<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 28, 1996
-------------------------------------------------
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 28, 1996, the registrant had outstanding an aggregate of 21,588,136
shares of common stock, $.01 par value.
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HANCOCK FABRICS, INC.
INDEX
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited) Page Numbers
<S> <C>
Consolidated Balance Sheet as of April 28, 1996 and January 28, 1996 3
Consolidated Statement of Earnings for the Thirteen Weeks ended
April 28, 1996 and April 30, 1995 4
Consolidated Statement of Changes in Shareholders' Equity for the
Thirteen Weeks ended April 28, 1996 5
Consolidated Statement of Cash Flows for the Thirteen Weeks ended
April 28, 1996 and April 30, 1995 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 1. FINANCIAL INFORMATION
HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
(in thousands, except for April 28, January 28,
par value and numbers of shares) 1996 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,381 $ 5,026
Receivables, less allowance for doubtful accounts 1,423 1,025
Inventories 157,111 162,915
Deferred tax asset 1,264 3,114
Prepaid expenses 1,585 2,306
- ----------------------------------------------------------------------------------------
Total current assets 165,764 174,386
Property and equipment, at depreciated cost 19,202 19,462
Deferred tax asset 7,463 7,393
Other assets 663 594
- ----------------------------------------------------------------------------------------
Total assets $193,092 $201,835
========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,923 $ 32,573
Accrued liabilities 13,837 14,717
Income taxes 1,283 4,192
- ----------------------------------------------------------------------------------------
Total current liabilities 49,043 51,482
Long-term debt obligations 23,000 30,000
Postretirement benefit liability other than pensions 18,132 17,784
Other deferred liabilities 2,493 2,148
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Total liabilities 92,668 101,414
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Commitments and contingencies
- ----------------------------------------------------------------------------------------
Shareholders'equity:
Common stock, $.0l par value; 80,000,000 shares authorized;
27,057,015 and 26,962,115 issued and outstanding, respectively 271 270
Paid-in capital 18,962 18,238
Retained earnings 165,314 165,404
Less - Treasury stock, at cost, 5,468,879 and 5,454,097
shares held, respectively (79,457) (79,314)
Less - Deferred compensation on restricted stock
incentive plan (4,666) (4,177)
- ----------------------------------------------------------------------------------------
Total shareholders' equity 100,424 100,421
- ----------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $193,092 $201,835
========================================================================================
</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
per share amounts) -----------------------
April 28, April 30,
1996 1995
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<S> <C> <C>
Sales $91,629 $90,067
Cost of goods sold 49,426 49,109
- -------------------------------------------------------------------------
Gross margin 42,203 40,958
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Expenses (income)
Selling, general and administrative 38,222 37,354
Depreciation and amortization 963 998
Interest expense 418 516
Interest income (53) (95)
- -------------------------------------------------------------------------
Total operating and interest expenses 39,550 38,773
Earnings before taxes 2,653 2,185
Income taxes 1,017 887
- -------------------------------------------------------------------------
Net earnings $ 1,636 $ 1,298
=========================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,477 21,172
=========================================================================
Net earnings per share $ 0.08 $ 0.06
=========================================================================
Dividends per share $ 0.08 $ 0.08
=========================================================================
</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 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>
Thirteen weeks
- ------------------------------------------------------------------------------------------------------------------------------------
Balance January 28, 1996 26,962,115 $270 $18,238 $165,404 (5,454,097) ($79,314) ($4,177) $100,421
Net earnings 1,636 1,636
Cash dividend - $.08 per
share on a quarterly basis (1,726) (1,726)
Exercise of stock options 6,800 55 55
Issuance of restricted stock 88,100 1 847 (848) 0
Amortization and vesting of deferred
compensation on restricted stock
incentive plan (178) 359 181
Purchase of treasury stock (14,782) (143) (143)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance April 28, 1996 27,057,015 $271 $18,962 $165,314 (5,468,879) ($79,457) ($4,666) $100,424
====================================================================================================================================
</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)
Thirteen Weeks Ended
------------------------
April 28, April 30,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,636 $ 1,298
Adjustments to reconcile net earnings to cash
provided by operating activities
Depreciation and amortization 963 998
LIFO charge 1,000 750
Deferred income taxes 1,780 (62)
Amortization of deferred compensation on
restricted stock incentive plan 359 298
(Increase) decrease in assets
Receivables and prepaid expenses 323 128
Inventory reduction (growth) at
current cost 4,804 1,037
Other noncurrent assets (69) 310
Increase (decrease) in liabilities
Accounts payable 1,350 707
Accrued liabilities (880) (556)
Current income tax obligations (3,087) (2,094)
Postretirement benefit liability
other than pensions 348 348
Other deferred liabilities 345 55
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 8,872 3,217
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (703) (646)
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Net cash used in investing activities (703) (646)
- ------------------------------------------------------------------------------------
Cash flows from financing activities:
Repayment of long-term borrowings (7,000) (1,000)
Purchase of treasury stock (143) (169)
Proceeds from exercise of stock options 55 62
Cash dividends paid (1,726) (1,722)
- ------------------------------------------------------------------------------------
Net cash used in financing activities (8,814) (2,829)
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Decrease in cash and cash equivalents (645) (258)
Beginning of period cash and cash equivalents 5,026 3,855
- ------------------------------------------------------------------------------------
End of period cash and cash equivalents $ 4,381 $ 3,597
====================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest 405 161
Income taxes 2,324 3,051
====================================================================================
</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 28, 1996 incorporated into the
Company's Annual Report on Form 10-K.
