Hancock Fabrics Q2 results in line with expectations

Gross profit dollars for the quarter increased by $0.6 million despite declining by 100 basis points to 42.9% of sales compared to 43.9% in the second quarter of the prior year due to our increased promotional activity.

Excluding fluctuations in the inventory valuation reserve of $0.8 million, gross profit dollars increased by $1.4 million for the quarter compared to the second quarter last year.

The decrease in margin rate is the result of an increase of 120 basis points in merchandise costs offset by a decline of 10 basis points in freight costs and 10 basis points in sourcing and warehousing expenses.

For the first half of 2012, gross profit decreased by 220 basis points to 41.8% of sales. A 270 basis point increase in the cost of merchandise was partially offset by reductions in freight costs of 10 basis points and in sourcing and warehousing costs of 40 basis points. Gross profit dollars increased by $2.2 million for the first half of the year when inventory valuation reserve fluctuations are excluded.

Selling, general and administrative expenses for the quarter were reduced to 44.7% of sales compared to 46.9% of sales for the second quarter of the prior year, or $27.0 million compared to $27.1 million in second quarter of the prior year. For the first half of the year, these expenses were $53.4 million (42.9% of sales) compared to $54.4 million (45.4% of sales), a $1.0 million or 2.5 percent (as a percentage of sales) reduction from the first half of last year.

Store Openings, Closings and Remodels

During the quarter, the Company relocated 3 stores for a total of 5 stores relocated in the first half of 2012, ending the quarter with 263 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.

Hancock Fabrics Inc