HANCOCK FABRICS INC - FORM 10-Q

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EX-31.2 - HANCOCK FABRICS INC	v204897_ex31-2.htm
EX-32.1 - HANCOCK FABRICS INC	v204897_ex32-1.htm
EX-31.1 - HANCOCK FABRICS INC	v204897_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 30, 2010

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____________to___________.

Commission File Number 1 – 9482

HANCOCK FABRICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	64-0740905
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

One Fashion Way, Baldwyn, MS	38824
(Address of principal executive offices)	(Zip Code)

(662) 365-6000

Registrant’s telephone number, including area code

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated Filer ¨

Non-Accelerated Filer ¨	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No ¨

As of December 6, 2010, there were 20,031,710, shares of Hancock Fabrics, Inc. $.01 par value common stock outstanding.

Hancock Fabrics, Inc.,

INDEX TO FORM 10-Q

		Page
Part I. Financial Information

Item 1. Financial Statements

Consolidated Balance Sheets as of October 30, 2010, October 31, 2009 and January 30, 2010		3

Consolidated Statements of Operations for the Thirteen and Thirty-nine Weeks Ended October 30, 2010 and October 31, 2009		4

Consolidated Statement of Shareholders’ Equity for the Thirty-nine Weeks Ended October 30, 2010		5

Consolidated Statements of Cash Flows for the Thirty-nine Weeks Ended October 30, 2010 and October 31, 2009		6

Notes to Consolidated Financial Statements		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12

Item 3. Quantitative and Qualitative Disclosures about Market Risks		20

Item 4. Controls and Procedures		20

Part II. Other Information

Item 1. Legal Proceedings		21

Item 1A. Risk Factors		21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		21

Item 3. Defaults Upon Senior Securities		21

Item 5. Other Information		21

Item 6. Exhibits		22

Signatures		22

Exhibit Index		23

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED FINANCIAL STATEMENTS

HANCOCK FABRICS, INC.

CONSOLIDATED BALANCE SHEETS

	(unaudited)
	October 30,			October 31,			January 30,
(in thousands, except for share amounts)	2010			2009			2010 (1)
Assets
Current assets:
Cash and cash equivalents	$	3,702		$	4,265		$	2,493
Receivables, less allowance for doubtful accounts		3,412			3,952			3,469
Inventories		106,328			103,864			91,495
Prepaid expenses		2,794			2,269			1,485
Total current assets		116,236			114,350			98,942

Property and equipment, net		42,047			42,758			41,687
Goodwill		3,210			3,210			3,210
Other assets		2,330			5,131			4,707
Total assets	$	163,823		$	165,449		$	148,546

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	28,462		$	25,838		$	18,638
Accrued liabilities		12,776			15,840			15,113
Pre-petition obligations		730			1,744			1,193
Total current liabilities		41,968			43,422			34,944

Long-term debt obligations, net		35,039			37,821			26,942
Capital lease obligations		3,103			3,209			3,184
Postretirement benefits other than pensions		2,262			2,270			2,150
Pension and SERP liabilities		27,848			23,227			27,017
Other liabilities		6,731			7,678			7,097
Total liabilities		116,951			117,627			101,334

Commitments and contingencies

Shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares authorized;33,449,125, 33,193,070 and 33,283,944 issued and 20,051,861,19,811,306 and 19,902,148 outstanding, respectively		334			332			333
Additional paid-in capital		89,581			88,780			89,128
Retained earnings		125,997			124,780			126,695
Treasury stock, at cost, 13,397,264, 13,381,764and 13,381,796 shares held, respectively		(153,730	)		(153,698	)		(153,698	)
Accumulated other comprehensive loss		(15,310	)		(12,372	)		(15,246	)
Total shareholders' equity		46,872			47,822			47,212
Total liabilities and shareholders' equity	$	163,823		$	165,449		$	148,546

See accompanying notes to consolidated financial statements.

(1) From audited balance sheet included in our annual report on Form 10-K for the fiscal year ended January 30, 2010.

HANCOCK FABRICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Thirteen Weeks Ended				Thirty-nine Weeks Ended
	October 30,		October 31,		October 30,			October 31,
(in thousands, except per share amounts)	2010		2009		2010			2009

Sales	$	73,454	$	72,730	$	197,012		$	196,380
Cost of goods sold		41,236		38,946		108,202			106,368
Gross profit		32,218		33,784		88,810			90,012

Selling, general and administrative expense		28,254		28,211		82,070			82,311
Depreciation and amortization		1,144		1,064		3,313			3,280
Operating income		2,820		4,509		3,427			4,421

Reorganization expense, net		131		182		485			592
Interest expense, net		1,329		1,234		3,669			3,944
Income (loss) from continuing operations before income taxes		1,360		3,093		(727	)		(115	)
Income taxes		-		64		-			64
Income (loss) from continuing operations		1,360		3,029		(727	)		(179	)
Earnings from discontinued operations (net of tax expense of $0, $0, $0 and $0)		-		3		29			52
Net income (loss)	$	1,360	$	3,032	$	(698	)	$	(127	)

Basic income (loss) per share:
Income (loss) from continuing operations	$	0.07	$	0.16	$	(0.04	)	$	(0.01	)
Earnings from discontinued operations		-		-		-			-
Net income (loss)	$	0.07	$	0.16	$	(0.04	)	$	(0.01	)

Diluted income (loss) per share:
Income (loss) from continuing operations	$	0.06	$	0.15	$	(0.04	)	$	(0.01	)
Earnings from discontinued operations		-		-		-			-
Net income (loss)	$	0.06	$	0.15	$	(0.04	)	$	(0.01	)

Weighted average shares outstanding:
Basic		19,739		19,427		19,676			19,306
Diluted		22,327		20,128		19,676			19,306

See accompanying notes to consolidated financial statements.

