2.3% Same Store Sales Increase, Net Increases by $4.4 Million
Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced financial results for its first quarter of fiscal 2009.
Financial highlights for the quarter include:
- Net sales for the quarter were $64.1 million compared with $63.8 million in the first quarter last year, and comparable sales increased 2.3%, compared with a 3.1% decrease in the previous year.
- Operating income for the quarter was $0.6 million, an increase of $2.8 million from the previous year’s first quarter.
- Net loss was $0.9 million, or $0.05 per share, in the first quarter of fiscal 2009, compared to a net loss of $5.3 million, or $0.28 per share in the first quarter of fiscal 2008.
- EBITDA for the quarter was $2.2 million, an increase of $2.8 million over the same period last fiscal year.
- Inventories have been reduced by $3.6 million since fiscal year end and $17.7 million compared to the same period last year.
- At quarter end, the Company had outstanding borrowings under its Revolver of $31.8 million and outstanding letters of credit of $7.1 million. The Note balance was $21.2 million and the warrant discount on the Notes was $9.9 million. Additional amounts available to borrow at that time were $34.9 million.
Jane Aggers, President and Chief Executive Officer noted, “Although the retail environment is still challenging, we continue to make progress on our key operating initiatives: improving operations and reducing debt. Our efforts have resulted in the significant increase in EBITDA and the narrowing of our loss. We will continue to focus on these initiatives, while providing our customers with the products, services and value they desire as we strive to return to profitability.”
Operating Results
Gross margin for the first quarter of 45.1% was a 30 basis point improvement over the 44.8% of the prior year. This increase reflects a 40 basis point reduction in merchandise cost and a 40 basis point reduction in freight costs offset by reduced supply chain leverage as store count and inventory levels have diminished from prior periods.
Selling, general and administrative expenses for the quarter decreased to $27.2 million (42.4% of sales) from $29.8 million (46.6% of sales) in the prior year. This reduction in expense was driven by increased labor efficiency, reduced store operating expenses, and savings of professional fees.
Store Openings, Closings and Remodels
During the first quarter of fiscal 2009, the Company opened 1 store, remodeled 2 locations, and ended the quarter with 264 stores.
First Quarter Conference Call
Hancock will hold its first quarter earnings conference call tomorrow, June 4, at 10:00 CST. To participate in the conference call, please call 888-679-8037 or 617-213-4849 (Int’l) and provide the operator with pass code #46488100. If you are unable to attend the live call, a replay will be available, please dial 888-286-8010 or 617-801-6888 (Int’l) and enter pin #42058696. The replay will be available by phone or on the Company’s website at approximately 1:00 p.m. CST on Thursday, June 4, 2009 and will remain available through Thursday, June 18, 2009.
A simultaneous webcast of the conference call may be accessed at www.hancockfabrics.com. Go to “About Us,” click on “Investors” then on “Event Calendar.” To listen to the live call via webcast, please go to the Company’s website at least 15 minutes early to register, download and install any necessary audio software. An archive of the conference call will be available on the Company’s website approximately two hours after the conference call ends.
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. The Company currently operates 264 retail stores in 37 states and an Internet store at www.hancockfabrics.com.
Supplemental Disclosures Regarding Non-GAAP Financial Information
The Company has presented Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) in this press release to provide investors with additional information to evaluate our operating performance and our ability to service our debt. The Company defines EBITDA as net income before interest, income taxes, discontinued operations, depreciation and amortization, and reorganization expenses. The Company uses EBITDA, among other things, to evaluate operating performance, to plan and forecast future periods’ operating performance, and as an incentive compensation target for certain management personnel.
As EBITDA is not a measure of operating performance or liquidity calculated in accordance with U.S. GAAP, this measure should not be considered in isolation of, or as a substitute for, net income, as an indicator of operating performance, or net cash provided by operating activities as an indicator of liquidity. Our computation of EBITDA may differ from similarly titled measures used by other companies. As EBITDA exclude certain financial information compared with net income and net cash provided by operating activities, the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded. The table below shows a reconciliation of EBITDA to net earnings and net cash provided by operating activities.
Comments in this news release that are not historical facts are forward-looking statements that involve risks and uncertainties which could cause actual results to differ materially from projections.These risks and uncertainties include, but are not limited to, general economic trends, adverse discounting actions taken by competitors, changes in consumer demand or purchase patterns, delays or interruptions in the flow of merchandise between the Company’s suppliers and/or its distribution center and its stores, tightening of purchase terms by suppliers and their factors, a disruption in the Company’s data processing services and other contingencies discussed in the Company’s Securities and Exchange Commission filings. Hancock undertakes no obligation to release revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required to be reported under the rules and regulations of the Securities and Exchange Commission.
