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Comparable store sales drop at Hancock Fabrics
14
Sep '11
Hancock Fabrics, Inc. announced financial results for its second quarter ended July 30, 2011 and its first half of fiscal 2011.

Financial results for the second quarter include:
• Net sales for the quarter were $57.8 million compared to $60.5 million for second quarter of last year, and comparable store sales decreased 4.1% compared to a 0.7% increase in the previous year.
• Operating loss for the quarter was $2.7 million compared to operating income of $0.6 million in the second quarter last year.
• Net loss was $3.9 million or $0.20 per basic share in the second quarter of fiscal 2011, compared to a net loss of $0.8 million or $0.04 per basic share in the second quarter of fiscal 2010.
• At quarter end, the Company had outstanding borrowings under its revolving line of credit of $26.4 million and outstanding letters of credit of $7.1 million. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $36.5 million. The balance of the Company's subordinate debt was $21.6 million at quarter end, and the unamortized warrant discount on this debt was $4.8 million.

First half financial results include:
• Net sales for the first half of 2011 were $119.8 million compared to $123.6 million in the first half of last year, and comparable store sales declined 2.7%, following a 0.7% decrease in the previous year.
• Operating loss for the first half was $3.7 million compared to $0.6 million of operating income in the previous year.
• Net loss was $6.1 million or $0.31 per basic share in the first half of fiscal 2011, compared to a net loss of $2.1 million, or $0.10 per basic share in the first half of fiscal 2010.

Steve Morgan, Interim President and Chief Executive Officer commented, "The second quarter numbers were negatively influenced by the lack of buying strategies implemented in the summer of last year. Fabric inventory levels are down very significantly year over year despite adding a considerable craft assortment in approximately 25% of our stores. These reduced fabric levels have delayed the income improvements we are anticipating will be provided by the various operating initiatives we are currently executing. We have remedied a portion of the inventory imbalance with receipts that are just now beginning to flow into our stores. Our recently installed merchandise team is making progress in correcting the missed buys of last year."

Morgan continued, "We have seen encouraging results from our stores that have an expanded craft assortment currently in place. These stores have run significantly better than the chain over the last 30 days. In addition, we expect improvement throughout the chain as we enter into our October selling period, as our inventories will once again reach fortified levels in order to support our core fabric businesses and customers."

Operating Results
Gross margin for the quarterdeclined by 380 basis points to 43.9% compared to 47.7% in the prior year. This is the result of increases of 200 basis points in merchandise costs, 110 basis points in freight costs and 70 basis points in sourcing and warehousing expenses.

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