HANCOCK FABRICS, INC.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(unaudited)

																Accumulated
					Additional											Other			Total
	Common Stock				Paid-in		Retained			Treasury Stock						Comprehensive			Shareholders'
(in thousands, except for number of shares)	Shares		Amount		Capital		Earnings			Shares			Amount			Loss			Equity
Balance January 30, 2010		33,283,944	$	333	$	89,128	$	126,695			(13,381,796	)	$	(153,698	)	$	(15,246	)	$	47,212
Comprehensive loss:
Net loss								(698	)											(698	)
Minimum pension, SERP and OPEB liabilities, net of taxes of $0																	(64	)		(64	)
Total comprehensive loss																				(762	)
Stock options exercised		10,181		1		14														15
Issuance of restricted stock		155,000		-		-														-
Stock compensation expense						297														297
Amortization of directors' stock fees						142														142
Purchase of treasury stock											(15,468	)		(32	)					(32	)
Balance October 30, 2010		33,449,125	$	334	$	89,581	$	125,997			(13,397,264	)	$	(153,730	)	$	(15,310	)	$	46,872

See accompanying notes to consolidated financial statements.

HANCOCK FABRICS, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

	Thirty-nine Weeks Ended
	October 30,			October 31,
(in thousands)	2010			2009
Cash flows from operating activities:
Net loss	$	(698	)	$	(127	)
Adjustments to reconcile net loss to cash flows from operating activities
Depreciation and amortization, including cost of goods sold		4,887			4,788
Amortization of deferred loan costs		185			185
Amortization of bond discount		1,748			1,748
Interest paid-in-kind by issuance of notes payable		-			694
Stock compensation expense		439			764
Reserve for store closings credits, including interest expense		(44	)		294
Other		344			(104	)
Reorganization expense, net		485			592
(Increase) decrease in assets
Receivables and prepaid expenses		(1,252	)		(1,091	)
Inventory at current cost		(14,989	)		323
Other noncurrent assets		2,055			(488	)
Increase (decrease) in liabilities
Accounts payable		9,685			3,760
Accrued liabilities		(2,270	)		1,063
Postretirement benefits other than pensions		(684	)		(721	)
Long-term pension and SERP liabilities		1,563			2,151
Other liabilities		(433	)		(292	)
Net cash provided by operating activities before reorganization activities		1,021			13,539
Net cash used for reorganization activities		(558	)		(700	)
Net cash provided by operating activities		463			12,839
Cash flows from investing activities:
Additions to property and equipment		(5,209	)		(2,564	)
Proceeds from the disposition of property and equipment		42			12
Net cash used in investing activities		(5,167	)		(2,552	)
Cash flows from financing activities:
Net borrowings (payments) on revolving credit facility		6,349			(7,598	)
Payments for pre-petition liabilities and other		(436	)		(762	)
Net cash provided by (used in) financing activities		5,913			(8,360	)
Increase in cash and cash equivalents		1,209			1,927
Cash and cash equivalents:
Beginning of period		2,493			2,338
End of period	$	3,702		$	4,265
Supplemental disclosures:
Cash paid during the period for:
Interest	$	1,669		$	745
Income taxes		350			64
Non-cash activities:
Noncash change in funded status of benefit plans	$	(64	)	$	(150	)

See accompanying notes to consolidated financial statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1 – BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Hancock Fabrics, Inc. (“Hancock” or the “Company”) is a specialty retailer committed to nurturing creativity through a complete selection of fashion and home decorating textiles, crafts, sewing accessories, needlecraft supplies and sewing machines. As of October 30, 2010, Hancock operated 266 stores in 37 states and an internet store under the domain name hancockfabrics.com. Hancock conducts business in one operating business segment.

References herein to “Hancock,” the “Company,” “Registrant,” “we,” “our” or “us” refer to Hancock Fabrics, Inc. and its subsidiaries unless the context specifically indicates otherwise. References herein to third quarter 2010 and third quarter 2009 are for the 13 week periods ended October 30, 2010 and October 31, 2009, respectively. References to thirty-nine weeks 2010 or 2010, and thirty-nine weeks 2009 or 2009 are for the 39 week periods ended October 30, 2010 and October 31, 2009, respectively.

Basis of Presentation

We maintain our financial records on a 52-53 week fiscal year ending on the Saturday closest to January 31.

The accompanying unaudited Consolidated Financial Statements should be read in conjunction with our audited Consolidated Financial Statements and accompanying notes in our Annual Report on Form 10-K for the year ended January 30, 2010 filed with the U.S. Securities and Exchange Commission (“SEC”) on April 1, 2010. The accompanying (a) consolidated balance sheet as of January 30, 2010, which has been derived from audited financial statements, and (b) unaudited consolidated financial statements have been prepared pursuant to SEC Rule 10-01 of Regulation S-X. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading.

The unaudited results of operations for the interim periods shown in these financial statements are not necessarily indicative of operating results for the entire year. In the opinion of management, the accompanying unaudited Consolidated Financial Statements recognize all adjustments of a normal recurring nature considered necessary to fairly state our consolidated financial position as of October 30, 2010, and October 31, 2009, and our consolidated results of operations and cash flows for the thirty-nine weeks ended October 30, 2010, and October 31, 2009.

