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Hancock Fabrics Loses Ground

Heath E. Combs, Don Hogsett -- Home Textiles Today, May 23, 2005

Baldwyn, Miss. — Hampered by a deep slide in same-store sales, thinning margins and an inventory build-up, Hancock Fabrics Inc. reported a first quarter loss of $3.3 million, reversing a small year-before profit of $816,000.

Sales at the fabrics, craft and home decorating specialist skidded 6.9 percent, to $97.8 million from $105.1 million last year. Same-store sales fell at the same 6.9 percent pace, crimped in part by one less shopping day in this year's first quarter.

The opening quarter contained one less day than in 2004 because Hancock changed its fiscal year-end from Sunday to Saturday. The one less day decreased sales by about $700,000, the company said, and “the impact on earnings “was insignificant.”

Jane Aggers, CEO, commented, “The continuation of the negative sales trend in the first quarter of 2005 is a further indication that we have to connect better with our customers and our stores. Assortments in our core businesses of home decorating, quilting and apparel fabrics were not complete in the Spring, nor were they merchandised effectively. These areas are being addressed as part of the development of an overall plan that will involve new or expanded merchandise lines, changes to the advertising strategy and enhancements to store presentation.”

Putting earnings under pressure, in addition to sliding sales, average gross margin contracted 220 basis points, or 2.2 percentage points, to 47.7 percent from 49.9 percent a year ago.

“Gross margins continued to be pressured by the need for markdowns to clear seasonal goods during this period of slow sales,” said Aggers.

Measured as a percentage of falling sales, expenses climbed 340 basis points, or 3.4 percentage points, to 50.4 percent from 47 percent last year. But measured in absolute dollars, costs actually dipped slightly, 0.1 percent, to $49.3 million from $49.4 million last year.

“Every effort is being made to hold the line on expenses,” said Aggers.

Hancock Fabrics inc.

Qtr. 4/30 (x000) 2005 2004 % change
Sales $97,840 $105,089 -6.9
Oper. Income (EBIT) (4,853) 1,394
Net income (3,303) 816
Per share (diluted) (0.18) 0.04
Average gross margin 47.7% 49.9%
SG&A expenses 50.4% 47.0%

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