<PAGE> 1
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 October 30, 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 October 30, 1994, the registrant had outstanding an aggregate of
21,382,399 shares of common stock, $.01 par value.
<PAGE> 2
HANCOCK FABRICS, INC.
INDEX
- ----------------------------------------------------------------------------
Part I. Financial Information:
Item 1. Financial Statements (unaudited) Page Numbers
Consolidated Balance Sheet as of
October 30, 1994 and January 30, 1994.................... 3
Consolidated Statement of Earnings for the
Thirteen Weeks and Thirty-nine Weeks Ended
October 30, 1994 and October 31, 1993.................... 4
Consolidated Statement of Changes in
Shareholders' Equity for the
Thirty-nine Weeks Ended October 30, 1994................. 5
Consolidated Statement of Cash Flows
for the Thirty-nine Weeks Ended
October 30, 1994 and October 31, 1993.................... 6
Notes to Consolidated Financial Statements................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 8 - 10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K................... 11
Signature 11
<PAGE> 3
PART I. FINANCIAL INFORMATION
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
- ----------------------------------------------------------------------------
(in thousands, except for October 30, January 30,
par value and numbers of shares) 1994 1994
- ----------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents....................... $ 4,202 $ 4,327
Receivables, less allowance for
doubtful accounts.............................. 1,888 1,309
Inventories..................................... 177,489 173,297
Deferred Tax Asset.............................. 1,001 330
Prepaid expenses................................ 2,352 1,068
---------------------------------------------------------------------------
Total current assets.......................... 186,932 180,331
Property and equipment,
at depreciated cost.............................. 22,507 21,911
Deferred tax asset............................... 6,572 6,190
Other assets...................................... 159 116
---------------------------------------------------------------------------
Total assets $216,170 $208,548
===========================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable................................ $ 33,774 $ 37,032
Accrued liabilities............................. 17,108 14,100
Income taxes.................................... 3,562 2,145
---------------------------------------------------------------------------
Total current liabilities..................... 54,444 53,277
Long-term debt obligations........................ 50,000 45,000
Postretirement benefit liability
other than pensions.............................. 16,245 15,267
Other deferred liabilities........................ 1,316 1,462
---------------------------------------------------------------------------
Total liabilities 122,005 115,006
---------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity
Common stock, $.01 par value; 80,000,000
shares authorized; 26,796,264 issued and
outstanding; (26,684,410 at 1/30/94)........... 268 267
Paid-in capital................................. 16,431 15,524
Retained earnings............................... 160,715 160,063
Less - Treasury stock, at cost, 5,413,865
shares held; (5,287,026 at 1/30/94)............ (78,882) (77,930)
Less - Deferred compensation on restricted stock
incentive plan................................. (4,367) (4,382)
---------------------------------------------------------------------------
Total shareholders' equity 94,165 93,542
---------------------------------------------------------------------------
Total liabilities and shareholders' equity $216,170 $208,548
===========================================================================
See accompanying notes to consolidated financial statements.
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<PAGE> 4
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(in thousands, except Thirteen Weeks Ended Thirty-nine Weeks Ended
per share amounts) ------------------------ ------------------------
October 30, October 31, October 30, October 31,
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales............................................. $96,505 $99,038 $271,212 $275,429
Cost of goods sold................................ 50,464 54,824 145,839 153,750
- ------------------------------------------------------------------------------------------------------
Gross margin 46,041 44,214 125,373 121,679
- ------------------------------------------------------------------------------------------------------
Expenses (income)
Selling, general and
administrative................................. 37,811 37,345 110,959 110,174
Depreciation and
amortization................................... 1,037 1,067 3,146 3,179
Interest expense................................ 744 621 1,875 1,820
Interest income................................. (45) (67) (125) (189)
- ------------------------------------------------------------------------------------------------------
Total operating and interest expenses 39,547 38,966 115,855 114,984
- ------------------------------------------------------------------------------------------------------
Earnings before income taxes..................... 6,494 5,248 9,518 6,695
Income taxes...................................... 2,581 1,957 3,713 2,491
- ------------------------------------------------------------------------------------------------------
Net earnings $ 3,913 $ 3,291 $ 5,805 $ 4,204
======================================================================================================
Weighted average number of common shares and
common equivalent shares outstanding ............ 21,193 21,154 21,132 21,170
======================================================================================================
Net earnings per share............................ $ 0.18 $ 0.16 $ 0.27 $ 0.20
======================================================================================================
Dividends per share............................... $ 0.08 $ 0.08 $ 0.24 $ 0.24
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except for
numbers of shares) Common Stock Additional Treasury Stock Deferred Total
---------------------- Paid-in Retained ---------------------- Com- Shareholders'
