89,671 | ||||||||
| Retained earnings | 114,082 | 125,394 | 116,234 | ||||||||
| Treasury stock, at cost, 13,399,912, 13,393,131 and 13,381,796 shares held, respectively | (153,733) | (153,723) | (153,731) | ||||||||
| Accumulated other comprehensive loss | (17,696) | (15,276) | (17,672) | ||||||||
| Total shareholders' equity | 32,752 | 46,021 | 34,837 | ||||||||
| Total liabilities and shareholders' equity | $137,979 | $150,138 | $140,923 | ||||||||
| (1) - From audited balance sheet included in our annual report on Form 10-K for the fiscal year ended January 29, 2011. | |||||||||||
| HANCOCK FABRICS, INC. | |||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | |||||
| (unaudited) | |||||
| Thirteen Weeks Ended | |||||
| April 30, | May 1, | ||||
| (in thousands, except per share amounts) | 2011 | 2010 | |||
| Sales | $ 61,977 | $ 63,103 | |||
| Cost of goods sold | 34,605 | 35,370 | |||
| Gross profit | 27,372 | 27,733 | |||
| Selling, general and administrative expense | 27,340 | 26,644 | |||
| Depreciation and amortization | 1,037 | 1,072 | |||
| Operating income (loss) | (1,005) | 17 | |||
| Reorganization expense, net | - | 196 | |||
| Interest expense, net | 1,147 | 1,144 | |||
| Loss from continuing operations before income taxes | (2,152) | (1,323) | |||
| Income taxes | - | - | |||
| Loss from continuing operations | (2,152) | (1,323) | |||
| Earnings from discontinued operations (net of tax expense of $0 and $0) | - | 22 | |||
| Net loss | $ (2,152) | $ (1,301) | |||
| Basic and diluted loss per share: | |||||
| Income (loss) from continuing operations | ($0.11) | ($0.07) | |||
| Earnings from discontinued operations | - | - | |||
| Net loss | ($0.11) | ($0.07) | |||
| Weighted average shares outstanding: | |||||
| Basic and diluted | 19,781 | 19,590 | |||
| Hancock Fabrics, Inc. | ||||||||||
| Reconciliation of Adjusted EBITDA | ||||||||||
| (unaudited) | ||||||||||
| Thirteen Weeks Ended | ||||||||||
| April 30, | May 1, | |||||||||
| (in thousands) | 2011 | 2010 | ||||||||
| Net cash provided by operating activities before reorganization activities | $1,115 | $2,081 | ||||||||
| Depreciation and amortization, including cost of goods sold | (1,557) | (1,567) | ||||||||
| Amortization of deferred loan costs | (62) | (62) | ||||||||
| Amortization of bond discount | (583) | (583) | ||||||||
| Stock compensation expense | (94) | (157) | ||||||||
| Inventory valuation reserve | 860 | (91) | ||||||||
| Other | (78) | (9) | ||||||||
| Reorganization expense, net | - | (196) | ||||||||
| Changes in assets and liabilities | (1,753) | (717) | ||||||||
| Net income (loss) | (2,152) | (1,301) | ||||||||
| Earnings from discontinued operations | - | (22) | ||||||||
| Interest expense, net | 1,147 | 1,144 | ||||||||
| Reorganization expense, net | - | 196 | ||||||||
| Depreciation and amortization, including cost of goods sold | 1,557 | 1,567 | ||||||||
| Adjusted EBITDA | $552 | $1,584 | ||||||||
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