<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 29, 1995
-----------------------------------
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
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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 October 29, 1995, the registrant had outstanding an aggregate of
21,507,545 shares of common stock, $.01 par value.
<PAGE> 2
HANCOCK FABRICS, INC.
INDEX
________________________________________________________________________________
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited) Page Numbers
Consolidated Balance Sheet as of October 29,1995 and January 29, 1995 3
Consolidated Statement of Earnings for the Thirteen Weeks and
Thirty-nine Weeks Ended October 29, 1995 and October 30, 1994 4
Consolidated Statement of Changes in Shareholders' Equity for the
Thirty-nine Weeks Ended October 29, 1995 5
Consolidated Statement of Cash Flows for the Thirty-nine Weeks Ended
October 29, 1995 and October 30, 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 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 11
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
(in thousands, except for October 29, January 29,
par value and numbers of shares) 1995 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,750 $ 3,855
Receivables, less allowance for doubtful accounts 1,909 1,842
Inventories 176,919 169,128
Deferred Tax Asset 2,420 2,629
Prepaid expenses 2,849 2,382
- ------------------------------------------------------------------------------------------
Total current assets 191,847 179,836
Property and equipment, at depreciated cost 20,291 21,673
Deferred tax asset 5,303 6,753
Other assets 374 360
- ------------------------------------------------------------------------------------------
Total assets $217,815 $208,622
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,874 $ 35,305
Accrued liabilities 17,530 15,935
Income taxes 1,182 4,801
- ------------------------------------------------------------------------------------------
Total current liabilities 52,586 56,041
Long-term debt obligations 48,000 37,000
Postretirement benefit liability other than pensions 17,655 16,572
Other deferred liabilities 1,274 1,920
- ------------------------------------------------------------------------------------------
Total liabilities 119,515 111,533
- ------------------------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares authorized;
26,961,015 issued and outstanding; (26,794,064 at 1/29/95) 270 268
Paid-in capital 18,219 16,425
Retained earnings 163,667 163,339
Less - Treasury stock, at cost, 5,453,470
shares held; (5,413,941 at 1/29/95) (79,308) (78,883)
Less - Deferred compensation on restricted stock
incentive plan (4,548) (4,060)
- ------------------------------------------------------------------------------------------
Total shareholders' equity 98,300 97,089
- ------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $217,815 $208,622
==========================================================================================
</TABLE>
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 29, October 30, October 29, October 30,
1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $95,891 $96,505 $267,507 $271,212
Cost of goods sold 49,830 50,464 141,229 145,839
- ---------------------------------------------------------------------------------------------------------------------
Gross margin 46,061 46,041 126,278 125,373
- ---------------------------------------------------------------------------------------------------------------------
Expenses (income)
Selling, general and administrative 39,067 37,811 112,852 110,959
Depreciation and amortization 987 1,037 2,953 3,146
Interest expense 693 744 1,770 1,875
Interest income (70) (45) (272) (125)
- ---------------------------------------------------------------------------------------------------------------------
Total operating and interest expenses 40,677 39,547 117,303 115,855
Earnings before income taxes 5,384 6,494 8,975 9,518
Income taxes 2,032 2,581 3,482 3,713
- ---------------------------------------------------------------------------------------------------------------------
Net earnings $ 3,352 $ 3,913 $ 5,493 $ 5,805
=====================================================================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,462 21,193 21,250 21,132
=====================================================================================================================
Net earnings per share $ 0.16 $ 0.18 $ 0.26 $ 0.27
=====================================================================================================================
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 Common Stock Additional Treasury Stock Deferred Total
numbers of shares) ------------------ Paid-in Retained ------------------ Com- Shareholders'
Shares Amount Capital Earnings Shares Amount pensation Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Thirty-nine weeks
- ------------------------------------------------------------------------------------------------------------------------------------
<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 5,493 5,493
Cash dividend - $.08 per
share on a quarterly basis (5,165) (5,165)
Exercise of stock options 11,600 72 72
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 13 1,156 1,169
Cancellation of restricted stock (1,700) (17) 12 (5)
Purchase of treasury stock (39,529) (425) (425)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance October 29, 1995 26,961,015 $270 $18,219 $163,667 (5,453,470) ($79,308) ($4,548) $98,300
====================================================================================================================================
</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) Thirty-nine Weeks Ended
-----------------------
October 29, October 30,
1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,493 $ 5,805
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 2,953 3,146
LIFO charge 2,500 2,250
Deferred income taxes 1,659 (1,053)
Amortization of deferred compensation on
restricted stock incentive plan 1,151 865
(Increase) decrease in assets
Receivables and prepaid expenses (534) (1,863)
Inventory growth at current cost (10,291) (6,442)
Other noncurrent assets (14) (43)
Increase (decrease) in liabilities
Accounts payable (1,431) (3,258)
Accrued liabilities 1,595 3,008
Current income tax obligations (3,606) 1,398
Postretirement benefit liability
other than pensions 1,083 978
Other deferred liabilities (646) (146)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) operating activites (88) 4,645
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (1,571) (3,742)
- ---------------------------------------------------------------------------------------
Net cash used in investing activities (1,571) (3,742)
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings 11,000 5,000
Purchase of treasury stock (425) (952)
Proceeds from exercise of stock options 72 4
Stock plan for non-employee directors 72 73
Cash dividends paid (5,165) (5,153)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,554 (1,028)
- ---------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 3,895 (125)
Beginning of period cash and cash equivalents 3,855 4,327
- ---------------------------------------------------------------------------------------
End of period cash and cash equivalents $ 7,750 $ 4,202
=======================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 1,548 1,875
Income taxes 6,982 3,396
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<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 29, 1995 incorporated into the Company's
Annual Report on Form 10-K.
