<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 April 30, 1995
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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 April 30, 1995, the registrant had outstanding an aggregate of 21,523,509
shares of common stock, $.01 par value.
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HANCOCK FABRICS, INC.
INDEX
<TABLE>
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<CAPTION>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited) Page Numbers
<S> <C>
Consolidated Balance Sheet as of April 30, 1995 and January 29, 1995 3
Consolidated Statement of Earnings for the Thirteen Weeks ended
April 30, 1995 and May 1, 1994 4
Consolidated Statement of Changes in Shareholders' Equity for the
Thirteen Weeks ended April 30, 1995 5
Consolidated Statement of Cash Flows for the Thirteen Weeks ended
April 30, 1995 and May 1, 1994 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 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 10
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
- --------------------------------------------------------------------------------------------
<CAPTION>
(in thousands, except for April 30, January 29,
par value and numbers of shares) 1995 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,597 $ 3,855
Receivables, less allowance for doubtful accounts 1,852 1,842
Inventories 167,341 169,128
Deferred tax asset 2,810 2,629
Prepaid expenses 2,244 2,382
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Total current assets 177,844 179,836
Property and equipment, at depreciated cost 21,320 21,673
Deferred tax asset 6,635 6,753
Other assets 50 360
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Total assets $205,849 $208,622
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,012 $ 35,305
Accrued liabilities 15,379 15,935
Income taxes 2,777 4,801
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Total current liabilities 54,168 56,041
Long-term debt obligations 36,000 37,000
Postretirement benefit liability other than pensions 16,920 16,572
Other deferred liabilities 1,975 1,920
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Total liabilities 109,063 111,533
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Commitments and contingencies
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Shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares authorized;
26,952,864 issued and outstanding; (26,794,064 at 1/29/95) 270 268
Paid-in capital 18,071 16,425
Retained earnings 162,915 163,339
Less - Treasury stock, at cost, 5,429,355
shares held; (5,413,941 at 1/29/95) (79,052) (78,883)
Less - Deferred compensation on restricted stock
incentive plan (5,418) (4,060)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 96,786 97,089
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Total liabilities and shareholders' equity $205,849 $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
per share amounts) Thirteen Weeks Ended
-------------------------
April 30, May 1,
1995 1994
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<S> <C> <C>
Sales $90,067 $92,894
Cost of goods sold 49,109 52,729
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Gross margin 40,958 40,165
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Expenses (income)
Selling, general and administrative 37,354 36,971
Depreciation and amortization 998 1,060
Interest expense 516 525
Interest income (95) (27)
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Total operating and interest expenses 38,773 38,529
Earnings before taxes 2,185 1,636
Income taxes 887 612
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Net earnings $ 1,298 $ 1,024
========================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,172 21,148
========================================================================
Net earnings per share $ 0.06 $ 0.05
========================================================================
Dividends per share $ 0.08 $ 0.08
========================================================================
</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>
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<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
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Thirteen weeks
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Balance January 29, 1995 26,794,064 $268 $16,425 $163,339 (5,413,941) ($78,883) ($4,060) $97,089
Net earnings 1,298 1,298
Cash dividend - $.08 per
share on a quarterly basis (1,722) (1,722)
Exercise of stock options 10,000 62 62
Issuance of restricted stock 148,800 2 1,654 (1,656) 0
Amortization and vesting of deferred
compensation on restricted stock
incentive plan (70) 298 228
Purchase of treasury stock (15,414) (169) (169)
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Balance April 30, 1995 26,952,864 $270 $18,071 $162,915 (5,429,355) ($79,052) ($5,418) $96,786
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 6
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
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<CAPTION>
(in thousands)
Thirteen Weeks Ended
-----------------------
April 30, May 1,
1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,298 $1,024
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 998 1,060
LIFO charge 750 1,500
Deferred income taxes (62) (261)
Amortization of deferred compensation on
restricted stock incentive plan 298 270
(Increase) decrease in assets
Receivables and prepaid expenses 128 (665)
Inventory reduction (growth) at
current cost 1,037 1,391
Other noncurrent assets 310 (14)
Increase (decrease) in liabilities
Accounts payable 707 1,602
Accrued liabilities (556) 429
Current income tax obligations (2,094) 602
Postretirement benefit liability
other than pensions 348 361
Other deferred liabilities 55 (397)
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Net cash provided by operating activities 3,217 6,902
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Cash flows from investing activities:
Additions to property and equipment (646) (729)
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Net cash used in investing activities (646) (729)
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Cash flows from financing activities:
Repayment of long-term borrowings (1,000) (5,000)
Purchase of treasury stock (169) (354)
Proceeds from exercise of stock options 62 4
Cash dividends paid (1,722) (1,719)
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Net cash used in financing activities (2,829) (7,069)
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Decrease in cash and cash equivalents (258) (896)
Beginning of period cash and cash equivalents 3,855 4,327
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End of period cash and cash equivalents $3,597 $3,431
============================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 161 271
Income taxes 3,051 166
============================================================================
</TABLE>
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
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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 less productive locations will be redeployed
to new openings for more effective utilization of investment. During the
thirteen weeks ended April 30, 1995, Hancock opened 6 stores and closed 6
stores, which resulted in a total of 500 stores at period end.
