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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 1, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________to____________________
COMMISSION FILE NUMBER 1-9482
Hancock Fabrics, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0740905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3406 WEST MAIN ST., TUPELO, MS 38803
(Address of principal executive offices)
(Zip Code)
(601) 842-2834
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X NO___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 1, 1994, the registrant had outstanding an aggregate of
21,461,917 shares of common stock, $.01 par value.
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HANCOCK FABRICS, INC.
INDEX
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Part I. Financial Information:
Item 1. Financial Statements (unaudited) Page
Consolidated Balance Sheet as of
May 1, 1994 and January 30, 1994........................ 3
Consolidated Statement of Earnings for the
Thirteen Weeks ended
May 1, 1994 and May 2, 1993............................. 4
Consolidated Statement of Changes in
Shareholders' Equity for the
Thirteen Weeks ended May 1, 1994........................ 5
Consolidated Statement of Cash Flows
for the Thirteen Weeks ended
May 1, 1994 and May 2, 1993............................. 6
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............ 8 - 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.................. 10
Signature 10
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PART I. FINANCIAL INFORMATION
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
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(in thousands, except for May 1, January 30,
par value and numbers of shares) 1994 1994
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Assets
Current assets
Cash and cash equivalents...................... $ 3,431 $ 4,327
Receivables, less allowance for
doubtful accounts............................. 1,832 1,309
Inventories.................................... 170,406 173,297
Deferred tax asset............................. 778 330
Prepaid expenses............................... 1,210 1,068
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Total current assets......................... 177,657 180,331
Property and equipment,
at depreciated cost............................. 21,580 21,911
Deferred tax asset............................... 6,003 6,190
Other assets..................................... 130 116
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Total assets $205,370 $208,548
=========================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable............................... $ 38,634 $ 37,032
Accrued liabilities............................ 14,529 14,100
Income taxes................................... 2,791 2,145
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Total current liabilities.................... 55,954 53,277
Long-term debt obligations....................... 40,000 45,000
Postretirement benefit liability
other than pensions............................. 15,628 15,267
Other deferred liabilities....................... 1,065 1,462
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Total liabilities 112,647 115,006
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Commitments and contingencies
Common shareholders' equity
Common stock, $.01 par value; 80,000,000
shares authorized; 26,790,110 issued and
outstanding; (26,684,410 at 1/30/94).......... 268 267
Paid-in capital................................ 16,350 15,524
Retained earnings.............................. 159,368 160,063
Less - Treasury stock, at cost, 5,328,193
shares held; (5,287,026 at 1/30/94)........... (78,284) (77,930)
Less - Deferred compensation on restricted stock
incentive plan................................ (4,979) (4,382)
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Total shareholders' equity 92,723 93,542
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Total liabilities and shareholders' equity $205,370 $208,548
=========================================================================
See accompanying notes to consolidated financial statements.
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HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
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(in thousands, except Thirteen Weeks Ended
per share amounts) ------------------------
May 1, May 2,
1994 1993
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Sales............................................ $92,894 $92,814
Cost of goods sold............................... 52,729 52,836
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Gross margin 40,165 39,978
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Expenses (income)
Selling, general and
administrative................................ 36,971 37,148
Depreciation and
amortization.................................. 1,060 1,038
Interest expense............................... 525 619
Interest income................................ (27) (95)
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Total operating and interest expenses 38,529 38,710
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Earnings before income
taxes........................................... 1,636 1,268
Income taxes..................................... 612 459
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Net earnings $ 1,024 $ 809
=========================================================================
Weighted average number of common shares and
common equivalent shares outstanding............ 21,148 21,189
=========================================================================
Net earnings per share........................... $ 0.05 $ 0.04
=========================================================================
Dividends per share.............................. $ 0.08 $ 0.08
=========================================================================
See accompanying notes to consolidated financial statements.