The results of operations for the thirteen week period 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 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 1996, Hancock plans to open approximately 20 units
and close or relocate approximately 35 stores resulting in a net decrease in
retail fabric stores. Hancock's management believes that redeploying
inventories and other assets from underperforming stores to new openings or
existing stores is a more effective utilization of assets during this period of
industry consolidation. Hancock is tracking and assessing the contribution of
each store and the effect on total company returns on sales and assets. The
extent of store closings and the related costs will be determined by the
assessment of current and anticipated productivity, current lease terms of the
respective stores and the rent commissions or sublease prospects for such
properties. During the thirteen weeks ended April 28, 1996, Hancock opened 1
store and closed 8 stores, which resulted in a total of 491 stores at period
end.
During the thirteen weeks ended April 28, 1996, accounts payable increased due
to the timing of payments to vendors. Inventories decreased according to
planned reduction in stock levels through adjustments in the purchase and
allocation of merchandise.
The Company currently has $23 million in outstanding borrowings, or about 19%
of total capitalization, which is $13 million lower than the same period last
year.
RESULTS OF OPERATIONS
Thirteen weeks ended April 28, 1996 compared to thirteen weeks ended April 30,
1995
Sales increased to $91.6 million from $90.1 million in the same period of the
prior year. An increase of 3.1% in comparable store sales contributed to the
increase in sales. This comparable store sales
-8-
<PAGE> 9
gain was partially offset by a $1.1 million net loss of sales from store
opening and closing activity and from wholesale sales declines.
Net earnings were $1.6 million, or $.08 per share, compared with $1.3 million,
or $.06 per share, in the comparable period of the prior year. The increase in
earnings resulted from higher gross margins and a reduction in net interest
expense.
Gross margin as a percent of sales increased to 46.1% from 45.5% in the first
quarter of 1995. Gross margins improved due to better mix management and sell
through of seasonal merchandise, and fewer merchandise markdowns. The effect
of LIFO for the thirteen weeks ended April 28, 1996 and April 28, 1995
decreased gross margin by $1.0 million and $750 thousand, respectively.
Total operating and interest expenses as a percentage of sales increased to
43.2% from 43.1% in the first quarter of 1995 primarily due to higher selling,
general and administration expenses. Operating expense dollars increased
slightly; however, interest expense was less as the lower debt level served to
overcome the effect of interest rate increases from a year ago.
The effect of income tax rates decreased to 38.3% from 40.6% in the prior
period due to changes in the profits of individual states.
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.
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 remain 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.
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
preChristmas and midsummer.
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<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 SEC use only)
(b) Reports on Form 8-K -
None
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 and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: June 10, 1996
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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
-------------------------------
April 28, April 30,
1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Primary earnings per share
Net earnings $ 1,636 $ 1,298
========== ==========
Weighted average number of common shares 21,488,531 21,452,225
outstanding during period
Additional shares attributable to common
stock equivalents 306,211 159,612
Shares attributable to tax effect of restricted stock
and related deferred compensation (317,318) (439,879)
---------- ----------
21,477,424 21,171,958
========== ==========
Earnings per share $ 0.08 $ 0.06
========== ==========
- -------------------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings $ 1,636 $ 1,298
========== ==========
Weighted average number of common shares
outstanding during period 21,488,531 21,452,225
Additional shares attributable to common
stock equivalents 422,454 159,590
Shares attributable to tax effect of restricted stock
and related deferred compensation (281,093) (439,879)
---------- ----------
21,629,892 21,171,936
========== ==========
Earnings per share $ 0.08 $ 0.06
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HANCOCK FABRICS, INC. FOR THE THREE MONTHS ENDED APRIL
28, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> APR-28-1996
<CASH> 4,381
<SECURITIES> 0
<RECEIVABLES> 1,423
<ALLOWANCES> 0
<INVENTORY> 157,111
<CURRENT-ASSETS> 165,764
<PP&E> 19,202
<DEPRECIATION> 0
<TOTAL-ASSETS> 193,092
<CURRENT-LIABILITIES> 49,043
<BONDS> 0
0
0
<COMMON> 271
<OTHER-SE> 100,153
<TOTAL-LIABILITY-AND-EQUITY> 193,092
<SALES> 91,629
<TOTAL-REVENUES> 91,629
<CGS> 49,426
<TOTAL-COSTS> 39,132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 2,653
<INCOME-TAX> 1,017
<INCOME-CONTINUING> 1,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,636
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