The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern. Except as otherwise disclosed, these principles assume that assets will be realized and liabilities will be discharged in the ordinary course of business.

Recently Issued Accounting Standards

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, “Improving Disclosures about Fair Value Measurements” an update to Accounting Standards Codification (ASC) Topic 820, “Fair Value Measurements and Disclosures.” This update requires an entity to: (i) disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers and (ii) present separate information for Level 3 activity pertaining to gross purchases, sales, issuances, and settlements. This update became effective for the Company beginning the 13-month period ended May 1, 2010, except that the disclosure on the roll forward activities for Level 3 fair value measurements will become effective for the Company with the reporting period beginning fiscal year 2011. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on the Company’s Consolidated Financial Statements.

The FASB issued ASU 2010-12 (ASU), which codifies an SEC Staff Announcement relating to accounting for the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act under ASC 740, “Income Taxes.” Management completed its assessment and adoption of ASU 2010-12 in the first quarter of 2010, and determined it has no impact on the Company.

Several other new accounting standards became effective during the periods presented or will be effective subsequent to October 30, 2010. None of these new standards had or is expected to have a significant impact on the Company’s Consolidated Financial Statements.

NOTE 2 – PROCEEDINGS UNDER CHAPTER 11 AND RELATED FINANCINGS

On March 21, 2007, the Company filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware. On August 1, 2008 (the “Effective Date”), the Company’s Plan of Reorganization (the “Plan”) became effective and the Company emerged from bankruptcy protection. On August 17, 2010 the Final Decree was approved by the United State Bankruptcy Court closing the bankruptcy case of the Company.

As of the Effective Date, in general and except as otherwise provided under the Plan, the Company was discharged and released from all claims and interests in accordance with the Plan. The Plan provided for payment in full in cash plus interest, as applicable, or reinstatement of allowed administrative, secured, priority, and general unsecured claims in addition to the retention of ownership by holders of equity interest in the Company. Therefore, there were no impaired classes of creditors or stockholders.

FASB ASC 852, “Reorganizations” (“ASC 852”), provides financial reporting guidance for entities that are reorganizing under the United States Bankruptcy Code. The Company implemented this guidance for all periods presented. Pursuant to ASC 852, estimated claims were presented as Liabilities Subject to Compromise due to the uncertainty of the eventual settlement amount. Due to the Plan becoming effective and the claims reconciliation process being substantially complete, there is little uncertainty as to the total amount to be distributed under the Plan. Therefore, after the Effective Date, pre-petition liabilities are no longer presented as Liabilities Subject to Compromise.

Pre-petition obligations (in thousands):

	October 30,		October 31,		January 30,
	2010		2009		2010
Real estate claims	$	5	$	1,019	$	468
Professional fee claim		725		725		725
Total pre-petition claims	$	730	$	1,744	$	1,193

Legal and professional fees associated with the administration of the bankruptcy proceedings are reflected as reorganization expenses on the statement of operations.

NOTE 3 – EMPLOYEE BENEFIT PLANS

Retirement Plans. The following summarizes the net periodic benefit cost for Hancock’s defined benefit pension retirement plan and its postretirement health care benefit plan for the thirteen and thirty-nine weeks ended October 30, 2010 and October 31, 2009 (in thousands):

	Retirement Plan						Postretirement Benefit Plan						Retirement Plan						Postretirement Benefit Plan
	Thirteen Weeks Ended												Thirty-nine Weeks Ended
	October 30,			October 31,			October 30,			October 31,			October 30,			October 31,			October 30,			October 31,
	2010			2009			2010			2009			2010			2009			2010			2009
Service costs	$	107		$	102		$	21		$	12		$	321		$	307		$	55		$	36
Interest cost		1,169			1,228			34			44			3,447			3,684			99			132
Expected return on assets		(957	)		(805	)		-			-			(2,875	)		(2,414	)		-			-
Amortization of prior service costs		-			-			(200	)		(193	)		-			-			(597	)		(579	)
Recognized net actuarial (gain) loss		251			210			(55	)		(67	)		731			630			(199	)		(202	)
Net periodic benefit cost (gain)	$	570		$	735		$	(200	)	$	(204	)	$	1,624		$	2,207		$	(642	)	$	(613	)

At October 30, 2010, the fair value of the assets held by the pension plan was $52.8 million reflecting a $1.1 million decrease from January 30, 2010.

Based on management’s assessment of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the “Acts”) as they relate to the Company’s Postretirement Benefit Plan, management does not believe the impact of this legislation is a significant event to the Company and believes the Acts will not materially impact costs in subsequent periods.

NOTE 4 – EARNINGS (LOSS) PER SHARE

Earnings (loss) per share is presented for basic and diluted earnings per share. Basic earnings per share excludes dilution and is computed by dividing income available to holders of common stock by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The additional shares in the diluted per share calculations are computed based upon the Treasury Stock method.

As of October 30, 2010, there were outstanding warrants for 9,485,600 shares with an exercise price of $1.12 and stock options for 1,600,094 shares with a weighted average exercise price of $2.96, which are included in the computation of common stock equivalents for diluted earnings per share, if the impact is not anti-dilutive.

