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Hancock fabrics reports marginal growth in Q3

13
Dec '08
Hancock Fabrics, Inc. today reported net sales for the third quarter increased 1.3% to $70.6 million from $69.7 million last year, with same-store sales increasing 2.1%. Sales for the year-to-date period increased 0.7% to $198.2 million for the nine months ended November 1, 2008 from $196.9 million for the corresponding period of the prior year. Same-store sales increased 2.8% for the year-to-date period.

The 2.1% increase in same-store sales for the quarter was primarily the result of an increase in the number of store transactions. For the year-to-date period, the 2.8% increase in same store sales was primarily due to increases in average transactions and increases in the number of customer transactions.

The Company's gross margin rate decreased 460 basis points to 40.0% in the third quarter and 260 basis points on a year-to-date basis to 41.4%. Excluding the impact of the LIFO inventory reserve, gross margin rate decreased 200 basis points to 43.0% in the third quarter but increased 30 basis points on a year-to-date basis to 43.7%.

The decline in the gross margin rate for the third quarter was driven primarily by an increase in distribution costs partly offset by a 100 basis point increase in merchandise margin. The year-to-date gross margin rate increase was primarily driven by an increase in merchandise margin. This increase in merchandise margin was principally due to a reduction in clearance and promotional programs as well as benefits from ongoing product sourcing initiatives.

The net loss for the quarter ended November 1, 2008, of $2.5 million compared to a $6.1 million loss for the quarter ended November 3, 2007, both inclusive of bankruptcy related costs. The year-to-date net loss was $20.9 million for the nine months ended November 1, 2008, compared to a net loss of $20.7 million for the corresponding period of the prior year, both inclusive of bankruptcy related costs.

Jane Aggers, Chief Executive Officer and President, said, "We are encouraged with our progress this year despite the current economic climate. Our team has been able to drive positive comparative growth by increasing transaction counts and improving the average transaction total. In addition to driving the top line, we have been able to expand our margin rates by reducing clearance and promotional programs, while improving our product sourcing.

We have also concentrated on lowering our selling, general, and administrative costs. As we move forward into the fourth quarter, we will maintain focus in these same areas while attempting to maintain the top line in this challenging environment."

EBITDA on a FIFO basis from continuing operations excluding reorganization expenses for the third quarter of fiscal 2008 was $2.1 million versus $0.3 million for the same period last year. Year-to-date fiscal 2008 was a loss of $0.3 million versus a profit of $0.8 million in the first nine months of fiscal 2007.


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