<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 JULY 31, 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 July 31, 1994, the registrant had outstanding an aggregate of
21,469,881 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
July 31, 1994 and January 30, 1994....................... 3
Consolidated Statement of Earnings for the
Thirteen Weeks and Twenty-six Weeks Ended
July 31, 1994 and August 1, 1993......................... 4
Consolidated Statement of Changes in
Shareholders' Equity for the
Twenty-six Weeks Ended July 31, 1994..................... 5
Consolidated Statement of Cash Flows
for the Twenty-six Weeks Ended
July 31, 1994 and August 1, 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
<PAGE> 3
PART I. FINANCIAL INFORMATION
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands, except for July 31, January 30,
par value and numbers of shares) 1994 1994
--------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents....................... $3,041 $4,327
Receivables, less allowance for
doubtful accounts.............................. 1,919 1,309
Inventories..................................... 179,666 173,297
Deferred Tax Asset.............................. 275 330
Prepaid expenses................................ 1,559 1,068
--------------------------------------------------------------------------
Total current assets.......................... 186,460 180,331
Property and equipment,
at depreciated cost.............................. 21,095 21,911
Deferred tax asset............................... 6,475 6,190
Other assets...................................... 1,700 116
--------------------------------------------------------------------------
Total assets $215,730 $208,548
==========================================================================
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable................................ $37,704 $37,032
Accrued liabilities............................. 14,305 14,100
Income taxes.................................... 834 2,145
--------------------------------------------------------------------------
Total current liabilities..................... 52,843 53,277
Long-term debt obligations........................ 53,000 45,000
Postretirement benefit liability
other than pensions.............................. 16,015 15,267
Other deferred liabilities........................ 1,612 1,462
--------------------------------------------------------------------------
Total liabilities 123,470 115,006
--------------------------------------------------------------------------
Commitments and contingencies
Common shareholders' equity
Common stock, $.01 par value; 80,000,000
shares authorized; 26,798,264 issued and
outstanding; (26,684,410 at 1/30/94)........... 268 267
Paid-in capital................................. 16,436 15,524
Retained earnings............................... 158,518 160,063
Less - Treasury stock, at cost, 5,328,383
shares held; (5,287,026 at 1/30/94)............ (78,285) (77,930)
Less - Deferred compensation on restricted stock
incentive plan................................. (4,677) (4,382)
--------------------------------------------------------------------------
Total shareholders' equity 92,260 93,542
--------------------------------------------------------------------------
Total liabilities and shareholders' equity $215,730 $208,548
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 4
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(in thousands, except Thirteen Weeks Ended Twenty-six Weeks Ended
per share amounts) ---------------------- ------------------------
July 31, August 1, July 31, August 1,
1994 1993 1994 1993
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales............................................. $81,813 $83,577 $174,707 $176,391
Cost of goods sold................................ 42,646 46,090 95,375 98,926
--------------------------------------------------------------------------------------------------
Gross margin 39,167 37,487 79,332 77,465
--------------------------------------------------------------------------------------------------
Expenses (income)
Selling, general and
administrative................................. 36,177 35,681 73,148 72,829
Depreciation and
amortization................................... 1,049 1,074 2,109 2,112
Interest expense................................ 606 580 1,131 1,199
Interest income................................. (53) (27) (80) (122)
--------------------------------------------------------------------------------------------------
Total operating and interest expenses 37,779 37,308 76,308 76,018
--------------------------------------------------------------------------------------------------
Earnings before income
taxes............................................ 1,388 179 3,024 1,447
Income taxes...................................... 520 75 1,132 534
--------------------------------------------------------------------------------------------------
Net earnings $868 $104 $1,892 $913
=================================================================================================
Weighted average number of common shares and
common equivalent shares outstanding ............ 21,218 21,176 21,144 21,184
=================================================================================================
Net earnings per share............................ $0.04 $0.00 $0.09 $0.04
=================================================================================================
Dividends per share............................... $0.08 $0.08 $0.16 $0.16
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 5
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
(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
---------------------------------------------------------------------------------------------------------------------------------
Twenty-six 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......................... 1,892 1,892
Cash dividend - $.08 per
share on a quarterly basis.......... (3,437) (3,437)
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..................... (31) 572 541
Cancellation of restricted stock..... (2,200) (18) 18 0
Purchase of treasury stock........... (41,357) (355) (355)
---------------------------------------------------------------------------------------------------------------------------------
Balance July 31, 1994 26,798,264 $268 $16,436 $158,518 (5,328,383) ($78,285) ($4,677) $92,260
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 6
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
(in thousands) Twenty-six Weeks Ended
----------------------
July 31, August 1,
1994 1993
--------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities
Net earnings.................................... $1,892 $ 913
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization................. 2,109 2,112
LIFO charge................................... 2,500 3,000
Deferred income taxes......................... (230) (360)
Amortization of deferred compensation on
restricted stock incentive plan.............. 572 400
(Increase) decrease in assets
Receivables and prepaid expenses............ (1,101) (314)
Inventory growth at current cost............ (8,869) (8,966)
Other noncurrent assets..................... (1,584) 141
Increase (decrease) in liabilities
Accounts payable............................ 672 6,064
Accrued liabilities......................... 205 (1,041)
Current income tax obligations.............. (1,342) (967)
Postretirement benefit liability
other than pensions........................ 748 979
Other deferred liabilities.................. 150 13
--------------------------------------------------------------------------
Net cash provided by (used in)
operating activities (4,278) 1,974
--------------------------------------------------------------------------
Cash flows from investing activities
Additions to property and equipment............. (1,293) (1,728)
--------------------------------------------------------------------------
Net cash used in investing activities (1,293) (1,728)
--------------------------------------------------------------------------
Cash flows from financing activities
Long-term borrowings............................ 8,000 (3,000)
Purchase of treasury stock...................... (355) (273)
Proceeds from exercise of stock options......... 4 262
Stock plan for non-employee directors........... 73 75
Cash dividends paid............................. (3,437) (3,420)
--------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 4,285 (6,356)
--------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,286) (6,110)
Beginning of period cash and cash equivalents 4,327 8,971
--------------------------------------------------------------------------
End of period cash and cash equivalents $3,041 $2,861
==========================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest 1,613 1,177
Income taxes 2,704 1,799
==========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 7
HANCOCK FABRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________________________________________________________________________________
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
________________________________________________________________________________
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 for more effective utilization of investments.
