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Hancock profits slide 14 percent

First-quarter profits at Hancock Fabrics Inc. fell by 14 percent, to $7.6 million from $8.8 million last year, hampered by sliding same-store sales and a run-up in inventories.

Overall sales inched up by 1.1 percent, to $128.6 million from $127.2 million last year. But the barometer of same-store sales slipped by 1.5 percent, up against a formidable comparison with last year's 11.9 percent gain in the same period.

Inventories shot up substantially faster than sales, rising by 7.6 percent, to $4.6 billion from $4.1 billion, well in excess of the 1.1 percent sales gain.

Putting further pressure on the bottom line, operating costs rose substantially, by 180 basis points, or 1.8 percentage points, to 41.7 percent of sales from 39.9 percent last year.

"The most notable pressure on earnings in 2003 came from the temporary but significant costs of operating two distribution centers for much of the year, and then transferring inventory, fixtures, equipment and systems to the new facility," said Larry G. Kirk, CEO. "Seasonal products did not sell as well as expected in 2003, but gross margins after markdowns were still very good and better than a year ago."

Average gross margin improved by 70 basis points, or seven-tenths of a percentage point, to 52.4 percent from 51.7 percent last year.

Hancock Fabrics Inc.

Qtr. 2/1/04 (x000) 2003 2002 % chg
Sales $127,167 $128,624 1.1
Oper. income (EBIT) 11,972 13,844 -13.5
Net income 7,566 8,796 -14.0
Per share (diluted) 0.41 0.47 -12.8
Average gross margin 52.4% 51.7%
SG&A expenses 41.7% 39.9%
12 months 2003 2002 % chg
Sales 443,605 438,287 1.2
Oper. income (EBIT) 27,874 31,235 -10.8
Net income 17,428 19,728 -11.7
Per share (diluted) 0.94 1.04
Average gross margin 51.5% 51.1%
SG&A expenses 43.8% 42.7%

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