Hancock Fabrics Announces Additional Store Closings and Receipt of Notice of Default from Bank Group

  
    
  
  
    
      Hancock Fabrics, Inc. (NYSE: HKF), announced today that, as part of its 
      ongoing review of store performance, it is closing 104 stores, 
      representing approximately $75 million in annualized sales. These 
      closings are in addition to the 30 store closings disclosed in a press 
      release dated February 8, 2007.
    
    
      The Company has expanded its existing engagement of a national 
      liquidation firm to assist it with the inventory liquidation sales in 
      these stores over the next three to four months. In addition, it has 
      selected a national real estate firm to assist it in the disposition of 
      the leases for the closing stores.
    
    
      Jane Aggers, President and CEO, stated, “We 
      regret the impact that this decision to close stores has on our 
      associates, but we believe it is necessary in order to focus our 
      attention and resources entirely on further improving our stores that 
      are performing well.”
    
    
      As these stores are closed, charges to earnings will be recorded if the 
      continuing occupancy costs exceed amounts estimated to be recoverable 
      through their disposition. In addition, as the inventory liquidation 
      sales take place, there will likely be losses incurred as a result of 
      the liquidation pricing. The Company is not presently able to reasonably 
      estimate the amount of losses that will occur from this process.
    
    
      In addition, Hancock reported that it has received a notice of default 
      from its bank group due to the previously reported delay in filing its 
      quarterly financial statements for 2006 and due to the Company’s 
      inability to comply with a financial covenant in the bank credit 
      facility that requires the Company to have at least $25 million of 
      excess availability. In the notice of default, the bank group has 
      indicated its intention to increase the interest rate on borrowings and 
      the fees on letters of credit to the default rates, which are two 
      percentage points higher than normal. In addition, the bank group 
      asserts that it may direct the Company’s 
      depository banks to transfer all cash deposits to the bank group in 
      order to pay down borrowings under the bank credit facility.
    
    
      In light of these developments, Hancock is exploring its strategic 
      alternatives in its continuing effort to maximize the value of its 
      enterprise for its stakeholders.
    
    
      Hancock Fabrics, Inc. – America's Fabric Store – 
      is committed to serving creative enthusiasts with a complete selection 
      of fashion and home decorating textiles, sewing accessories, needlecraft 
      supplies and sewing machines, through retail stores and an Internet 
      store at www.hancockfabrics.com.