House of Fabrics’ Stock Ends Slide : Retailing: The head of the nation’s largest sewing goods chain sold 80,000 of his shares before prices began tumbling last week.

House of Fabrics Inc.’s stock posted a solid gain Monday, ending a recent slide that pushed the shares sharply lower even though the Sherman Oaks-based fabric store chain reported sharply higher profits in its third quarter.

Meanwhile, company President Gary L. Larkins sold 80,000 of his House of Fabrics shares before the stock began tumbling last week. But Larkins said he sold stock he had just received from exercising stock options to diversify his personal portfolio, and the sale “should not be treated by the market as something being wrong with the company.”

After trading at $40 early this month, House of Fabrics’ stock had tumbled to $31.125 by Friday’s close before climbing back to $32.625 a share Monday in New York Stock Exchange composite trading. That still leaves it with only an 8% gain for the year so far. A big part of the stock’s drop came Nov. 15 when the overall market tumbled, but the decline in House of Fabrics’ shares has continued since then.

Larkins issued a statement last week saying that the company was not aware of any developments that would account for the slide, and that House of Fabrics has “considerable optimism about its long-term future” in light of its recent earnings gains.

But in an interview, Larkins suggested that the decline might stem from the company’s recent purchase of Fabricland Inc., a Northwest chain, for House of Fabrics’ stock valued at $58 million.

Because that deal increased the number of House of Fabrics’ shares outstanding, the company’s fiscal third-quarter profit, while jumping 42% overall from a year earlier, climbed only 13% in terms of earnings per share. That probably disappointed some investors who use earnings per share as a critical gauge, although the stock’s dilution was expected, Larkins said.

House of Fabrics, the nation’s largest fabric chain with 671 outlets, said its profit in its third quarter that ended Oct. 31 rose to $6.42 million from $4.52 million, and sales climbed 35% to $140.4 million from $104.4 million.

The results reflect the Fabricland acquisition as well as House of Fabrics’ ongoing conversion of its smaller, shopping-mall outlets into larger “super stores” that carry more items and have higher operating profits. House of Fabrics also noted that its stores are doing well despite the economy, showing that the company is “largely recession-resistant.”

For the first nine months of its fiscal year, House of Fabrics’ profit surged 54%, to $11.3 million from $7.38 million, and its nine-month sales rose 22%, to $339.8 million from $278.1 million.

Larkins sold his 80,000 shares Oct. 21 for $39.75 a share, or $3.2 million before brokerage commissions. He earned a handsome profit on the stock because he got the shares by exercising options at prices ranging from $6 to $10 a share. The options were granted to Larkins by the company as part of Larkins’ compensation, a common benefit for U.S. executives.

But Larkins noted that he still holds options for an additional 250,000 shares that he has not yet exercised.