Hancock Fabrics Inc announced financial results for its 2010 fiscal year and fourth quarter ended January 29, 2011.
Net sales for the year were $275.5 million compared with $274.1 million in the previous year, and comparable store sales were flat over the last two years.
Operating income for the year was a loss of $5.0 million, a decrease of $12.7 million from the previous year. Excluding one-time charges incurred in the fourth quarter totaling $9.5 million, operating income for the year was $4.5 million, a decrease of $3.2 million from the previous year. One-time items included a $6.7 million charge for inventory obsolescence, a $1.5 million charge for asset impairment, and $1.3 million of severance related costs associated with the CEO transition.
Adjusted EBITDA, which excludes the one-time items described above, totaled $11.0 million, a decrease of $3.3 million over fiscal 2009.
Inventories have been reduced by $3.7 million compared to the same period last year, ending the year at $87.8 million.
At year end, the Company had reduced outstanding borrowings under its revolving line of credit by $0.5 million, to a balance of $13.1 million, and had outstanding letters of credit of $7.5 million. The Note balance was $21.6 million and the warrant discount on the Notes was $5.8 million. Additional amounts available to borrow under its revolving line of credit at fiscal year-end were $43.8 million.
Net sales for the quarter were $78.4 million compared with $77.7 million in the fourth quarter last year, and comparable same store sales increased 0.7%, compared with a 1.3% decrease in the previous year - a 200 basis point improvement.
Operating income for the quarter was a loss of $8.4 million, a decrease of $11.7 million compared to a $3.3 million profit in the previous year's fourth quarter. Excluding the one-time charges totaling $9.5 million in the current quarter, operating income was $1.1 million, a decrease of $2.2 million versus the fourth quarter of fiscal 2009.
Adjusted EBITDA for the quarter was $2.7 million, a decrease of $2.4 million over the same period last fiscal year.
Steven R. Morgan, Interim President and Chief Executive Officer since February, commented, "We incurred significant one-time non-cash charges in the fourth quarter as we took actions to improve our business. The most significant charge was related to anticipated markdowns on aged products. These markdowns have been implemented, and will allow us the scope to liquidate these aged goods quicker as we move forward and ensure we have current, relevant merchandise for our customers. I am confident that we have identified, segregated, properly priced and positioned this product to provide a great value to our customers and to better position ourselves for new products in the remainder of the year."
Mr. Morgan continued, "This business has significant opportunity and a solid foundation is in place for its growth. The short term will be challenging as we focus on improving certain areas - specifically store presentation, refinement of craft business, and improvement to our replenishment process." Mr. Morgan concluded, "We are spending every minute capitalizing on these opportunities that will be key to our success and our ability to enhance the total customer experience. As a result, we believe we are well positioned to begin seeing significant improvement in the fall season."
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