Shares Amount Capital Earnings Shares Amount pensation Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Thirty-nine weeks
- ------------------------------------------------------------------------------------------------------------------------------------
<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........................... 5,805 5,805
Cash dividend - $.08 per
share on a quarterly basis............ (5,153) (5,153)
Exercise of stock options.............. 600 4 4
Issuance of restricted stock........... 107,300 1 884 (885) 0
Issuance of stock under nonemployee
directors stock compensation plan..... 8,154 73 73
Amortization and vesting of deferred
compensation on restricted stock
incentive plan........................ (19) 872 853
Cancellation of restricted stock....... (4,200) (35) 28 (7)
Purchase of treasury stock............. (126,839) (952) (952)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance October 30, 1994 26,796,264 $268 $16,431 $160,715 (5,413,865) ($78,882) ($4,367) $94,165
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
- ---------------------------------------------------------------------------
(in thousands) Thirty-nine Weeks Ended
-----------------------
October 30, October 31,
1994 1993
- ---------------------------------------------------------------------------
Cash flows from operating activities
Net earnings.................................... $ 5,805 $ 4,204
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization................. 3,146 3,179
LIFO charge................................... 2,250 4,500
Deferred income taxes......................... (1,053) (879)
Amortization of deferred compensation on
restricted stock incentive plan.............. 865 601
(Increase) decrease in assets
Receivables and prepaid expenses............ (1,863) 206
Inventory growth at current cost............ (6,442) (15,806)
Other noncurrent assets..................... (43) 119
Increase (decrease) in liabilities
Accounts payable............................ (3,258) 11,675
Accrued liabilities......................... 3,008 530
Current income tax obligations.............. 1,398 1,271
Postretirement benefit liability
other than pensions........................ 978 1,446
Other deferred liabilities.................. (146) 22
- ---------------------------------------------------------------------------
Net cash provided by operating
activities 4,645 11,068
- ---------------------------------------------------------------------------
Cash flows from investing activities
Additions to property and equipment............. (3,742) (2,110)
- ---------------------------------------------------------------------------
Net cash used in investing activities (3,742) (2,110)
- ---------------------------------------------------------------------------
Cash flows from financing activities
Long-term borrowings............................ 5,000 (8,000)
Purchase of treasury stock...................... (952) (744)
Proceeds from exercise of stock options......... 4 262
Stock plan for non-employee directors........... 73 75
Cash dividends paid............................. (5,153) (5,134)
- ---------------------------------------------------------------------------
Net cash used in financing
activities (1,028) (13,541)
- ---------------------------------------------------------------------------
Decrease in cash and cash equivalents (125) (4,583)
Beginning of period cash and cash equivalents 4,327 8,971
- ---------------------------------------------------------------------------
End of period cash and cash equivalents $ 4,202 $ 4,388
===========================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest 1,875 1,436
Income taxes 3,396 2,068
===========================================================================
See accompanying notes to consolidated financial statements.
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<PAGE> 7
HANCOCK FABRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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NOTE 1: BASIS OF PRESENTATION
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
NOTE 2: EARNINGS PER SHARE
- --------------------------------------------------------------------------------
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.
-7-
<PAGE> 8
HANCOCK FABRICS, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
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FINANCIAL CONDITION
- -----------------------------------------------------------------------------
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. Funds for
such purposes are generated from Hancock's operations and, if necessary,
supplemented by borrowings from commercial lenders. During 1994, Hancock plans
to open approximately 20 units and close or relocate a similar number resulting
in no net increase in retail fabric stores. Inventories and other assets from
closed stores will be redeployed to new openings for more effective utilization
of investment. During the thirteen weeks ended October 30, 1994, Hancock
opened 7 stores and closed 7 stores, which resulted in a total of 502 stores at
period end.
During the thirteen weeks ended October 30, 1994, accounts payable decreased
due to the timing of payments to vendors and a decrease in inventories. The
Company currently has $50 million in outstanding debt, down $3 million in the
thirteen week period.
- -------------------------------------------------------------------------------
RESULTS OF OPERATIONS
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Thirteen weeks ended October 30, 1994 compared to thirteen weeks ended
- ----------------------------------------------------------------------
October 31, 1993
- ----------------
Sales decreased by 2.5% from the same period of the prior year because of a
decrease of 2.9% in comparable store sales, which was partially offset by sales
from a net increase of six stores opened since the third quarter of 1993.
Net earnings were $3.9 million, or $.18 per share, compared with $3.3 million,
or $.16 per share, for the comparable period of the prior year. The
improvement in earnings resulted from higher gross margins and a reduction in
the LIFO reserve, offset by the sales decrease mentioned above.
Gross margin as a percent of sales increased to 47.7% from 44.6% in the third
quarter of 1993. The effect of LIFO for the thirteen weeks ended October 30,
1994 was to increase gross margin by $250 thousand. For the same period of the
prior year LIFO reduced gross margin by $1.5 million.