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HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
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(in thousands, except for Common Stock Additional Treasury Stock Deferred Total
numbers of shares) --------------------- Paid-in Retained -------------------- Com- Shareholders'
Shares Amount Capital Earnings Shares Amount pensation Equity
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Thirteen weeks
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 30, 1994.............. 26,684,410 $267 $15,524 $160,063 (5,287,026) ($77,930) ($4,382) $93,542
Net earnings.......................... 1,024 1,024
Cash dividend - $.08 per
share on a quarterly basis........... (1,719) (1,719)
Exercise of stock options............. 600 4 4
Issuance of restricted stock.......... 107,300 1 884 (885)
Amortization and vesting of deferred
compensation on restricted stock
incentive plan....................... (44) 270 226
Cancellation of restricted stock...... (2,200) (18) 18
Purchase of treasury stock............ (41,167) (354) (354)
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Balance May 1, 1994 26,790,110 $268 $16,350 $159,368 (5,328,193) ($78,284) ($4,979) $92,723
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
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(in thousands) Thirteen Weeks Ended
----------------------
May 1, May 2,
1994 1993
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Cash flows from operating activities
Net earnings................................... $ 1,024 $ 809
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization................ 1,060 1,038
LIFO charge.................................. 1,500 1,500
Deferred income taxes........................ (261)
Amortization of deferred compensation on
restricted stock incentive plan............. 270 199
(Increase) decrease in assets
Receivables and prepaid expenses........... (665) (1,170)
Inventory reduction (growth) at
current cost.............................. 1,391 (3,939)
Other noncurrent assets.................... (14) 95
Increase (decrease) in liabilities
Accounts payable........................... 1,602 7,789
Accrued liabilities........................ 429 (1,486)
Current income tax obligations............. 602 365
Postretirement benefit liability
other than pensions....................... 361 480
Other deferred liabilities................. (397) 28
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Net cash provided by
operating activities 6,902 5,708
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Cash flows from investing activities
Additions to property and equipment............ (729) (1,128)
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Net cash used in investing activities (729) (1,128)
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Cash flows from financing activities
Repayment of long-term borrowings.............. (5,000) (8,000)
Purchase of treasury stock..................... (354) (273)
Proceeds from exercise of stock options........ 4 49
Cash dividends paid............................ (1,719) (1,708)
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Net cash used in financing activities (7,069) (9,932)
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Decrease in cash and cash equivalents (896) (5,352)
Beginning of period cash and cash equivalents 4,327 8,971
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End of period cash and cash equivalents $ 3,431 $ 3,619
=========================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest 271 259
Income taxes 166 84
=========================================================================
See accompanying notes to consolidated financial statements.
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HANCOCK FABRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1: BASIS OF PRESENTATION
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The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The statements do reflect all adjustments
(consisting of only normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of financial position in
conformity with generally accepted accounting principles. The statements
should be read in conjunction with the Notes to the Consolidated Financial
Statements for the fiscal year ended January 30, 1994 incorporated into the
Company's Annual Report on Form 10-K.
The results of operations for the thirteen week periods are not necessarily
indicative of the results to be expected for the full fiscal year.
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NOTE 2: EARNINGS PER SHARE
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Earnings per share are based on the weighted average number of common shares
and common equivalent shares outstanding. Common equivalent shares represent
dilutive stock options and restricted stock shares, reduced by the number of
shares which could be repurchased at the average fair market value during the
periods indicated with the proceeds of the options and the income tax savings
available from recognizing compensation expense as a tax deduction. See
Exhibit 11.
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HANCOCK FABRICS, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION
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Historically, cash flow from operations has been sufficient to finance the
expansion and operation of Hancock's business. Hancock's principal capital
requirements are for the financing of inventories and to a lesser extent for
capital expenditures relating to store locations and its warehouse and
distribution facility. Hancock has also purchased treasury stock and paid
dividends to shareholders. Funds for such purposes are generated from
Hancock's operations and, if necessary, supplemented by borrowings from
commercial lenders. During 1994, Hancock plans a net increase of approximately
15 retail fabric stores. During the thirteen weeks ended May 1, 1994, Hancock
opened 2 stores and closed 3 stores, which resulted in a total of 499 stores at
period end.