COMPUTATION OF EARNINGS (LOSS) PER SHARE

(in thousands, except for share and	Thirteen Weeks Ended				Thirty-nine Weeks Ended
per share amounts)	October 30,		October 31,		October 30,			October 31,
	2010		2009		2010			2009
Basic earnings (loss) per share:
Net income (loss)	$	1,360	$	3,032	$	(698	)	$	(127	)

Weighted average number of common shares outstanding during period		19,739,148		19,427,425		19,675,566			19,305,873

Basic earnings (loss) per share	$	0.07	$	0.16	$	(0.04	)	$	(0.01	)

Diluted earnings (loss) per share:
Net income (loss)	$	1,360	$	3,032	$	(698	)	$	(127	)

Weighted average number of common shares outstanding during period		19,739,148		19,427,425		19,675,566			19,305,873
Stock options		141,904		54,290		-			-
Warrants to purchase common stock		2,433,503		626,467		-			-
Restricted stock		12,539		19,344		-			-
Weighted average number of common shares outstanding during period adjusted for dilutive securities		22,327,094		20,127,526		19,675,566			19,305,873

Diluted earnings (loss) per share	$	0.06	$	0.15	$	(0.04	)	$	(0.01	)

Approximately 1.0 million shares of common stock equivalents were excluded from the diluted per share calculation for the thirteen week periods of 2010 and 2009 since the exercise price was in excess of the average stock price and the impact would be anti-dilutive. For the thirty-nine weeks of 2010 and 2009, 11.0 million shares of common stock equivalents were excluded from the diluted per share calculation because the Company was in a loss position.

NOTE 5 – RESERVE FOR STORE CLOSINGS AND DISCONTINUED OPERATIONS

Reserves for store closings are established based on estimates of net lease obligations and other store closing costs. At October 30, 2010, the total reserve balance, which is included in accrued liabilities, represents the present value of the future net lease obligations for the locations which have been closed.

The activity in the reserve is as follows (in thousands):

	January 30,		Reduction in								October 30,
	2010		Reserve			Interest		Payments			2010

Lease obligations	$	346	$	(45	)	$	1	$	(213	)	$	89

During the thirty-nine weeks ended October 30, 2010 and October 31, 2009 income of $29,000 and $52,000, respectively was recognized in earnings from discontinued operations for the settlement of claims on stores closed in prior years. This was the result of changes in the closed store reserve due to settlement of certain real estate bankruptcy claims.

NOTE 6 – FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

FASB ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value.

The Company measures certain financial assets (cash and cash equivalents) at fair value on a recurring basis. The Company’s investments in cash and cash equivalents are classified within Level 1 of the fair value hierarchy because they are valued based on quoted market prices in active markets. The carrying amounts of certain of the Company’s financial instruments, which are not required to be valued at fair value on a recurring basis, including accounts receivable, accounts payable, accrued liabilities and debt approximate fair value due to their short maturities or the nature and terms of the obligation.

NOTE 7 – LONG-TERM DEBT OBLIGATIONS

At October 30, 2010, the Company had outstanding borrowings of $19.9 million under its revolving credit facility (the “Revolver”) with General Electric Capital Corporation, which has a maturity date of August 1, 2013. Outstanding standby letters of credit were $7.2 million, outstanding documentary letters of credit were $1.5 million and availability was $49.8 million at October 30, 2010. The Revolver is collateralized by a fully perfected first priority security interest in all real and personal, tangible and intangible assets of the Company. The Company is not subject to any financial covenants pursuant to the Revolver.

At the Company’s option, any portion of the outstanding borrowings under the Revolver can bear interest at LIBOR - based rates plus an applicable margin, or a floating interest rate plus the applicable margins. At October 30, 2010, the Company had $18.0 million of its outstanding borrowings at a LIBOR-based interest rate of 1.88%.

In addition to the Revolver, the Company has $21.6 million of Floating Rate Secured Notes (the “Notes”) outstanding at October 30, 2010. The Notes mature on August 1, 2013, are subordinated to the Revolver, and are secured by a junior lien on all of the Company’s assets. Interest on the Notes is payable quarterly at a rate of LIBOR plus 4.5%. For the quarterly interest periods ended May 1, 2009 and August 1, 2009 the Company had the option and elected to make the interest payment in-kind by issuing additional Notes totaling $0.7 million. An additional $1.7 million of interest expense was recorded to date in each of 2010 and 2009 related to the amortization of the discount recorded at the time of issuance of the Notes. As of October 30, 2010 the balance of the unamortized discount was $6.4 million.

NOTE 8 – SUBSEQUENT EVENTS

The Company has evaluated events and transactions that occurred subsequent to October 30, 2010 through the date the financial statements were issued for potential recognition or disclosure. We did not identify any events or transactions that should be recognized or disclosed in the accompanying condensed, consolidated financial statements.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and reflect our current views regarding matters such as operations and financial performance. In general, forward-looking statements are identified by such words or phrases as “anticipates,” “believes,” “approximates,” “estimates,” “expects,” “intends” or “plans” or the negative of those words or other similar terminology. Forward-looking statements involve inherent risks and uncertainties; our actual results could differ materially from those expressed in our forward-looking statements.

The risks and uncertainties, either alone or in combination, that could cause our actual results to differ from those expressed in our forward-looking statements include, but are not limited to, those that are discussed in our Annual Report on Form 10-K filed with the SEC on April 1, 2010 under Item 1A. Risk Factors. Other risks not presently known to us, or that we currently believe are immaterial, could also adversely affect our business, financial condition or results of operations. Forward-looking statements speak only as of the date made, and neither Hancock nor its management undertakes any obligation to update or revise any forward-looking statement.

