UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 


 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): June 16, 2015

 


HANCOCK FABRICS, INC. 

(Exact name of Registrant as Specified in its Charter)

 

         

Delaware

 

1-9482

 

64-0740905

(State or other jurisdiction
of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer
Identification No.)

 

One Fashion Way

Baldwyn, Mississippi 38824

(Address of Principal Executive Offices)

 

(662) 365-6000

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
 

 

 

Item 2.02     Results of Operations and Financial Condition

   

On June 16, 2015, Hancock Fabrics, Inc. issued a press release announcing its first quarter results for the period ended May 2, 2015. A copy of the press release is furnished as Exhibit 99.1 to this Form 8-K and shall not be deemed to be “filed ” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific reference in such filing.

 

Item 9.01     Financial Statements and Exhibits

 

(d)     Exhibits

 

Exhibit Number

Description

 

99.1

 

Press release issued by Hancock Fabrics, Inc. dated June 16, 2015, announcing the company’s financial results for its first quarter ended May 2, 2015.

 

 
 

 

 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

HANCOCK FABRICS, INC.

 

 

   

Date: June 16, 2015

By: /s/ James B. Brown                               

 

Name:   James B. Brown

Title:     Executive Vice President and Chief

              Financial Officer (Principal Financial and

              Accounting Officer) 

 

 

 

 



Exhibit 99.1

 

 

HANCOCK FABRICS REPORTS RESULTS FOR THE FIRST QUARTER OF FISCAL 2015

 

 

 

BALDWYN, MS, June 16, 2015 – Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced financial results for its first quarter ended May 2, 2015.

 

 

 

Financial results for the first quarter include:

 

 

Net sales for the quarter were $61.7 million compared to $63.0 million in the first quarter of the prior year. Comparable store sales declined by 1.9% primarily due to the disruption of product flow resulting from West Coast port issues.

 

 

Gross profit for the first quarter was 43.6% compared to 45.1% for the first quarter of the prior year.

 

 

Selling, general and administrative expenses for the first quarter of 2015, including depreciation and amortization, increased to 45.8% of net sales compared to 43.6% for the first quarter of the prior year. Increases in employee benefit costs, professional fees and reduced commission income was partially offset by reductions in insurance claims activity and the gain recognized from sales of an owned store location.

 

 

Operating loss for the quarter was $(1.3) million compared to operating income of $0.9 million in the first quarter last year.

 

 

Interest expense for the first quarter of 2015 was $2.8 million and includes $1.4 million of costs, of which approximately $0.9 million represents a non-cash write-off of prior deferred financing costs, resulting from the early termination of the Company’s amended and restated loan and security agreement with General Electric Capital Corporation following its debt refinancing in April 2015. Excluding the one-time expense resulting from this termination, non-GAAP interest expense would have been $1.4 million for the first quarter of 2015 compared to $1.4 million for the same period of 2014.

 

 

EBITDA, a non-GAAP measure which is defined as earnings (loss) before interest, taxes, depreciation and amortization, was a loss of $(55) thousand for the quarter compared to income of $2.1 million for the same period last year.

 

 

At quarter end, the Company had outstanding borrowings under its new revolver and term loan credit facility of $59.8 million and $17.5 million, respectively, and outstanding letters of credit of $8.5 million. Availability under the new credit facility was $6.3 million at May 2, 2015, but would have been $7.8 million, excluding $1.5 million of duplicate letters of credit from the transition to the Company’s new lender. The balance of the Company’s subordinated debt was $8.2 million at quarter end.

 

 
 

 

 

Steve Morgan, President and Chief Executive Officer commented, “As with many retailers, it was a challenging quarter due to the dual headwinds of a lag in receipt of spring goods due to the west coast port delays and severe winter weather early on. In addition there was more promotional activity and increased freight costs, which put downward pressure on gross profit. That being said, there was a very large positive in the quarter, in that we completed a debt refinance with Wells Fargo Capital Finance which extended our debt maturity out five years and increased availability. The new financing enhances our ability to achieve our inventory productivity goals which in turn helps in generating positive cash flow from operations. We will maintain our focus on cash management as we work to drive operating results.”

 

Store Openings, Closings and Remodels

 

During the first quarter of 2015, the Company opened two new stores, relocated two stores and closed three ending the quarter with 262 stores.

 

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 262 retail stores in 37 states and an Internet store at www.hancockfabrics.com.

 

Contact:

 

James B. Brown

Executive Vice President and

Chief Financial Officer

662.365.6112

 

Forward-looking Statements

 

Statements in this news release that are not historical facts are forward-looking statements. Such forward looking statements include the statements on our ability to achieve our inventory productivity goals and generate positive cash flow from operation and our intention to focus on cash management. Forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those contained in the forward looking statements. These risks and uncertainties include, but are not limited to the following: adverse economic conditions; intense competition and adverse discounting actions taken by competitors; our merchandising initiatives and marketing emphasis may not provide expected results; changes in customer demands and failure to manage inventory effectively; our inability to effectively implement our growth strategy; our ability to attract and retain skilled people; interest rate increases; our ability to successfully access funds through capital markets and financial institutions; significant changes in discount rates, mortality rates, actual investment return on pension assets and other factors could affect our earnings, equity, and pension contributions in future periods; business matters encountered by our suppliers may adversely impact our ability to meet our customers’ needs; risks associated with obtaining merchandise from foreign suppliers; transportation industry challenges and rising fuel costs; delays or interruptions in the flow of merchandise between our suppliers and/or our distribution center and our stores; changes in the labor market and in federal, state, or local regulations; taxing authorities could disagree with our tax treatment of certain deductions or transactions, resulting in unexpected tax assessments; our current cash resources might not be sufficient to meet our expected near-term cash needs; a disruption in our data processing services; a failure to adequately maintain the security of confidential information; failure to comply with various laws and regulations as well as litigation developments; we may not be able to maintain or negotiate favorable lease terms for our retail stores; changes in accounting principles; serious disruptions or catastrophic events, including geo-political events and weather; changes in newspaper subscription rates may result in reduced exposure to our circular advertisement; unexpected or unfavorable consumer responses to our promotional or merchandising programs; risks associated with our common stock trading on the OTC Markets, formerly known as the “Pink Sheets”; our stock price has been volatile and could decrease in value; future sales of our common stock could adversely affect the market price and our future capital-raising activities could involve the issuance of equity securities, which could result in a decline in the trading price of shares of our common stock; we do not expect to pay cash dividends on shares of our common stock for the foreseeable future; satisfaction of the closing conditions and completion of the sale leaseback arrangement; and other risks and uncertainties discussed in the Company’s Securities and Exchange Commission (“SEC”) filings, including the risk factors set forth in Item 1A of the Company's Annual Report on Form 10-K for the year ended January 31, 2015 and the Company’s other reports with the SEC. The Company undertakes no obligation to revise these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events.