HANCOCK FABRICS, INC. | ||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||
(unaudited) | ||||||||||||||
Thirteen Weeks Ended | ||||||||||||||
May 2, | May 3, | |||||||||||||
(in thousands, except per share amounts) | 2009 | 2008 | ||||||||||||
Sales | $ | 64,069 | $ | 63,816 | ||||||||||
Cost of goods sold | 35,157 | 35,247 | ||||||||||||
Gross profit | 28,912 | 28,569 | ||||||||||||
Selling, general and administrative expense | 27,181 | 29,750 | ||||||||||||
Depreciation and amortization | 1,089 | 1,013 | ||||||||||||
Operating income (loss) | 642 | (2,194 | ) | |||||||||||
Reorganization expense, net | 239 | 2,676 | ||||||||||||
Interest expense, net | 1,334 | 989 | ||||||||||||
Loss from continuing operations before income taxes | (931 | ) | (5,859 | ) | ||||||||||
Income taxes | - | - | ||||||||||||
Loss from continuing operations | (931 | ) | (5,859 | ) | ||||||||||
Earnings from discontinued operations, (net of tax expense of $0 and $0) | 49 | 542 | ||||||||||||
Net loss | $ | (882 | ) | $ | (5,317 | ) | ||||||||
Basic and diluted loss per share: | ||||||||||||||
Loss from continuing operations | $ | (0.05 | ) | $ | (0.31 | ) | ||||||||
Earnings from discontinued operations | 0.00 | 0.03 | ||||||||||||
Net loss | $ | (0.05 | ) | $ | (0.28 | ) | ||||||||
Weighted average shares outstanding: | ||||||||||||||
Basic and diluted | 19,219 | 18,984 |
HANCOCK FABRICS, INC. | ||||||||||||||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||||||||||||||
(unaudited) | ||||||||||||||||||||
(in thousands) | May 2, | May 3, | January 31, | |||||||||||||||||
2009 | 2008 | 20091 | ||||||||||||||||||
Assets | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 2,242 | $ | 2,705 | $ | 2,338 | ||||||||||||||
Receivables, less allowance for doubtful accounts | 2,968 | 4,037 | 3,380 | |||||||||||||||||
Inventories | 100,582 | 118,299 | 104,156 | |||||||||||||||||
Income taxes refundable | - | 8,118 | - | |||||||||||||||||
Prepaid expenses | 1,341 | 1,058 | 1,735 | |||||||||||||||||
Total current assets | 107,133 | 134,217 | 111,609 | |||||||||||||||||
Property and equipment, net | 44,063 | 44,531 | 45,039 | |||||||||||||||||
Goodwill | 3,210 | 3,406 | 3,210 | |||||||||||||||||
Other assets | 5,533 | 7,653 | 4,816 | |||||||||||||||||
Total assets | $ | 159,939 | $ | 189,807 | $ | 164,674 | ||||||||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||||||
Liabilities not subject to compromise: | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable | $ | 18,680 | $ | 17,906 | $ | 21,437 | ||||||||||||||
Accrued liabilities | 14,001 | 13,996 | 14,813 | |||||||||||||||||
Other pre-petition obligations | 1,842 | - | 2,796 | |||||||||||||||||
Total current liabilities | 34,523 | 31,902 | 39,046 | |||||||||||||||||
Long-term debt obligations | 43,088 | 36,981 | 42,977 | |||||||||||||||||
Capital lease obligations | 3,256 | - | 3,287 | |||||||||||||||||
Postretirement benefits other than pensions | 2,208 | 384 | 2,211 | |||||||||||||||||
Pension and SERP liabilities | 22,212 | 396 | 21,706 | |||||||||||||||||
Other liabilities | 7,979 | 2,986 | 8,098 | |||||||||||||||||
Total liabilities not subject to compromise | 113,266 | 72,649 | 117,325 | |||||||||||||||||
Liabilities subject to compromise | - | 58,808 | - | |||||||||||||||||
Total liabilities | 113,266 | 131,457 | 117,325 | |||||||||||||||||
Commitments and contingencies | ||||||||||||||||||||
Shareholders' equity: | ||||||||||||||||||||
Common stock | 331 | 327 | 331 | |||||||||||||||||
Additional paid-in capital | 88,273 | 75,770 | 88,017 | |||||||||||||||||
Retained earnings | 124,025 | 132,018 | 124,907 | |||||||||||||||||
Treasury stock, at cost | (153,684 | ) | (153,661 | ) | (153,684 | ) | ||||||||||||||
Accumulated other comprehensive income (loss) | (12,272 | ) | 3,896 | (12,222 | ) | |||||||||||||||
Total shareholders' equity | 46,673 | 58,350 | 47,349 | |||||||||||||||||
Total liabilities and shareholders' equity | $ | 159,939 | $ | 189,807 | $ | 164,674 | ||||||||||||||
1 Derived from audited balance sheet included in our annual report on Form 10-K for the fiscal year January 31, 2009. |
Hancock Fabrics, Inc. | ||||||||||||||
Reconciliation of EBITDA | ||||||||||||||
(unaudited) | ||||||||||||||
Thirteen Weeks Ended | ||||||||||||||
May 2, | May 3, | |||||||||||||
(in thousands) | 2009 | 2008 | ||||||||||||
Net cash provided by (used in) operating activities before reorganization activities | $ | 1,935 | $ | (7,701 | ) | |||||||||
Depreciation and amortization, including cost of goods sold | (1,583 | ) | (1,584 | ) | ||||||||||
Amortization of deferred loan costs | (62 | ) | (156 | ) | ||||||||||
Amortization of bond discount | (583 | ) | - | |||||||||||
Interest paid-in-kind on notes | (346 | ) | - | |||||||||||
Stock compensation expense | (256 | ) | (447 | ) | ||||||||||
Reserve for store closings credits, including interest expense | 87 | 545 | ||||||||||||
Other | 63 | 199 | ||||||||||||
Reorganization expense, net | (239 | ) | (2,676 | ) | ||||||||||
Changes in assets and liabilities | 102 | 6,503 | ||||||||||||
Net loss | (882 | ) | (5,317 | ) | ||||||||||
Earnings from discontinued operations | (49 | ) | (542 | ) | ||||||||||
Income taxes | - | - | ||||||||||||
Interest expense, net | 1,334 | 989 | ||||||||||||
Reorganization Expense, net | 239 | 2,676 | ||||||||||||
Depreciation and amortization, including cost of goods sold | 1,583 | 1,584 | ||||||||||||
EBITDA | $ | 2,225 | $ | (610 | ) |
Contacts:
Hancock Fabrics, Inc.
Robert W. Driskell
Chief Financial
Officer and Senior Vice President
662-365-6112