Our Business

Hancock Fabrics, Inc. is a specialty retailer committed to serving creative enthusiasts with a complete selection of fashion and home decorating textiles, sewing accessories, needlecraft supplies and sewing machines. We are one of the largest fabric retailers in the United States, operating as of October 30, 2010, 266 stores in 37 states and an internet store under the domain name hancockfabrics.com. Our stores present a broad selection of fabrics and notions used in apparel sewing, home decorating and quilting projects.

Overview

Financial highlights include:

Net sales for the third quarter of fiscal 2010 were $73.5 million compared to $72.7 million for the third quarter of fiscal 2009, and comparable store sales increased 0.3% in the third quarter of 2010 compared to an increase of 4.0% in the third quarter of 2009.

Our online sales for the third quarter of fiscal 2010, which are included in the comparable sales number above, increased 12.7% to $1.4 million.

Gross margin for the third quarter of fiscal 2010 was 43.9% compared to 46.5% for the third quarter of fiscal 2009.

Operating income was $2.8 million in the third quarter of fiscal 2010 compared to $4.5 million of operating income in the third quarter of fiscal 2009.

Net income was $1.4 million, or $0.07 per basic share, in the third quarter of fiscal 2010 compared to net income of $3.0 million, or $0.16 per basic share, in the third quarter of fiscal 2009.

We use a number of key performance measures to evaluate our financial performance, including the following:

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 30,			October 31,			October 30,			October 31,
	2010			2009			2010			2009

Net sales (in thousands)	$	73,454		$	72,730		$	197,012		$	196,380

Gross margin percentage		43.9	%		46.5	%		45.1	%		45.8	%

Number of stores
Open at end of period (1)		266			265			266			265
Comparable stores at period end (2)		265			262			265			262

Sales growth
All retail outlets		1.0	%		3.1	%		0.3	%		(0.9	)%
Comparable retail outlets (3)		0.3	%		4.0	%		(0.3	)%		0.9	%

Total store square footage at period end (in thousands)		3,816			3,795			3,816			3,795

Net sales per total square footage	$	19.25		$	19.16		$	51.63		$	51.75

(1)	Open store count does not include the internet store.

(2)	A new store is included in the comparable sales computation immediately upon reaching its one-year anniversary. In those rare instances where stores are either expanded or down-sized, the store is not treated as a new store and, therefore, remains in the computation of comparable sales.

(3)	Comparable sales growth computation also includes net sales derived from e-commerce.

Results of Operations

The following table sets forth, for the periods indicated, selected statement of operations data expressed as a percentage of sales. This table should be read in conjunction with the following discussion and with our Consolidated Financial Statements, including the related notes.

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 30,			October 31,			October 30,			October 31,
	2010			2009			2010			2009
Sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		56.1			53.5			54.9			54.2
Gross profit		43.9			46.5			45.1			45.8
Selling, general and administrative expense		38.5			38.8			41.7			41.9
Depreciation and amortization		1.6			1.5			1.7			1.6
Operating income		3.8			6.2			1.7			2.3
Reorganization expense, net		0.2			0.2			0.2			0.3
Interest expense, net		1.8			1.7			1.9			2.0
Income (loss) from continuing operations before income taxes		1.8			4.3			(0.4	)		-
Income taxes		-			0.1			-			-
Income from discontinued operations		-			-			-			-
Net income (loss)		1.8	%		4.2	%		(0.4	)%		-	%

Net Sales

	Thirteen Weeks Ended				Thirty-nine Weeks Ended
(in thousands)	October 30,		October 31,		October 30,		October 31,
	2010		2009		2010		2009
Retail comparable store base	$	71,552	$	71,460	$	192,161	$	193,080
E-Commerce		1,431		1,270		3,246		2,942
Comparable sales		72,983		72,730		195,407		196,022
New stores		471		-		1,605		-
Closed stores		-		-		-		358

Total net sales	$	73,454	$	72,730	$	197,012	$	196,380

The retail comparable store base above consists of the stores which were included in the comparable sales computation for the current period. The third quarter 2010 retail comparable sales increase of 0.1% was the result of a 0.4% increase in transaction count and a 0.4% decline in average ticket. Sales in both apparel and craft fabrics and non-sewing products led the sales improvement.

Sales provided by our e-commerce channel increased 12.7% in the third quarter and have increased 10.3% in the first thirty-nine weeks of fiscal 2010. We continue to benefit from of our new platform which was launched in 2008.

New stores includes results for one store prior to reaching its 53rd week anniversary, which occurred in the second quarter of 2010, and two stores which were closed during the prior year due to building damage.

Our merchandise mix has had minimal change year over year, as reflected in the table below.

	Thirteen Weeks Ended						Thirty-nine Weeks Ended
	October 30,			October 31,			October 30,			October 31,
	2010			2009			2010			2009

Apparel and Craft Fabrics		46	%		45	%		43	%		43	%
Home Decorating Fabrics		11	%		12	%		13	%		14	%
Sewing Accessories		26	%		28	%		27	%		28	%
Non-Sewing Products		17	%		15	%		17	%		15	%
		100	%		100	%		100	%		100	%

Gross Profit

Costs of goods sold include:

the cost of merchandise;

inventory rebates and allowances including term discounts;

inventory shrinkage and valuation adjustments;

freight charges;

costs associated with our sourcing operations, including payroll and related benefits; and

costs associated with receiving, processing, and warehousing merchandise.

The classification of these expenses varies across the retail industry.

