USA -- Hancock Fabrics, Inc. filed its 2008 Form 10-K and reported sales and earnings for the fiscal year ended January 31, 2009 (fiscal 2008).

Financial highlights for the year include:
- Net sales for fiscal 2008 were $276.4 million compared with $276.3 million in fiscal 2007, and comparable sales increased 2.1% compared with a 0.5% increase in the previous year.
- Operating income increased to $3.1 million, an increase of $7.1 million from fiscal 2007.
- Net loss narrowed to $12.4 million, or $0.65 per share, in 2008 from $33.3 million, or $1.76 per share in 2007. The $12.4 million loss for the year included $8.2 million of reorganization expenses and $2.2 million of interest expense related to bankruptcy claims.
- EBITDA for the year was $9.7 million, a $6.6 million increase over the 2007 result of $3.1 million.
- Inventories reduced by over $10.1 million, the majority of this reduction occurring in continuing stores.
- Cash totaling $24.4 million was generated from operations before reorganization activities including an $8.1 million federal tax refund from previous operating losses.
- Since emergence from bankruptcy through fiscal year end, the Company has reduced gross debt including bankruptcy liabilities by approximately $25.8 million.
- At fiscal year end, the Company had outstanding borrowings under its Revolver of $32.6 million and outstanding letters of credit of $6.5 million. The Note balance was $20.9 million and the warrant discount on the Notes was $10.5 million. Additional amounts available to borrow at that time were $35.0 million and this borrowing capacity has been maintained into fiscal 2009.

Jane Aggers, President and Chief Executive Officer, noted, "We have made significant progress during 2008 in our effort to position Hancock for the future. The results of these efforts are demonstrated by our positive sales growth, significant increase in EBITDA, and considerable reduction in borrowings since we emerged - all of which have continued in 2009. We are optimistic that we can continue to improve our operating results, despite the challenging economic environment."

Operating Results
Gross margin for fiscal 2008 of 43.3% was a 70 basis point improvement over the 42.6% of the prior year. This increase reflects a 160 basis point reduction in merchandise cost offset by reduced supply chain leverage as store count and inventory levels have diminished from prior years.

Selling, general and administrative expenses for the year decreased to $112.1 million (40.6% of sales) from $117.8 million (42.6% of sales) in the prior year. This reduction in expense was driven primarily by a $6.2 million curtailment gain provided by the changes made to our retirement programs in 2008.

In fiscal 2008, net cash inflows provided by operating activities before reorganization activities decreased by $27.6 million compared to fiscal 2007. This decrease was mainly the result of the significant inventory liquidations in 2007. Excluding the impact of inventory reductions, net cash provided by operating activities before reorganization activities increased by $16.8 million principally due to a reduced net loss, increased vendor payable support and a significant income tax refund.

Capital expenditures during 2008 consisted mostly of store remodels and relocations. These activities totaled approximately $7.0 million for the year. The remaining amounts were utilized for additional information technology enhancements and general replacements in our distribution center and corporate office. Management expects 2009 capital expenditures to range from $5 million to $10 million. This capital spending will be directed at initiatives which support the Company's current strategy.

Cash used in financing activities for 2008 included net borrowings of $29.0 million which was utilized along with cash provided by operations to pay $37.5 million of pre-petition liabilities and exit financing loan costs.

Store Openings, Closings and Remodels
During 2008, the Company opened 1 store, closed 7 stores and relocated 4 stores, thereby ending the fiscal year with 263 stores. The Company also remodeled 63 locations to its new prototype format. The 2009 activities will relate primarily to the relocation of certain stores.

Hancock Fabrics, Inc. is a specialty retailer committed to serving creative enthusiasts.The stores offer a selection of apparel fabrics, home decorating products, quilting materials, and notions.
 
Hancock Fabrics Inc