BALDWYN, Miss., Apr 20, 2012 (BUSINESS WIRE) --Hancock Fabrics, Inc. (OTC symbol: HKFI) today announced financial results for its fourth quarter ended January 28, 2012 and full fifty-two weeks of fiscal 2011.

Financial results for the fourth quarter include:

• Net sales for the quarter increased 4.5% on a comparable basis to $81.4 million compared to $78.5 million for fourth quarter of last year. The previous year increase was 0.7 %.
• Operating loss for the quarter improved to $4.0 million compared to an $8.4 million loss in the fourth quarter last year.
• Net loss was $5.2 million, or $0.26 per basic share, in the fourth quarter of fiscal 2011 compared to a net loss of $9.8 million, or $0.49 per basic share in the fourth quarter of fiscal 2010.
• Adjusted EBITDA, excluding one-time charges incurred in the fourth quarter totaling $4.0 million, totaled $1.8 million, compared to $2.7 million for the fourth quarter of fiscal 2010.
• At quarter end, the Company had outstanding borrowings under its revolving line of credit of $31.3 million and outstanding letters of credit of $5.5 million. Additional amounts available to borrow under its revolving line of credit at the end of the quarter were $31.5 million. The balance of the Company's subordinated debt was $21.6 million at quarter end, and the unamortized warrant discount on this debt was $3.5 million.

Fiscal 2011 financial results include:

• Net sales for fiscal year 2011 were $272.0 million compared to $275.5 million in fiscal 2010, and comparable store sales declined 0.8%, compared to a 0.1% decrease for the previous year.
• Operating loss for 2011 was $6.5 million compared to $4.9 million in the previous year.
• Net loss was $11.3 million, or $0.57 per basic share, for fiscal 2011, compared to a net loss of $10.5 million, or $0.53 per basic share for fiscal 2010.
• Adjusted EBITDA, excluding one-time charges totaling $4.0 million, totaled $3.6 million for fiscal 2011, compared to $11.1 million for fiscal 2010.

Steve Morgan, President and Chief Executive Officer commented, "As we predicted in our 3rd quarter press release, we have overcome our inherited inventory challenges of missed merchandise buys in the latter half of 2010 intended for 2011 sales. We were able to deliver the best 4th quarter comparable sales Hancock has seen since 2002, and experienced the best overall comparable sales quarter achieved in 4 years. I am also happy to report net comps have continued to be positive through the spring." Morgan continued, "Our senior management team is now complete with the hiring of our new SVP of store operations in January, and VP of marketing in April. These additions complete the revamping of all areas of our business and we now have the talent and experience throughout our organization to be successful in 2012 and into the future. In addition to other initiatives undertaken in preparation for this year, we have recently cut an additional $4.2 million of expense annually in order to improve profitability as we move forward. We continue to feel good about this team and the momentum we are taking through the 1st quarter."

Operating Results

Gross margin for the quarter increased to 35.8% compared to 32.9% in the prior year. Excluding a one-time charge related to inventory obsolescence, gross margin in the fourth quarter of 2010 was 41.4%. For the full year, gross margin decreased by 20 basis points to 41.4% compared to 41.6% for 2010. Gross margin for fiscal 2010 was 44.0% excluding one-time charges. Increased promotional activity and consumer sensitivity to pricing has continued to provide pressure on gross margins.

Selling, general and administrative expenses for the quarter were $32.1 million or 39.4% of sales compared to $33.0 million or 42.0% of sales for the fourth quarter of the prior year. Excluding one-time charges of $4.0 million, selling, general and administrative expenses totaled 34.5% of sales or $28.1 million in the fourth quarter of 2011 and 38.5% of sales or $30.2 million in the previous fourth quarter. For the 2011 fiscal year, these expenses were $115.0 million compared to $115.1 million for the prior year. When the above-described one-time charges are excluded, costs for fiscal 2011 total $111.1 million or 40.8% of sales and $112.3 million or 40.8% of sales for fiscal 2010.

Store Openings, Closings and Remodels

During 2011, the Company opened one store, closed 3 stores and relocated 5 units, ending the year with 263 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 263 retail stores in 37 states and an Internet store at http://www.hancockfabrics.com.

Supplemental Disclosures Regarding Non-GAAP Financial Information

The Company has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted 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 Adjusted EBITDA as net earnings before interest, income taxes, discontinued operations, depreciation and amortization, reorganization expenses and significant one-time items. The Company uses Adjusted 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 Adjusted 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 earnings (loss), as an indicator of operating performance, or net cash provided by operating activities as an indicator of liquidity. Our computation of Adjusted EBITDA may differ from similarly titled measures used by other companies. As Adjusted EBITDA excludes certain financial information compared with net earnings (loss) and net cash provided by 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 Adjusted EBITDA to net earnings (loss) and net cash provided by operating activities.

Comments in this news release that are not historical facts are forward-looking statements that 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, general economic trends, adverse discounting actions taken by competitors, changes in consumer demand or purchase patterns, delays or interruptions in the flow of merchandise between the Company's suppliers and/or its distribution center and its stores, rising fuel costs, tightening of purchase terms by suppliers and their factors, our significant indebtedness, a disruption in the Company's data processing services and other risks and uncertainties discussed in the Company's Securities and Exchange Commission 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 28, 2012. 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.

SOURCE: Hancock Fabrics, Inc.

Hancock Fabrics, Inc.
Robert W. Driskell, 662-365-6112
Executive Vice President and Chief Financial Officer