 

 
 

 

 

 

HANCOCK FABRICS, INC.

CONSOLIDATED BALANCE SHEETS

 

   

(unaudited)

 
                 
   

May 2,

   

April 26,

 

(in thousands, except for share amounts)

 

2015

   

2014

 

Assets

               

Current assets:

               

Cash and cash equivalents

  $ 2,184     $ 1,918  

Receivables, less allowance for doubtful accounts

    3,610       4,031  

Inventories, net

    106,065       106,837  

Prepaid expenses

    1,780       3,137  

Total current assets

    113,639       115,923  
                 

Property and equipment, net

    32,931       33,176  

Goodwill

    2,880       2,880  

Other assets

    2,962       2,228  

Total assets

  $ 152,412     $ 154,207  
                 

Liabilities and Shareholders' (Deficit) Equity

               

Current liabilities:

               

Accounts payable

  $ 20,946     $ 18,572  

Accrued liabilities

    13,400       12,514  

Total current liabilities

    34,346       31,086  
                 

Long-term debt obligations, net

    85,509       82,003  

Capital lease obligations

    2,345       2,557  

Postretirement benefits other than pensions

    3,099       2,771  

Pension and SERP liabilities

    42,950       27,352  

Other liabilities

    5,693       5,496  

Total liabilities

    173,942       151,265  

Commitments and contingencies

               
                 

Shareholders' (deficit) equity:

               

Common stock, $.01 par value; 80,000,000 shares authorized; 35,403,700 and 35,118,436 issued and 21,900,160 and 21,642,853 outstanding, respectively

    354       351  

Additional paid-in capital

    91,958       91,533  

Retained earnings

    87,161       94,033  

Treasury stock, at cost, 13,503,540 and 13,475,583 shares held, respectively

    (153,813 )     (153,794 )

Accumulated other comprehensive loss

    (47,190 )     (29,181 )

Total shareholders' (deficit) equity

    (21,530 )     2,942  

Total liabilities and shareholders' (deficit) equity

  $ 152,412     $ 154,207  

 

 
 

 

 

HANCOCK FABRICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   

(unaudited)

 
                                 
   

Thirteen Weeks Ended

 

(in thousands, except per share amounts)

 

May 2,

2015

   

% of

net sales

   

April 26,

2014

   

% of

net sales

 

Net sales

  $ 61,668       100.0

%

  $ 62,994       100.0

%

Cost of goods sold

    34,753       56.4       34,559       54.9  

Gross profit

    26,915       43.6       28,435       45.1  

Selling, general and administrative expense

    27,183       44.1       26,560       42.1  

Depreciation and amortization

    1,068       1.7       960       1.5  

Operating (loss) income

    (1,336 )     (2.2 )     915       1.5  

Interest expense

    2,834       4.6       1,366       2.2  

Loss before income taxes

    (4,170 )     (6.8 )     (451 )     (0.7 )

Income taxes

    -       -       -       -  

Net loss

  $ (4,170 )     (6.8

)%

  $ (451 )     (0.7

)%

Basic and diluted loss per share:

                               

Net loss

  $ (0.20 )           $ (0.02 )        

Weighted average shares outstanding:

                               

Basic and diluted

    21,314               20,881          

 

 
 

 

 

Supplemental Disclosures Regarding Non-GAAP Financial Information

 

The Company has presented Earnings (Loss) 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 earnings (loss) before interest, income taxes, depreciation and amortization. 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 (loss), as an indicator of operating performance, or net cash provided by (used in) operating activities as an indicator of liquidity.  Our computation of EBITDA may differ from similarly titled measures used by other companies. As EBITDA excludes certain financial information compared with net income (loss) and net cash provided by (used in) 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 loss and net cash used in operating activities.

 

 

 

 

Hancock Fabrics, Inc.

Reconciliation of EBITDA

 

    (unaudited)   
                 
   

Thirteen Weeks Ended

 
   

May 2,

   

April 26,

 

(in thousands)

 

2015

   

2014

 
                 
                 

Net cash used in operating activities

  $ (1,230 )   $ (2,193 )

Depreciation and amortization, including cost of goods sold

    (1,281 )     (1,171 )

Amortization of deferred loan costs

    (1,031 )     (178 )

Stock compensation expense

    (65 )     (173 )

Inventory valuation reserve

    13       179  

Other

    151       (13 )

Changes in assets and liabilities

    (727 )     3,098  
                 

Net loss

    (4,170 )     (451 )

Interest expense

    2,834       1,366  

Depreciation and amortization, including cost of goods sold

    1,281       1,171  
                 

EBITDA

  $ (55 )   $ 2,086