<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 30, 1995
--------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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COMMISSION FILE NUMBER 1-9482
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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 30, 1995, the registrant had outstanding an aggregate of 21,531,345
shares of common stock, $.01 par value.
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<TABLE>
<CAPTION>
HANCOCK FABRICS, INC.
INDEX
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited)
Page Numbers
<S> <C>
Consolidated Balance Sheet as of July 30, 1995 and January 29, 1995 3
Consolidated Statement of Earnings for the Thirteen Weeks and
Twenty-six Weeks Ended July 30, 1995 and July 31, 1994 4
Consolidated Statement of Changes in Shareholders' Equity for the
Twenty-six Weeks Ended July 30, 1995 5
Consolidated Statement of Cash Flows for the Twenty-six Weeks Ended
July 30, 1995 and July 31, 1994 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 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
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</TABLE>
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PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
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(in thousands, except for July 30, January 29,
par value and numbers of shares) 1995 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,869 $ 3,855
Receivables, less allowance for doubtful accounts 1,852 1,842
Inventories 173,466 169,128
Deferred tax asset 3,079 2,629
Prepaid expenses 2,332 2,382
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Total current assets 185,598 179,836
Property and equipment, at depreciated cost 20,773 21,673
Deferred tax asset 6,877 6,753
Other assets 367 360
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Total assets $213,615 $208,622
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 38,027 $ 35,305
Accrued liabilities 15,740 15,935
Income taxes 1,233 4,801
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Total current liabilities 55,000 56,041
Long-term debt obligations 43,000 37,000
Postretirement benefit liability other than pensions 17,284 16,572
Other deferred liabilities 1,913 1,920
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Total liabilities 117,197 111,533
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Commitments and contingencies
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Common shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares authorized;
26,961,115 issued and outstanding; (26,794,064 at 1/29/95) 270 268
Paid-in capital 18,157 16,425
Retained earnings 162,035 163,339
Less - Treasury stock, at cost, 5,429,770
shares held; (5,413,941 at 1/29/95) (79,056) (78,883)
Less - Deferred compensation on restricted stock
incentive plan (4,988) (4,060)
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Total shareholders' equity 96,418 97,089
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Total liabilities and shareholders' equity $213,615 $208,622
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------
(in thousands, except Thirteen Weeks Ended Twenty-six Weeks Ended
per share amounts) ---------------------- ----------------------
July 30, July 31, July 30, July 31,
1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $81,549 $81,813 $171,616 $174,707
Cost of goods sold 42,290 42,646 91,399 95,375
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Gross margin 39,259 39,167 80,217 79,332
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Expenses (income)
Selling, general and administrative 36,431 36,177 73,785 73,148
Depreciation and amortization 968 1,049 1,966 2,109
Interest expense 561 606 1,077 1,131
Interest income (107) (53) (202) (80)
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Total operating and interest expenses 37,853 37,779 76,626 76,308
Earnings before income taxes 1,406 1,388 3,591 3,024
Income taxes 563 520 1,450 1,132
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Net earnings $ 843 $ 868 $ 2,141 $ 1,892
=================================================================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,212 21,218 21,162 21,144
=================================================================================================================
Net earnings per share $ 0.04 $ 0.04 $ 0.10 $ 0.09
=================================================================================================================
Dividends per share $ 0.08 $ 0.08 $ 0.16 $ 0.16
=================================================================================================================
</TABLE>
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
numbers of shares) Common Stock Additional Treasury Stock Deferred Total
-------------------- Paid-in Retained ------------------- Com- Shareholders'
Shares Amount Capital Earnings Shares Amount pensation Equity
-------------------------------------------------------------------------------------------------------------------------------
Twenty-six weeks
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 29, 1995 26,794,064 $268 $16,425 $163,339 (5,413,941) ($78,883) ($4,060) $97,089
Net earnings 2,141 2,141
Cash dividend - $.08 per
share on a quarterly basis (3,445) (3,445)
Exercise of stock options 10,000 62 62
Issuance of restricted stock 148,800 2 1,654 (1,656) 0
Issuance of stock under nonemployee
directors stock compensation plan 8,251 72 72
Amortization and vesting of deferred
compensation on restricted stock
incentive plan (56) 728 672
Purchase of treasury stock (15,829) (173) (173)
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Balance July 30, 1995 26,961,115 $270 $18,157 $162,035 (5,429,770) ($79,056) ($4,988) $96,418
===============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
(in thousands) Twenty-six Weeks Ended
-------------------------------
July 30, July 31,
1995 1994
------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,141 $1,892
Adjustments to reconcile net earnings to cash
used in operating activities
Depreciation and amortization 1,966 2,109
LIFO charge 1,500 2,500
Deferred income taxes (574) (230)
Amortization of deferred compensation on
restricted stock incentive plan 728 572
(Increase) decrease in assets
Receivables and prepaid expenses 40 (1,101)
Inventory growth at current cost (5,838) (8,869)
Other noncurrent assets (7) (1,584)
Increase (decrease) in liabilities
Accounts payable 2,722 672
Accrued liabilities (195) 205
Current income tax obligations (3,624) (1,342)
Postretirement benefit liability
other than pensions 712 748
Other deferred liabilities (7) 150
------------------------------------------------------------------------------------------------
Net cash used in operating activites (436) (4,278)
------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (1,066) (1,293)
------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,066) (1,293)
------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings 6,000 8,000
Purchase of treasury stock (173) (355)
Proceeds from exercise of stock options 62 4
Stock plan for non-employee directors 72 73
Cash dividends paid (3,445) (3,437)
------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,516 4,285
------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,014 (1,286)
Beginning of period cash and cash equivalents 3,855 4,327
------------------------------------------------------------------------------------------------
End of period cash and cash equivalents $4,869 $3,041
================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 1,244 1,613
Income taxes 5,665 2,704
================================================================================================
</TABLE>
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 29, 1995 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.