The results of operations for the thirteen and thirty-nine 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.
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<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 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 to new openings for more effective utilization
of investment. During the thirteen weeks ended October 29, 1995, Hancock opened
9 stores and closed 7 stores, which resulted in a total of 503 stores at period
end.
During the thirteen weeks ended October 29, 1995, debt increased due to a
seasonal increase in inventories. The Company currently has $48 million in
outstanding debt, or about 33% of total capitalization, compared to $50 million
in the same period last year.
________________________________________________________________
RESULTS OF OPERATIONS
________________________________________________________________
Thirteen weeks ended October 29, 1995 compared to thirteen weeks ended October
- ------------------------------------------------------------------------------
30, 1994
- --------
Sales decreased to $95.9 million from $96.5 million in the same period of the
prior year. An increase of .5% in comparable store sales was offset by lower
sales in 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 $3.4 million, or $.16 per share, compared with $3.9 million,
or $.18 per share, for the comparable period of the prior year. The decline in
earnings resulted from higher SG&A expenses and a higher charge to the LIFO
reserve, but the decrease was partially offset by improved gross margins and
lower interest expenses.
-8-
<PAGE> 9
Gross margin as a percent of sales increased to 48.0% from 47.7% in the third
quarter of 1994. The effect of LIFO for the thirteen weeks ended October 30,
1995 was to decrease gross margin by $1.0 million. For the same period of the
prior year, LIFO increased gross margin by $250 thousand.
Total operating and interest expenses increased as a percentage of sales to
42.4% from 41.0% in the third quarter of 1994 primarily due to a lower sales
volume and higher SG&A expenses. Interest expense was lower than the same
quarter last year due to lower interest rates on a lower average level of debt.
Thirty-nine weeks ended October 29, 1995 compared to thirty-nine weeks ended
- -----------------------------------------------------------------------------
October 30, 1994
- ----------------
Sales decreased to $267.5 million from $271.2 million in the same period of the
prior year due to a .2% decrease in comparable store sales, which was partially
offset by sales from new stores.
Net earnings were $5.5 million compared to $5.8 million in the same period of
the prior year. The decrease was due to the higher SG&A expense and a higher
LIFO charge, partially offset by the improvement in gross margins and lower
interest costs.
Gross margin increased to 47.2% from 46.2% in the thirty-nine weeks of 1994.
The effect of LIFO for the thirty-nine weeks ended October 29, 1995 and October
30, 1994 was a decrease in gross margin by $2.5 million and $2.25 million,
respectively.
Total operating and interest expenses, as a percentage of sales, increased to
43.9% from 42.7% in the same period of the prior year due to a lower sales
volume and higher SG&A expenses.
________________________________________________________________
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.
-9-
<PAGE> 10
Assuming interest rates remain near their current level, the Company
anticipates that interest costs will continue to decrease in the near term.
Additionally, the Company anticipates the impact of LIFO over the short term to
be unfavorable to earnings based on a continuation of the present rate of
inflation and other factors that are used to determine LIFO.
________________________________________________________________
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
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 11, 1995 Accounting Officer)
-11-
<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 Thirty-nine Weeks Ended
------------------------- --------------------------
October 29, October 30, October 29, October 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Primary earnings per share
Net earnings $ 3,352 $ 3,913 $ 5,493 $ 5,805
=======================================================
Weighted average number of common shares
outstanding during period 21,589,987 21,529,772 21,497,718 21,451,376
Additional shares attributable to common
stock equivalents 321,900 62,824 211,011 76,655
Shares attributable to tax effect of restricted stock
and related deferred compensation (449,738) (400,073) (458,606) (396,005)
-------------------------------------------------------
21,462,149 21,192,523 21,250,123 21,132,026
=======================================================
Earnings per share $ 0.16 $ 0.18 $ 0.26 $ 0.27
=======================================================
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings $ 3,352 $ 3,913 $ 5,493 $ 5,805
=======================================================
Weighted average number of common shares
outstanding during period 21,589,987 21,529,772 21,497,718 21,451,376
Additional shares attributable to common
stock equivalents 321,875 72,275 217,832 76,404
Shares attributable to tax effect of restricted stock
and related deferred compensation (449,738) (400,073) (458,606) (396,005)
-------------------------------------------------------
21,462,124 21,201,974 21,256,944 21,131,775
=======================================================
Earnings per share $ 0.16 $ 0.18 $ 0.26 $ 0.27
=======================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HANCOCK FABRICS, INC. FOR THE NINE MONTHS ENDED OCTOBER
29, 1995, 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-28-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> OCT-29-1995
<CASH> 7,750
<SECURITIES> 0
<RECEIVABLES> 1,909
<ALLOWANCES> 0
<INVENTORY> 176,919
<CURRENT-ASSETS> 191,847
<PP&E> 20,291
<DEPRECIATION> 0
<TOTAL-ASSETS> 217,815
<CURRENT-LIABILITIES> 52,586
<BONDS> 0
<COMMON> 270
0
0
<OTHER-SE> 98,030
<TOTAL-LIABILITY-AND-EQUITY> 217,815
<SALES> 267,507
<TOTAL-REVENUES> 267,507
<CGS> 141,229
<TOTAL-COSTS> 115,533
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,770
<INCOME-PRETAX> 8,975
<INCOME-TAX> 3,482
<INCOME-CONTINUING> 5,493
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,493
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
