BALDWYN, Miss.--(BUSINESS WIRE)--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.
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|
|May 2,||April 26,|
|(in thousands, except for share amounts)||2015||2014|
|Cash and cash equivalents||$||2,184||$||1,918|
|Receivables, less allowance for doubtful accounts||3,610||4,031|
|Total current assets||113,639||115,923|
|Property and equipment, net||32,931||33,176|
|Liabilities and Shareholders' (Deficit) Equity|
|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|
|Commitments and contingencies|
|Shareholders' (deficit) equity:|
Common stock, $.01 par value; 80,000,000 shares authorized; 35,403,700 and 35,118,436 issued and 21,900,160 and 21,642,853 outstanding, respectively
|Additional paid-in capital||91,958||91,533|
Treasury stock, at cost, 13,503,540 and 13,475,583 shares held, respectively
|Accumulated other comprehensive loss||(47,190||)||(29,181||)|
|Total shareholders' (deficit) equity||(21,530||)||2,942|
|Total liabilities and shareholders' (deficit) equity||$||152,412||$||154,207|
|HANCOCK FABRICS, INC.|
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|Thirteen Weeks Ended|
|(in thousands, except per share amounts)||
|Cost of goods sold||34,753||56.4||34,559||54.9|
|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|
|Loss before income taxes||(4,170||)||(6.8||)||(451||)||(0.7||)|
|Basic and diluted loss per share:|
|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|
|Thirteen Weeks Ended|
|May 2,||April 26,|
|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|
|Changes in assets and liabilities||(727||)||3,098|
|Depreciation and amortization, including cost of goods sold||1,281||1,171|