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Hancock profits down 80 percent

Throttled by lower sales, higher costs and weaker margins, first-quarter profits at Hancock Fabrics Inc. tumbled 80 percent, to $816,000 from $4.1 million during the same period a year ago.

Hurt by a lack of spring merchandise, and then delays getting it onto the shelves, sales in the opening quarter declined 2.4 percent, to $105.1 million from $107.6 million last year. Same-store sales weakened 3.2 percent, coming off a year-before increase of 4.2 percent.

"In hindsight, we did not have a strong enough offering of spring merchandise, and it was late reaching our stores as a result of the transitioning of distribution operations to our new Baldwyn, Miss., facility," said Larry Kirk, CEO. "Although customer traffic increased from a year ago, our average sale was lower because of the shortage and lateness of spring product."

In a further complication, said Kirk, "In addition, except for the high-end shoppers, consumers are buying at lower price points. We were also more active in clearing seasonal goods during the quarter, which put pressure on gross margins."

Average gross margin thinned 100 basis points, or one percentage point, to 49.9 percent from 50.9 percent the prior year.

And given the lower level of sales, coupled with higher payroll and transportation expenses, costs climbed to 47 percent of sales from 43.5 percent a year ago. Measured in absolute dollars, costs shot up 5.5 percent, to $49.4 million from $46.8 million.

"In addition to extra overtime, temporary labor and transport costs to complete the distribution center move in February, other nonrecurring costs in the quarter served to push expense percentages higher given the negative sales leverage," he added.

Inventories climbed 3.3 percent, to $151 million, said Kirk, "as a result of several product lines that have been added or expanded in the last 12 months. However, seasonal clearance activity offset some of the increase from new items."

Hancock Fabrics Inc.

Qtr. 5/2 (x000) 2004 2003 % chg
a-First-quarter results include $12,000 in interest income, down from $17,000 a year ago.
Sales $105,089 $107,636 -2.4
Oper. income (EBIT) 3,104 7,919 -60.8
Net income 816a 4,071a -80.0
Per share (diluted) 0.04 0.22 -81.8
Average gross margin 49.9% 50.9%
SG&A expenses 47.0% 43.5%


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