Hancock Fabrics Reports Third Quarter 2005 Results and Suspension of Quarterly Dividend

Hancock Fabrics, Inc. (NYSE:HKF), today announced the
unaudited results of its third fiscal quarter of 2005.
   Sales in the 13 weeks ended October 29, 2005 decreased 5.5% to
$103.9 million from $109.9 million in the same quarter of 2004. The
Company reported a net loss of $2.5 million, or $.14 per diluted
share, compared with net earnings of $1.0 million, or $.05 per diluted
share, in the third quarter a year ago. In addition, the Company
announced that its Board of Directors has suspended indefinitely its
quarterly dividend.
   In commenting on the results, Jane Aggers, Chief Executive
Officer, stated, "The selling environment is still very challenging,
as evidenced by our 6.3% decline in comparable store sales during the
third quarter. Our home decorating business and the fleece fabrics
category provided the most negative results. Although promotional
activities increased in the market, our gross margin rate remained
flat, before the effect of LIFO," Aggers said.
   "Throughout the third quarter, we implemented three major
initiatives involving merchandising, marketing and store presentation.
Although results have been mixed, we believe we have taken the
necessary steps to improve our connection with our customers. We will
continue to monitor the results of these initiatives for the remainder
of the fall selling season and determine which strategies are
appropriate for the future," Aggers continued.
   "For the balance of the year, we will focus on debt reduction. At
the end of the third quarter, our debt was at $62 million under our
$110 million credit facility. From an operational standpoint, we will
reduce operating costs and manage our year-end inventory levels. We
have begun the expense reduction process and will continue to refine
and right-size our operating expense structure."
   "We expect to complete sale/leasebacks of two more store
properties in November and have a letter of intent to sell our former
distribution center and corporate offices in Tupelo, MS. Assuming no
delays in the scheduled process, we believe that the sale of the
Tupelo property will be finalized prior to fiscal year end and, when
combined with the store sale/leasebacks, will yield approximately $7
million. One more store property remains, to sell and leaseback, which
could raise another $2 million in early 2006. In addition, the
suspension of the dividend will add approximately $4.5 million to
Hancock's annualized cash flow."
   "In looking forward to 2006, we will focus our efforts primarily
on improving productivity in all areas of the Company. As one result,
we will not be opening new stores, except in relocation
circumstances," Aggers concluded.
   The Company also noted that the determination of insurance
deductible levels related to Hurricanes Katrina and Rita is ongoing
between Hancock and its insurer. Based on available facts, a loss of
approximately $230,000 has been recorded in the third quarter for the
expected insurance deductible.
   Hancock Fabrics, Inc. is a specialty retailer of fabric and
related home sewing and decorating accessories. The Company operates
446 retail fabric stores in 43 states and operates an internet store
under the domain name, www.hancockfabrics.com.
   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 projections.
These risks and uncertainties include, but are not limited to, general
economic trends, 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, a
disruption in the Company's data processing services, costs and delays
in acquiring or developing new store sites, and other contingencies
discussed in the Company's Securities and Exchange Commission filings.
Hancock undertakes no obligation to release revisions to these
forward-looking statements to reflect events or circumstances after
the date hereof or to reflect the occurrence of unforeseen events,
except as required to be reported under the rules and regulations of
the Securities and Exchange Commission.
-0-
*T
               COMPARATIVE FINANCIAL SUMMARY (unaudited)
             (000's omitted, except for per share amounts)

                     13 Weeks     13 Weeks     39 Weeks     39 Weeks
                    October 29,  October 31,  October 29,  October 31,
                       2005         2004         2005         2004
                    -----------  -----------  -----------  -----------

Sales               $  103,869   $  109,914   $  284,953   $  304,770

Cost of Goods Sold
 After LIFO Effect      54,532       57,290      148,344      156,197
                    -----------  -----------  -----------  -----------

 Gross Profit           49,337       52,624      136,609      148,573

Expenses:
  Selling, G&A          50,085       48,846      145,531      143,931
  Dep'n/Amort            2,209        1,923        6,634        5,435
                    -----------  -----------  -----------  -----------
                        52,294       50,769      152,165      149,366
                    -----------  -----------  -----------  -----------

Operating Income
 (Loss)                 (2,957)       1,855      (15,556)        (793)

Interest Expense,
 net                       975          321        2,007          601
                    -----------  -----------  -----------  -----------

Earnings (Loss)
 Before Income
 Taxes                  (3,932)       1,534      (17,563)      (1,394)

Income Taxes            (1,427)         557       (6,375)        (505)
                    -----------  -----------  -----------  -----------

Net Earnings (Loss) $   (2,505)  $      977   $  (11,188)  $     (889)
                    ===========  ===========  ===========  ===========

Earnings (Loss) Per
 Share(a)

    Basic           $    (0.14)  $     0.05   $    (0.61)  $    (0.05)
                    ===========  ===========  ===========  ===========

    Diluted         $    (0.14)  $     0.05   $    (0.61)  $    (0.05)
                    ===========  ===========  ===========  ===========

Average Shares
 Outstanding (000's)

    Basic               18,516       18,246       18,429       18,149

    Diluted             18,516       18,624       18,429       18,149

LIFO Charge (Credit)
 Included in Cost
 of Goods Sold      $    1,100   $      750   $    3,700   $      550


(a) Per share amounts are based on the average shares outstanding
    during each quarter and may not add to the year-to-date amount.



                      CONSOLIDATED BALANCE SHEET
                            (in thousands)

                                            October 29,   October 31,
                                               2005          2004
                                           ------------- -------------
ASSETS:
Current assets:
    Cash and cash equivalents              $      3,996  $      4,616
    Inventories                                 178,549       163,874
    Income taxes refundable                       6,239         2,339
    Other current assets                          4,051         4,230
                                           ------------- -------------

       Total current assets                     192,835       175,059

Property and equipment, at depreciated cost      68,307        70,998
Pension payment in excess of required
 contribution                                    12,798        14,261
Other assets                                     12,489        11,940
                                           ------------- -------------

                                           $    286,429  $    272,258
                                           ============= =============


LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
    Accounts payable                       $     49,856  $     45,416
    Accrued liabilities                          19,876        19,124
    Income taxes                                  4,666         4,579
                                           ------------- -------------

       Total current liabilities                 74,398        69,119

Long-term debt obligations                       61,977        44,000
Lease financing obligation                        1,733             0
Postretirement benefits other than pensions      22,934        22,655
Other noncurrent liabilities                     10,415         9,152
Shareholders' equity                            114,972       127,332
                                           ------------- -------------

                                           $    286,429  $    272,258
                                           ============= =============
*T