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<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
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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 1995, 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 30, 1995, Hancock opened 4 stores and closed 3 stores, which
resulted in a total of 501 stores at period end.
During the thirteen weeks ended July 30, 1995, accounts payable and debt
increased due to a seasonal increase in inventories. The Company currently has
$43 million in outstanding borrowings, or about 31% of total capitalization,
compared to $53 million in the same period last year.
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
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Thirteen weeks ended July 30, 1995 compared to thirteen weeks ended
July 31, 1994
Sales decreased to $81.5 million from $81.8 million in the same period of the
prior year. An increase of .5% in comparable store sales was offset by lower
sales in twenty new stores opened less than one year which have not yet reached
sufficient sales maturity to offset the sales of the older stores that were
replaced.
Net earnings were $843 thousand, or $.04 per share, compared with $868
thousand, or $.04 per share, in the comparable period of the prior year. The
decrease in earnings resulted from the lower sales volume.
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<PAGE> 9
Gross margin, as a percent of sales, increased to 48.1% from 47.9% in the
second quarter of 1994. The effect of LIFO for the thirteen weeks ended July
30, 1995 and July 31, 1994 was a decrease in gross margin by $750 thousand and
$1.0 million, respectively.
Total operating and interest expenses as a percentage of sales increased to
46.4% from 46.2% in the second quarter of 1994. The increase is due to
slightly higher selling, general and administrative expenses and the lower
sales volume.
Twenty-six weeks ended July 30, 1995 compared to twenty-six weeks ended
July 31, 1994
Sales decreased by 1.8% over the same period of the prior year due to a .6%
decrease in comparable store sales and the replacement of 20 older stores with
21 new stores that have not yet reached sales maturity.
Net earnings were $2.1 million compared to $1.9 million in the comparable
period of the prior year. The increase was due to higher gross margins which
offset a slight increase in operating expenses and a lower LIFO charge than in
the same period last year.
Gross margin increased to 46.7% from 45.4% in the twenty-six weeks of 1995.
The effect of LIFO for the twenty-six weeks ended July 30, 1995 and July 31,
1994 was a decrease in gross profit by $1.5 million and $2.5 million,
respectively.
Total operating and interest expense as a percentage of sales increased to
44.7% from 43.7% for the same period of the prior year due to slightly higher
selling, general and administrative, expenses and the lower sales volume.
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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.
Federal minimum wage hikes would have an adverse effect on earnings although
the impact cannot be readily quantified. 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
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<PAGE> 10
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.
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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 4. Submission of matters to a Vote of Security Holders
a. Registrant's Annual Meeting of Shareholders was held June 8,
1995.
b. Proxies for the meeting were solicited pursuant to Regulation
14 under the Securities Exchange Act of 1934, there was no
solicitation in opposition to the management's nominee as
listed in the proxy statement, and such nominee was elected.
c. The vote in the uncontested election of such nominee was as
follows: 17,153,782 votes cast for and 299,756 votes withheld.
d. Inapplicable
Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits -
11 Statement regarding computation of earnings per share
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K -
None
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<PAGE> 12
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: September 11, 1995 Accounting Officer)
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<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except for
per share amounts) Thirteen Weeks Ended Twenty-six Weeks Ended
------------------------ --------------------------
July 30, July 31, July 30, July 31,
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings per share
Net earnings $ 843 $ 868 $ 2,141 $ 1,892
======================================================
Weighted average number of common shares
outstanding during period 21,587,901 21,543,771 21,489,967 21,454,855
Additional shares attributable to common
stock equivalents 109,868 75,945 134,739 83,570
Shares attributable to tax effect of restricted stock
and related deferred compensation (486,200) (401,400) (463,040) (393,971)
------------------------------------------------------
21,211,569 21,218,316 21,161,666 21,144,454
======================================================
Earnings per share $ 0.04 $ 0.04 $ 0.10 $ 0.09
======================================================
------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings $ 843 $ 868 $ 2,141 $ 1,892
======================================================
Weighted average number of common shares
outstanding during period 21,587,901 21,543,771 21,489,967 21,454,855
Additional shares attributable to common
stock equivalents 179,067 75,945 166,367 84,098
Shares attributable to tax effect of restricted stock
and related deferred compensation (482,717) (401,400) (463,040) (393,971)
------------------------------------------------------
21,284,251 21,218,316 21,193,294 21,144,982
======================================================
Earnings per share $ 0.04 $ 0.04 $ 0.10 $ 0.09
======================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HANCOCK FABRICS, INC FOR THE SIX MONTHS ENDED JULY 30,
1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JUL-30-1995
<CASH> 4,869
<SECURITIES> 0
<RECEIVABLES> 1,852
<ALLOWANCES> 0
<INVENTORY> 173,466
<CURRENT-ASSETS> 185,598
<PP&E> 20,773
<DEPRECIATION> 0
<TOTAL-ASSETS> 213,615
<CURRENT-LIABILITIES> 55,000
<BONDS> 0
<COMMON> 270
0
0
<OTHER-SE> 96,148
<TOTAL-LIABILITY-AND-EQUITY> 213,615
<SALES> 171,616
<TOTAL-REVENUES> 171,616
<CGS> 91,399
<TOTAL-COSTS> 75,549
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,077
<INCOME-PRETAX> 3,591
<INCOME-TAX> 1,450
<INCOME-CONTINUING> 2,141
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,141
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