Total operating and interest expenses increased as a percentage of sales to
41.0% from 39.3% in the third quarter of 1993 primarily due
-8-
<PAGE> 9
to a lower sales volume. Operating expenses increased slightly as a result of
six additional stores. Interest expense was higher than the same quarter last
year due to increased interest rates on the same level of debt.
Thirty-nine weeks ended October 30, 1994 compared to thirty-nine weeks ended
- -------------------------------------------------------------------------------
October 31, 1993
- ----------------
Sales decreased by 1.5% from the same period of the prior year due to a
decrease in comparable store sales, which was partially offset by sales from a
net increase of six new stores.
Net earnings were $5.8 million compared to $4.2 million in the same period of
the prior year. The increase was due to the improvement in gross margins and a
lower LIFO charge, partially offset by the decrease in sales mentioned above.
Gross margin increased to 46.2% from 44.2% in the thirty-nine weeks of 1993.
The effect of LIFO for the thirty-nine weeks ended October 30, 1994 and October
31, 1993 was a decrease in gross margin by $2.25 million and $4.5 million,
respectively.
Total operating and interest expenses as a percentage of sales increased to
42.7% from 41.7% in the same period of the prior year, primarily due to a lower
sales volume. The net addition of six new stores and higher interest rates,
than a year ago, contributed to the increase in expenses.
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EFFECT OF INFLATION
- -------------------------------------------------------------------------------
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 have stabilized
recently, but renewal costs of older leases are higher. Taxes, maintenance and
insurance costs have also risen. Hancock believes that the current 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.
Assuming interest rates remain at or above their current level, the Company
anticipates that interest costs will continue to increase in the near term.
Additionally, the Company anticipates the impact of LIFO over the short term to
be more favorable to earnings based on a continuation of a low rate of
inflation and other factors that are used to determine LIFO.
-9-
<PAGE> 10
- --------------------------------------------------------------------------------
SEASONALITY
- --------------------------------------------------------------------------------
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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<PAGE> 11
PART II. OTHER INFORMATION
HANCOCK FABRICS, INC.
- --------------------------------------------------------------------------------
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
27 Financial Data Schedule (for SEC use only)
HANCOCK FABRICS, INC.
SIGNATURE
- --------------------------------------------------------------------------------
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,
Chief Financial Officer
(Principal Financial and
Date: December 13, 1994 Accounting Officer)
-11-
<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
(dollars in thousands, except for Thirteen Weeks Ended Thirty-nine Weeks Ended
per share amounts) ------------------------ ------------------------
October 30, October 31, October 30, October 31,
1994 1993 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings per share
Net earnings.................................. $ 3,913 $ 3,291 $ 5,805 $ 4,204
=========== =========== =========== ===========
Weighted average number of
common shares outstanding
during period................................ 21,529,772 21,415,829 21,451,376 21,376,881
Additional shares attributable
to common stock equivalents.................. 62,824 82,483 76,655 111,412
Shares attributable to tax
effect of restricted stock and
related deferred compensation................ (400,073) (344,185) (396,005) (318,256)
----------- ----------- ----------- -----------
21,192,523 21,154,127 21,132,026 21,170,037
=========== =========== =========== ===========
Earnings per share............................ $ 0.18 $ 0.16 $ 0.27 $ 0.20
=========== =========== =========== ===========
- ----------------------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings.................................. $ 3,913 $ 3,291 $ 5,805 $ 4,204
=========== =========== =========== ===========
Weighted average number of
common shares outstanding
during period................................ 21,529,772 21,415,829 21,451,376 21,376,881
Additional shares attributable
to common stock equivalents.................. 72,275 104,595 76,404 111,328
Shares attributable to tax
effect of restricted stock and
related deferred compensation................ (400,073) (344,186) (396,005) (318,256)
----------- ----------- ----------- -----------
21,201,974 21,176,238 21,131,775 21,169,953
=========== =========== =========== ===========
Earnings per share............................ $ 0.18 $ 0.16 $ 0.27 $ 0.20
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF THE HANCOCK FABRICS, INC. FOR THE NINE MONTHS
ENDED OCTOBER 31, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> OCT-30-1994
<CASH> 4,202
<SECURITIES> 0
<RECEIVABLES> 1,888
<ALLOWANCES> 0
<INVENTORY> 177,489
<CURRENT-ASSETS> 186,932
<PP&E> 22,507
<DEPRECIATION> 0
<TOTAL-ASSETS> 216,170
<CURRENT-LIABILITIES> 54,444
<BONDS> 0
<COMMON> 268
0
0
<OTHER-SE> 93,897
<TOTAL-LIABILITY-AND-EQUITY> 216,170
<SALES> 271,212
<TOTAL-REVENUES> 271,212
<CGS> 145,839
<TOTAL-COSTS> 114,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,750
<INCOME-PRETAX> 9,518
<INCOME-TAX> 3,713
<INCOME-CONTINUING> 5,805
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,805
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