During the thirteen weeks ended April 30, 1995, accounts payable increased due
to the timing of payments to vendors. Inventories decreased due to changes in
the product mix with less inventory in apparel goods.
The Company currently has $36 million in outstanding borrowings, or about 27%
of total capitalization, which is $4 million lower than the same period last
year.
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RESULTS OF OPERATIONS
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Thirteen weeks ended April 30, 1995 compared to thirteen weeks ended May 1,
1994
Sales decreased to $90.1 million from $92.9 million in the same period of the
prior year. A decrease of 1.6% in comparable store sales contributed to the
decline in sales. In addition sales in new stores opened less than one year
have not reached the sales maturity to offset the sales of the stores that were
replaced.
Net earnings were $1.3 million, or $.06 per share, compared with $1.0 million,
or $.05 per share, for the comparable period of the prior year. The increase in
earnings resulted from higher gross margins and a reduction in net interest
expense.
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<PAGE> 9
Gross margin, as a percent of sales, increased to 45.5% from 43.2% in the first
quarter of 1994. Gross margins improved due to changes in the product mix which
required fewer close outs of apparel goods. The effect of LIFO for the thirteen
weeks ended April 30, 1995 and May 1, 1994 decreased gross margin by $750
thousand and $1.5 million, respectively.
Total operating and interest expenses as a percentage of sales
increased to 43.1% from 41.5% in the first quarter of 1994 primarily due to the
lower sales volume. Operating expense dollars increased slightly; however,
interest expense was less as the lower debt level served to offset the effect
of interest rate increases from a year ago.
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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.
Proposed 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 remained stable, but the renewal costs of
older leases continue to increase. Taxes, maintenance and insurance costs have
also risen. Hancock believes that the practice of maintaining adequate
operating margins through a combination of price adjustments and cost controls,
careful evaluation of occupancy needs and efficient purchasing practices are
the most effective tools for coping with increasing costs and expenses.
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SEASONALITY
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The Company's business is slightly seasonal. Peak sales periods occur during
the fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and mid-summer.
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<PAGE> 10
PART II. OTHER INFORMATION
HANCOCK FABRICS, INC.
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Item 6. Exhibits and Reports of Form 8-K
(a) Exhibits -
11 Statement regarding computation of earnings per share
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
None
SIGNATURE
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANCOCK FABRICS, INC.
(Registrant)
By: /s/ Larry G. Kirk
---------------------
Larry G. Kirk
President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: June 13, 1995
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<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
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<CAPTION>
(dollars in thousands, except for
per share amounts) Thirteen Weeks Ended
--------------------------
April 30, May 1,
1995 1994
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<S> <C> <C>
Primary earnings per share
Net earnings $ 1,298 $ 1,024
=========== ===========
Weighted average number of common shares
outstanding during period 21,452,225 21,443,139
Additional shares attributable to common
stock equivalents 159,612 91,195
Shares attributable to tax effect of restricted stock
and related deferred compensation (439,879) (386,543)
----------- -----------
21,171,958 21,147,791
=========== ===========
Earnings per share $ 0.06 $ 0.05
=========== ===========
- ------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings $ 1,298 $ 1,024
=========== ===========
Weighted average number of common shares
outstanding during period 21,452,225 21,443,139
Additional shares attributable to common
stock equivalents 159,590 91,211
Shares attributable to tax effect of restricted stock
and related deferred compensation (439,879) (386,543)
----------- -----------
21,171,936 21,147,807
=========== ===========
Earnings per share $ 0.06 $ 0.05
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET P. 3, CONSOLIDATED STATEMENT OF EARNINGS P. 4 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-30-1995
<CASH> 3,597
<SECURITIES> 0
<RECEIVABLES> 1,852
<ALLOWANCES> 0
<INVENTORY> 167,341
<CURRENT-ASSETS> 177,844
<PP&E> 21,320
<DEPRECIATION> 0
<TOTAL-ASSETS> 205,849
<CURRENT-LIABILITIES> 54,168
<BONDS> 0
<COMMON> 270
0
0
<OTHER-SE> 96,516
<TOTAL-LIABILITY-AND-EQUITY> 205,849
<SALES> 90,067
<TOTAL-REVENUES> 90,067
<CGS> 49,109
<TOTAL-COSTS> 38,257
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 516
<INCOME-PRETAX> 2,185
<INCOME-TAX> 887
<INCOME-CONTINUING> 1,298
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,298
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
