Hancock fabrics posts marginal growth in Q3FY'12 sales

Financial results for the third quarter include:

- Net sales for the quarter grew to $71.9 million compared to $70.8 million for the third quarter of last year, and comparable store sales increased 2.3% compared to a 3.5% decline in the previous year. This is a 5.8 percentage point improvement over the previous year third quarter.

-Operating loss for the quarter was $0.8 million compared to operating income of $1.2 million in the third quarter last year. The previous year operating income included a $1.0 million gain related to a bankruptcy claim settlement.

-At quarter end, the Company had outstanding borrowings under its revolving line of credit of $51.3 million and outstanding letters of credit of $5.8 million. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $29.6 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 $1.8 million.

First thirty-nine weeks financial results include:

Net sales for the first thirty-nine weeks of 2012 increased by $5.7 million to $196.3 million compared to $190.6 million for the first thirty-nine weeks of last year, and comparable store sales improved by 3.6%. This is a 6.6 percentage point improvement over the 3.0% decrease in the previous year.

Steve Morgan, President and Chief Executive Officer commented, “We have now completed thirteen consecutive months of positive comps, and as previously announced we have put into place financing with a four year term. We continue to feel positive about the holiday season based on our Black Friday performance with net sales up 23% compared to Black Friday last year and our November performance in general. We plan to stay our course as we go through the fourth quarter and prepare for 2013.”

Operating Results

Gross margin for the third quarter declined by 430 basis points to 39.2% compared to 43.5% in the third quarter of the prior year primarily due to continued [promotional activity in order to be competitive. Excluding fluctuations in the inventory valuation reserve, gross margin declined by 310 basis points for the quarter compared to the third quarter of the prior year. The decrease in margin rate is the result of increases of 300 basis points in merchandise costs, 20 basis points in freight costs and 110 basis points in sourcing and warehousing expenses.

Selling, general and administrative expenses for the quarter decreased to 39.1% of net sales compared to 40.3% of net sales for the third quarter of the prior year, or $28.1 million compared to $28.5 million in the prior year. For the first thirty-nine weeks of the year, these expenses were $81.5 million (41.5% of net sales) compared to $82.9 million (43.5% of net sales), a $1.4 million or 2.0 percent reduction as a percentage of sales from the first thirty-nine weeks of last year.

Store Openings, Closings and Remodels

During the quarter, the Company relocated 1 unit, for a total of 6 units relocated this fiscal year, and closed 2 locations, ending the quarter with 261 stores.

Hancock Fabrics, Inc. is committed to being the inspirational authority in fabric and sewing, serving creative enthusiasts with a complete selection of fashion and home decorating textiles, sewing accessories, needlecraft supplies and sewing machines.

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