Sales up 3.5% at Hancock Fabrics in Q1 FY'12

Hancock Fabrics Inc. announced financial results for its first quarter ended April 28, 2012.

Financial resuts for the first quarter include:

• Net sales for the quarter increased 3.5% on a comparable basis to $63.9 million compared to $62.0 million for first quarter of last year. This is an almost five percentage point improvement over the previous year comparable sales decrease of 1.3%.
• Operating loss for the quarter was $1.2 million compared to a $1.0 million loss in the first quarter of last year.
• Net loss was $2.4 million, or $0.12 per basic share, in the first quarter of fiscal 2012 compared to a net loss of $2.2 million, or $0.11 per basic share in the first quarter of fiscal 2011.
• Adjusted EBITDA totaled $207,000 compared to $552,000 for the first quarter of fiscal 2011.
• At quarter end, the Company had outstanding borrowings under its revolving line of credit of $35.5 million and outstanding letters of credit of $6.3 million. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $28.4 million. The balance of the Company's subordinated debt was $21.6 million at quarter end, and the unamortized warrant discount on this debt was $2.9 million.

Steve Morgan, President and Chief Executive Officer commented, "Sales continue to ramp as we move into June, with 7 months of positive comparables in a row. This is the first time that Hancock has achieved a continuous sales increase for that period of time since 2003."

Morgan continued, "The first quarter expenses, as committed, were reduced by over $900,000 compared to last year's first quarter, and point of sale gross margin dollars provide a $905,585 increase over last year's first quarter - even though our increased promotional activity driven by competitive pressures decreased the point of sale gross margin rate slightly."

Morgan concluded, "Inventories are extremely clean and initiatives put into place over the past 8 months continue to contribute to these positive comparables. We feel optimistic about the remainder of the year."

Operating Results

Our point of sale gross margin provided an additional $0.9 million of product margin dollars for the quarter over the same quarter last year, despite decreasing by 70 basis points. This point of sale gross margin rate softening was a result of the necessity of increased promotional activity as a consequence of consumer sensitivity to pricing.

Our product margin dollar improvement was offset by inventory valuation reserve changes year over year. This decline was reduced by a decrease in freight costs and in sourcing and warehousing expenses compared to the first quarter of the prior year.

Selling, general and administrative expenses fo