During the thirteen weeks ended July 31, 1994, Hancock opened 4 stores and
closed 1 store, which resulted in a total of 502 stores at period end.
During the thirteen weeks ended July 31, 1994, accounts payable and debt
increased due to a seasonal increase in inventories. The Company currently has
$53 million in outstanding borrowings, or about 36% of total capitalization,
compared to $55 in the same period last year.
________________________________________________________________________________
RESULTS OF OPERATIONS
________________________________________________________________________________
Thirteen weeks ended July 31, 1994 compared to thirteen weeks ended
August 1, 1993
Sales decreased 2.1% from the same period of the prior year because of a
decrease of 2.4% in comparable store sales, which was partially offset by sales
from a net increase in stores opened since the second quarter of 1993.
Net earnings were $868 thousand, or $.04 per share, compared with $104
thousand, or less than one cent per share, for the comparable period of the
prior year. The increase in earnings resulted from higher gross margins and a
lower LIFO reserve.
Gross margin, as a percent of sales, increased to 47.9% from 44.9% in the
second quarter of 1993. The effect of LIFO for the thirteen weeks ended July
31, 1994 and August 1, 1993 was a decrease in gross margin by $1.0 million and
$1.5 million, respectively.
Total operating and interest expenses as a percentage of sales increased to
46.2% from 44.6% in the second quarter of 1993. The increase is due to
slightly higher selling, general and administrative expenses and lower sales
volume.
-8-
<PAGE> 9
Twenty-six weeks ended July 31, 1994 compared to twenty-six weeks
ended August 1, 1993
Sales decreased by 1.0% over 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 in new stores.
Net earnings were $1.9 million compared to $913 thousand in the comparable
period of the prior year. The increase was due to higher gross margins which
offset a slight increase in operating expenses.
Gross margin increased to 45.4% from 43.9% in the twenty-six weeks of 1994.
The effect of LIFO for the twenty-six weeks ended July 31, 1994 and August 1,
1993 was a decrease in gross profit by $2.5 million and $3.0 million,
respectively.
Total operating and interest expense as a percentage of sales increased to
43.7% from 43.1% for the same period of the prior year. An increase in
selling, administrative, and general expenses caused expense dollars to
increase over the prior year.
________________________________________________________________________________
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.
________________________________________________________________________________
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.
-9-
<PAGE> 10
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
27 Financial Data Schedule for the 6 months ended July 31, 1994
(b) Reports on Form 8-K -
None
HANCOCK FABRICS, INC.
SIGNATURES
________________________________________________________________
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: September 13, 1994 Accounting Officer)
-10-
<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
(dollars in thousands, except for Thirteen Weeks Ended Twenty-six Weeks Ended
per share amounts) ----------------------- -----------------------
July 31, August 1, July 31, August 1,
1994 1993 1994 1993
--------------------------------------------------------------------------------------------------
Primary earnings per share
<S> <C> <C> <C> <C>
Net earnings.................................. $868 $104 $1,892 $913
========== ========== ========== ==========
Weighted average number of
common shares outstanding
during period................................ 21,543,771 21,376,459 21,454,855 21,357,407
Additional shares attributable
to common stock equivalents.................. 75,945 103,516 83,570 132,120
Shares attributable to tax
effect of restricted stock and
related deferred compensation................ (401,400) (303,814) (393,971) (305,291)
---------- ---------- ---------- ----------
21,218,316 21,176,161 21,144,454 21,184,236
========== ========== ========== ==========
Earnings per share............................ $0.04 $0.00 $0.09 $0.04
========== ========== ========== ==========
-------------------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings.................................. $868 $104 $1,892 $913
---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding
during period................................ 21,543,771 21,376,459 21,454,855 21,357,407
Additional shares attributable
to common stock equivalents.................. 75,945 103,516 84,098 132,120
Shares attributable to tax
effect of restricted stock and
related deferred compensation................ (401,400) (303,814) (393,971) (305,291)
---------- ---------- ---------- ----------
21,218,316 21,176,161 21,144,982 21,184,236
========== ========== ========== ==========
Earnings per share............................ $0.04 $0.00 $0.09 $0.04
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENT OF HANCOCK FABRICS FOR THE 6 MOS ENDED JULY 31, 1994, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-START> MAY-2-1994
<PERIOD-END> JUL-31-1994
<CASH> 3,041
<SECURITIES> 0
<RECEIVABLES> 1,919
<ALLOWANCES> 0
<INVENTORY> 179,666
<CURRENT-ASSETS> 186,460
<PP&E> 21,095
<DEPRECIATION> 0
<TOTAL-ASSETS> 215,730
<CURRENT-LIABILITIES> 52,843
<BONDS> 0
<COMMON> 268
0
0
<OTHER-SE> 91,992
<TOTAL-LIABILITY-AND-EQUITY> 215,730
<SALES> 174,707
<TOTAL-REVENUES> 174,707
<CGS> 95,375
<TOTAL-COSTS> 74,199
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,109
<INCOME-PRETAX> 3,024
<INCOME-TAX> 1,132
<INCOME-CONTINUING> 1,892
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,892
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
