House of Fabrics’ Silver Lining: Third-Quarter Profit

House of Fabrics Inc., the Sherman Oaks-based retailer that emerged from Chapter 11 bankruptcy protection in August, said Tuesday it returned to profitability in its fiscal third quarter.

In the three months ended Oct. 31, House of Fabrics earned $874,000, contrasted with a year-earlier net loss of $5.5 million. With fewer stores, its sales for the third quarter fell 24%, to $70 million from $92.3 million in the same period a year ago.

House of Fabrics shares jumped $1.375 a share after the announcement Tuesday, to close at $3.875 on Nasdaq.

The earnings report was the first piece of good news at the company after a long, painful restructuring that saw the 50-year-old chain close more than 200 fabric stores and a distribution center and lay off more than 1,000 employees.

House of Fabrics filed for bankruptcy protection in November 1994 after the sluggish retail environment, fierce competition and an ill-timed expansion led to financial troubles.

The company now operates 267 stores in 34 states and employs about 7,000 workers.

James Schmitt, an analyst at Westcountry Financial, cautioned that House of Fabrics hasn’t completed its recovery just yet. Based on the third-quarter results, store sales are averaging about $1 million on an annualized basis, well short of the $1.5-million level that would restore the chain to health, he said.

“But at that revenue level, at least they’re showing a profit,” Schmitt said.

House of Fabrics Chief Executive Gary L. Larkins attributed the profit largely to cost-cutting measures and acknowledged that the company still has a ways to go. He noted that third-quarter sales were hurt because of a delay in product shipments to stores after the company’s emergence from bankruptcy.

Larkins said he expects House of Fabrics’ financial results to show further improvement, adding that a real test for the company will come this weekend, during the critical kickoff of the holiday shopping season.

For the nine months ended Oct. 31, House of Fabrics’ net loss narrowed to $10.1 million from a net loss of $24.5 million a year before. Its nine-month sales declined 24%, to $181.3 million from $238 million.

The company also reported that its bank debt stood at $54.9 million as of Oct. 31, compared with $102.8 million a year earlier.