Specific components of cost of goods sold for the third quarter and first thirty-nine weeks of fiscal 2010 and 2009 are as follows:

	Thirteen Weeks Ended										Thirty-nine Weeks Ended
	October 30,		% of			October 31,		% of			October 30,		% of			October 31,		% of
(in thousands)	2010		Sales			2009		Sales			2010		Sales			2009		Sales

Total net sales	$	73,454		100.0	%	$	72,730		100.0	%	$	197,012		100.0	%	$	196,380		100.0	%

Merchandise cost		35,374		48.3	%		33,682		46.3	%		93,074		47.2	%		90,789		46.2	%
Freight		2,303		3.1	%		2,152		2.9	%		6,015		3.1	%		5,681		3.0	%
Sourcing and warehousing		3,559		4.7	%		3,112		4.3	%		9,113		4.6	%		9,898		5.0	%

Gross Profit	$	32,218		43.9	%	$	33,784		46.5	%	$	88,810		45.1	%	$	90,012		45.8	%

Merchandise cost increased 200 basis points in the third quarter of 2010 compared to the same period of 2009, due to promotional activity during the period. For the first thirty-nine weeks of 2010 merchandise cost was 100 basis points higher than 2009 as a result of first quarter discounting that was initiated to address inventory mix issues in select categories and promotional activity in the third quarter.

Freight costs included in cost of goods sold have remained relatively constant for the quarter and year. The Company has experienced limited freight pricing pressure for imported goods.

Sourcing and warehousing costs for the Company vary based on both the volume of inventory received during any period and the rate at which inventory is shipped out, or inventory turns. The cost differences for the third quarter and first thirty-nine weeks of 2010 compared to the same periods in 2009 are primarily due to the change in inventory turns during those periods, which influence the amount of sourcing and warehousing costs capitalized in inventory. Actual sourcing and warehousing costs incurred during the quarter and for the year are not significantly different than in the prior year.

In total, gross margin decreased by 260 basis points in the third quarter 2010 from third quarter 2009, and decreased 70 basis points for the first thirty-nine weeks of 2010 from the first thirty-nine weeks of 2009.

Sales, General & Administrative Expenses

Sales, general & administrative expenses include:

payroll and related benefits (for our store operations, field management, and corporate functions);

advertising;

general and administrative expenses;

occupancy, including rent, common area maintenance, taxes and insurance for our retail locations;

operating costs of our headquarters facilities; and

other expense (income).

Specific components of sales, general & administrative expenses include:

	Thirteen Weeks Ended										Thirty-nine Weeks Ended
	October 30,		% of			October 31,		% of			October 30,		% of			October 31,		% of
(in thousands)	2010		Sales			2009		Sales			2010		Sales			2009		Sales

Retail store labor costs	$	10,575		14.4	%	$	10,446		14.4	%	$	30,573		15.5	%	$	30,677		15.6	%
Advertising		2,557		3.5	%		2,359		3.2	%		7,211		3.7	%		6,965		3.5	%
Store occupancy		7,467		10.2	%		7,363		10.1	%		22,148		11.2	%		22,053		11.2	%
Retail SG&A		5,551		7.6	%		5,454		7.5	%		15,412		7.8	%		15,279		7.9	%
Corp SG&A		2,104		2.8	%		2,589		3.6	%		6,726		3.5	%		7,337		3.7	%

Total SG&A	$	28,254		38.5	%	$	28,211		38.8	%	$	82,070		41.7	%	$	82,311		41.9	%

Retail Store Labor Costs – The store labor costs remained constant during the third quarter and first thirty-nine weeks of 2010, despite two additional stores in operation as compared to the same period in 2009. These savings resulted from a continued emphasis on costs control.

Advertising – Advertising costs increased for the third quarter and first thirty-nine weeks of 2010 due to costs related to in-store signage.

Store Occupancy – These costs have remained relatively constant despite the renewal of a significant number of leases over the past twelve months. We have made significant efforts to restructure rents as a result of the current commercial real estate market. These efforts in some cases resulted in rent reductions, concessions on future escalations, and term extensions.

Retail SG&A – Costs for the third quarter and first thirty-nine weeks of the year have remained constant year over year.

Corporate SG&A – The third quarter 2010 corporate costs were reduced by the write-off of previously accrued incentive compensation amounts. The decrease for the first thirty-nine weeks of 2010 as compared to 2009 is a result of the absence of incentive compensation accruals for the current year.

Reorganization Expenses, Net

	Thirteen Weeks Ended										Thirty-nine Weeks Ended
	October 30,		% of			October 31,		% of			October 30,		% of			October 31,		% of
(in thousands)	2010		Sales			2009		Sales			2010		Sales			2009		Sales

Reorganziation expense, net	$	131		0.2	%	$	182		0.2	%	$	485		0.2	%	$	592		0.3	%

Reorganization expenses are comprised of the cost for professional services associated with our bankruptcy proceedings. With the closure of our bankruptcy proceedings, these costs are not expected to continue in subsequent periods.

Interest Expense, Net

	Thirteen Weeks Ended										Thirty-nine Weeks Ended
(in thousands)	October 30,		% of			October 31,		% of			October 30,		% of			October 31,		% of
	2010		Sales			2009		Sales			2010		Sales			2009		Sales
Interest expense, net	$	1,329		1.8	%	$	1,234		1.7	%	$	3,669		1.9	%	$	3,944		2.0	%

The Company’s interest costs are driven by borrowings on our credit facilities and a small number of capital leases. Our current credit facilities consist of both an asset-based facility and a subordinated-debt facility. Interest expense for the third quarter 2010 and 2009, and the first thirty-nine weeks of 2010 and 2009 included a non-cash charge for note discount amortization of $0.6 million and $1.7 million, respectively. In addition, interest was paid with the issuance of additional notes of $0.7 million in the first thirty-nine weeks of 2009. Excluding these non-cash items, interest expense for the third quarter of 2010 was $0.7 million or 1.0% of sales compared to $0.7 million or 0.9% of sales in third quarter 2009, and $1.9 million or 1.0% of sales in the first thirty-nine weeks of 2010 compared to $1.5 million or 0.8% of sales for the same period of 2009.