During the thirteen weeks ended May 1, 1994, accounts payable increased due to
the timing of payments to vendors.
The Company currently has $40 million in outstanding borrowings, or about 30%
of total capitalization, which is $10 million lower than the same period last
year.
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RESULTS OF OPERATIONS
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Thirteen weeks ended May 1, 1994 compared to thirteen weeks ended May 2, 1993
Sales increased to $92.9 million from $92.8 million in the same period of the
prior year. A decrease of 1.2% in comparable store sales was offset by sales
from a net increase in stores opened since the first quarter of 1993.
Net earnings were $1.0 million, or $.05 per share, compared with $809 thousand,
or $.04 per share, for the comparable period of the prior year. The increase in
earnings resulted from higher gross margins and a reduction in operating and
interest expenses. However, management believes that a significant shakeout of
excess capacity and greater price stability will be necessary before
substantial earnings leverage can take place in the piece goods industry.
Gross margin, as a percent of sales, increased to 43.2% from 43.1% in the first
quarter of 1993. The effect of LIFO for the thirteen weeks ended May 1, 1994
and May 2, 1993 decreased gross margin by $1.5 million in each year.
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Total operating and interest expenses as a percentage of sales decreased to
41.5% from 41.7% in the first quarter of 1993, despite the net addition of
seven stores since a year ago. Expenses were well managed at every level of
operation, and a lower debt level served to offset the effect of interest rate
increases.
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EFFECT OF INFLATION
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The impact of inflation on labor and occupancy costs can significantly affect
Hancock's operations. Many of Hancock's employees are paid hourly rates
related to the Federal minimum wage; accordingly, any increases affect Hancock.
In addition, payroll taxes, employee benefits and other employee related costs
continue to increase. Costs of leases for new store locations remained stable,
but the renewal costs of older leases continue to increase. Taxes, maintenance
and insurance costs have also risen. Hancock believes that the practice of
maintaining adequate operating margins through a combination of price
adjustments and cost controls, careful evaluation of occupancy needs and
efficient purchasing practices is the most effective tool for coping with
increasing costs and expenses.
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SEASONALITY
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The Company's business is slightly seasonal. Peak sales periods occur during
the fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and mid-summer.
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PART II. OTHER INFORMATION
HANCOCK FABRICS, INC.
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Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits -
11 Statement regarding computation of earnings per share
(b) Reports on Form 8-K -
None
HANCOCK FABRICS, INC.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANCOCK FABRICS, INC.
(Registrant)
By: /s/ Larry G. Kirk
-----------------------
Larry G. Kirk
President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: June 13, 1994
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HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
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(dollars in thousands, except for Thirteen Weeks Ended
per share amounts) ------------------------
May 1, May 2,
1994 1993
- - --------------------------------------------------------------------------
Primary earnings per share
Net earnings................................ $ 1,024 $ 809
=========== ===========
Weighted average number of
common shares outstanding
during period.............................. 21,443,139 21,338,354
Additional shares attributable
to common stock equivalents................ 91,195 156,995
Shares attributable to tax
effect of restricted stock and
related deferred compensation.............. (386,543) (306,767)
----------- -----------
21,147,791 21,188,582
=========== ===========
Earnings per share.......................... $ 0.05 $ 0.04
=========== ===========
- - --------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings................................ $ 1,024 $ 809
=========== ===========
Weighted average number of
common shares outstanding
during period.............................. 21,443,139 21,338,354
Additional shares attributable
to common stock equivalents................ 91,211 156,739
Shares attributable to tax
effect of restricted stock and
related deferred compensation.............. (386,543) (306,767)
----------- -----------
21,147,807 21,188,326
=========== ===========
Earnings per share.......................... $ 0.05 $ 0.04
=========== ===========