Income Taxes

	Thirteen Weeks Ended										Thirty-nine Weeks Ended
(in thousands)	October 30,		% of			October 31,		% of			October 30,		% of			October 31,		% of
	2010		Sales			2009		Sales			2010		Sales			2009		Sales
Income taxes	$	-		0.0	%	$	64		0.1	%	$	-		0.0	%	$	64		0.0	%

The Company did not recognize any income tax expense or benefit during the first thirty-nine weeks of fiscal 2010 based on the year to date results. Income tax expense for 2009 represents alternative minimum tax (AMT), which cannot be fully offset by the net operating loss carryforward of the Company. ASC 740, “Income Taxes”, requires the AMT be recognized as a tax credit carryforward to be utilized against income taxes in a future period when income taxes exceed AMT. The AMT credit may be carried forward with no expiration. Since the realization of future tax credit carryforwards is dependent upon profitable future operations, the Company has in essence recognized a full valuation allowance against such credits and treated the payment of AMT as tax expense. AMT expense will be recognized when the Company reports a profit on a year to date basis.

As of October 30, 2010, January 30, 2010 and October 31, 2009 the Company has established a 100% valuation allowance to offset the net deferred tax assets related to net operating loss carryforwards and other book-tax timing differences.

Liquidity and Capital Resources

Hancock's primary capital requirements are for the financing of inventories and, to a lesser extent, for capital expenditures relating to store locations and the Company’s distribution facility. Funds for such purposes have historically been generated from Hancock's operations, short-term trade credit in the form of extended payment terms from suppliers for inventory purchases, and borrowings from commercial lenders.

We anticipate that we will be able to satisfy our working capital requirements, planned capital expenditures and debt service requirements with available cash, proceeds from cash flows from operations, short-term trade credit, borrowings under our revolving credit facility and other sources of financing. We expect to generate adequate cash flow from operating activities to sustain current levels of operations.

Hancock’s cash flow related information for the first thirty-nine weeks of fiscal 2010 and 2009 follows:

	Thirty-nine Weeks Ended
	October 30,			October 31,
(in thousands)	2010			2009

Net cash flows provided (used):
Operating activites	$	463		$	12,839
Investing activities		(5,167	)		(2,552	)
Financing activites		5,913			(8,360	)

Operating Activities

Net cash inflows provided by operating activities during the first thirty-nine weeks of 2010 decreased by $12.4 million compared to the first thirty-nine weeks of 2009. The net decrease occurred primarily due to the seasonal inventory buildup and the addition of merchandise for an expanded craft assortment being tested in 15 stores which was partially offset by an increase in accounts payable. The seasonal inventory buildup for 2009 was less pronounced than the 2010 buildup.

Investing Activities

Cash used for investing activities consists primarily of purchases and sales of property and equipment. Capital expenditures during the first thirty-nine weeks 2010 increased by $2.6 million from the first thirty-nine weeks of 2009. Expenditures for 2010 consisted primarily of store fixtures related to six relocations, fixtures for new product lines and point of sale (POS) equipment upgrades compared to three new store locations, five store remodels and technology upgrades completed during the first thirty-nine weeks of 2009.

Financing Activities

Borrowings from the Revolver of $6.3 million net of pre-petition obligations payments of $0.4 million were used to finance inventory purchases and capital expenditures during the first thirty-nine weeks of 2010. For the thirty-nine weeks ended October 31, 2009 the cash provided by operating activities provided funds to reduce the Revolver balance by $7.6 million and pay $0.7 million of pre-petition obligations.

Credit Facilities

The following should be read in conjunction with Note 7 to the Consolidated Financial Statements included in this report and Note 8 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 1, 2010.

As of October 30, 2010, the Company had outstanding borrowings under the Revolver of $19.9 million and outstanding letters of credit of $8.7 million. Additional amounts available to borrow at that time were $49.8 million.

As of October 30, 2010, the Note balance was $21.6 million and the unamortized discount on Notes Payable related to warrants issued was $6.4 million.

Off-Balance Sheet Arrangements

Hancock has no off-balance sheet financing arrangements. Hancock leases its retail fabric store locations mainly under non-cancelable operating leases. Four of the Company’s store leases qualified for capital lease treatment. Future payments under the operating leases are appropriately excluded from the Company’s balance sheet. Capital lease obligations are, however, reflected on the Company’s balance sheet.

Contractual Obligations and Commercial Commitments

Hancock has an arrangement within its Revolver that provides up to $20.0 million in letters of credit. At October 30, 2010, Hancock had commitments of $1.5 million on documentary letters of credit under the facility, which support purchase orders for merchandise. Hancock also has $6.4 million on standby letters of credit to guarantee payment of potential insurance claims and $0.8 million which secures an outstanding pre-petition obligation. Hancock leases its retail fabric store locations under operating leases expiring at various dates through 2024.

The Company has no standby repurchase obligations or guarantees of other entities' debt.

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a process to review the application of our accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements of a large corporation. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information. There have been no significant changes to our accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2010.

Effects of Inflation

Inflation in labor and occupancy costs could significantly affect Hancock's operations. Many of Hancock's employees are paid hourly rates related to federal and state minimum wage requirements; accordingly, any increases in those requirements will affect Hancock. In addition, payroll taxes, employee benefits, and other employee costs continue to increase, and the full impact of the recently enacted health care reform legislation will not be known for several years. Health insurance costs, in particular, continue to rise at a high rate in the United States each year, and higher employer contributions to Hancock’s pension plan could be necessary if investment returns are weak. Costs of leases for new store locations remain stable, but renewal costs of older leases continue to increase. Hancock believes the practice of maintaining adequate operating margins through a combination of product price adjustments and cost controls, careful evaluation of occupancy needs, and efficient purchasing practices are the most effective tools for coping with increased costs and expenses.

Seasonality

Hancock's business is seasonal. Peak sales periods occur during the fall and early spring weeks, while the lowest sales periods occur during the summer. Working capital requirements needed to finance our operations fluctuate during the year and reach their highest levels during the second and third fiscal quarters as we increase our inventory in preparation for our peak selling season during the fourth quarter.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Hancock did not hold derivative financial or commodity instruments at October 30, 2010.

Interest Rate Risk

The Company is exposed to financial market risks, including changes in interest rates. At the Company's option, all loans under the Revolver bear interest at either (a) a floating interest rate plus the applicable margins or (b) absent a default, a fixed interest rate for periods of one, two or three months equal to the reserve adjusted London Interbank Offered Rate, or LIBOR, plus the applicable margins.

As of October 30, 2010, the Company had borrowings outstanding of approximately $19.9 million under the Revolver. If interest rates increased 100 basis points, the Company’s annual interest expense would increase approximately $199,000, assuming borrowings under the Revolver of $19.9 million as existed at October 30, 2010.

In addition to the Revolver, the Company issued $20.0 million of Floating Rate Secured Notes (the “Notes”) on August 1, 2008. Interest on the Notes is payable quarterly at LIBOR plus 4.50%. Interest for the first four quarters was paid by the issuance of additional notes at a rate equal to LIBOR plus 5.50%, which resulted in the capitalization of $1.6 million into the balance.

The Company will pay the subsequent interest payments on the Notes in cash, the next payment date being February 1, 2011. If interest rates increased 100 basis points, the Company’s annual interest expense would increase $216,000, based on balance of the Notes of $21.6 million at October 30, 2010.

Foreign Currency Risk

The Company either directly or indirectly purchases product from several foreign countries. All of the Company’s business is transacted in U.S. dollars and, accordingly, devaluation of the dollar against other currencies can increase product costs. This risk did not significantly impact the thirty-nine week period ended October 30, 2010, however product costs in the near-term could be adversely impacted by devaluation of the U.S. dollar. As of October 30, 2010, the Company had no financial instruments outstanding that were sensitive to changes in foreign currency rates.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including our President and Chief Executive Officer (principal executive officer) and Executive Vice President and Chief Financial Officer (principal financial officer), as appropriate, to allow timely decisions regarding the required disclosures. In designing and evaluating the disclosure controls and procedures, our Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

In connection with the preparation of this Quarterly Report on Form 10-Q as of October 30, 2010, the Company’s management, under the supervision and with the participation of the Company’s President and Chief Executive Officer, and Executive Vice President and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in the Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of October 30, 2010.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) within the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On March 21, 2007, the Company and its affiliated debtors filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware. The reorganization case was administered under the caption ”In re Hancock Fabrics, Inc., et al., Case No. 07-10353 (BLS).” On June 10, 2008, the Company filed its joint plan of reorganization (Docket No. 2746) (as modified and including all documents ancillary thereto, the “Plan”) and, thereafter, its related court-approved notice of plan confirmation hearing. On July 22, 2008, the court entered an order confirming the Plan (Docket No. 2996). On August 1, 2008, the Plan became effective, and the Company emerged from bankruptcy protection. On August 17, 2010 the Court issued the Final Decree closing the bankruptcy case.

The Company is a party to several legal proceedings and claims. Although the outcome of such proceedings and claims cannot be determined with certainty, we are of the opinion that it is unlikely that these proceedings and claims will have a material effect on the financial condition or operating results of the Company.

ITEM 1A. RISK FACTORS

The risk factors listed in Part I “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended January 30, 2010, should be considered with the information provided elsewhere in this Quarterly Report on Form 10-Q, which could materially adversely affect the business, financial condition or results of operations. There have been no material changes to the risk factors as previously disclosed in such Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In June of 2000 the Board of Directors authorized the repurchase of up to 2,000,000 shares of the Company’s Common Stock from time to time when warranted by market conditions. There have been 1,756,485 shares purchased under this authorization through October 30, 2010, and the number of shares that may yet be purchased under this authorization is 243,515.

The Registrant did not sell any unregistered equity securities during the period covered by this Quarterly Report.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) Under The Securities Exchange Act of 1934

31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) Under The Securities Exchange Act of 1934

32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

SIGNATURE

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

	HANCOCK FABRICS, INC.
	(Registrant)

	By:	/s/ Robert W. Driskell
		Robert W. Driskell
		Executive Vice President and
		Chief Financial Officer
		(Principal Financial Officer)

Date: December 9, 2010

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) Under The Securities Exchange Act of 1934

31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) Under The Securities Exchange Act of 1934

32.1		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002

HANCOCK FABRICS INC - FORM 10-Q - December 9, 2010

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HANCOCK FABRICS INC Reports