<PAGE>   1
                               FORM 10-Q

                     SECURITIES AND EXCHANGE COMMISSION

                          WASHINGTON, D.C.  20549


(X)    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                 SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended        MAY 3, 1998
                                 ---------------------

                                       or

( )    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 of                     (I.R.S. Employer
    incorporation or organization)                    Identification No.)

                      3406 WEST MAIN ST., TUPELO, MS 38808
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (601) 842-2834
              (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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.


As of May 3, 1998, the registrant had outstanding an aggregate of 20,940,383
shares of common stock, $.01 par value.





<PAGE>   2
HANCOCK FABRICS, INC.

INDEX

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------

PART I.   FINANCIAL INFORMATION:

  Item 1.  Financial Statements (unaudited)                                     Page Numbers
<S>                                                                             <C>
    Consolidated Balance Sheet as of May 3, 1998 and February 1, 1998                    3


    Consolidated Statement of Earnings for the Thirteen Weeks ended
     May 3, 1998 and May 4, 1997                                                         4


    Consolidated Statement of Shareholders' Equity for the
     Thirteen Weeks ended May 3, 1998                                                    5


    Consolidated Statement of Cash Flows for the Thirteen Weeks ended
     May 3, 1998 and May 4, 1997                                                         6


    Notes to Consolidated Financial Statements                                           7


  Item 2.  Management's Discussion and Analysis of  Financial Condition
     and Results of Operations                                                         8 - 10




  Item 4.  Submission of Matters to a Vote of Securityholders                            11

  Item 6.  Exhibits and Reports on Form 8-K                                              11


SIGNATURE                                                                                12

</TABLE>








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<PAGE>   3
                                   PART I. FINANCIAL INFORMATION


HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEET
(unaudited)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
(in thousands, except for                                                        May 3,            February 1,
  share and per share amounts)                                                    1998                 1998

-----------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>               <C>
ASSETS
Current assets:
    Cash and cash equivalents                                                      $  7,071            $  7,057
    Receivables, less allowance for doubtful accounts                                   719               1,136
    Inventories                                                                     147,512             149,486
    Deferred tax asset                                                                2,823               3,312
    Prepaid expenses                                                                  3,319               3,806
-----------------------------------------------------------------------------------------------------------------
    Total current assets                                                            161,444             164,797

Property and equipment, at depreciated cost                                          19,699              18,989
Deferred tax asset                                                                    8,976               9,065
Other assets                                                                          4,059               2,707
-----------------------------------------------------------------------------------------------------------------

    Total assets                                                                   $194,178            $195,558
=================================================================================================================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                               $ 36,080            $ 35,491
    Accrued liabilities                                                              14,564              16,418
    Income taxes                                                                      3,941               4,040
-----------------------------------------------------------------------------------------------------------------
    Total current liabilities                                                        54,585              55,949

Long-term debt obligations                                                           14,000              10,000
Postretirement benefits other than pensions                                          19,893              19,746
Other liabilities                                                                     3,229               3,172
-----------------------------------------------------------------------------------------------------------------
    Total liabilities                                                                91,707              88,867
-----------------------------------------------------------------------------------------------------------------

Commitments and contingencies

Shareholders' equity:
  Common stock, $.01 par value; 80,000,000 shares authorized;
   28,528,813 and 28,253,013 issued and outstanding, respectively                       285                 283
  Additional paid-in capital                                                         34,867              31,382
  Retained earnings                                                                 178,624             178,643
  Treasury stock, at cost, 7,588,430 and 7,139,074
   shares held, respectively                                                       (105,724)            (99,047)
  Deferred compensation on restricted stock
   incentive plan                                                                    (5,581)             (4,570)
-----------------------------------------------------------------------------------------------------------------
    Total shareholders' equity                                                      102,471             106,691
-----------------------------------------------------------------------------------------------------------------
    Total liabilities and shareholders' equity                                     $194,178            $195,558
=================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.





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<PAGE>   4
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
(in thousands, except
  per share amounts)                                          Thirteen Weeks Ended
                                                        --------------------------------
                                                          May 3,                May 4,
                                                           1998                  1997
----------------------------------------------------------------------------------------
<S>                                                       <C>                   <C>                        
Sales                                                     $97,796               $92,000
Cost of goods sold                                         50,639                48,550
----------------------------------------------------------------------------------------

  Gross profit                                             47,157                43,450
----------------------------------------------------------------------------------------

Expenses (income)
  Selling, general and administrative                      42,778                38,802
  Depreciation and amortization                               933                   861
  Interest expense                                            176                    46
  Interest income                                             (37)                  (62)
----------------------------------------------------------------------------------------
  Total operating and interest expenses                    43,850                39,647
----------------------------------------------------------------------------------------

Earnings before taxes                                       3,307                 3,803
Income taxes                                                1,200                 1,464
----------------------------------------------------------------------------------------

Net earnings                                              $ 2,107               $ 2,339
========================================================================================

Earnings per share
     Basic                                                $  0.10               $  0.11
     Diluted                                              $  0.10               $  0.11

========================================================================================

Weighted average shares outstanding
     Basic                                                 20,684                20,983
     Diluted                                               21,200                21,361

========================================================================================

Dividends per share                                       $  0.10               $ 0.08
========================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.



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<PAGE>   5
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except for                                                                                                   
  number of shares)                   Common Stock       Additional                    Treasury Stock       Deferred       Total
                                 ---------------------    Paid-in      Retained    ---------------------      Com-     Shareholders'
                                   Shares      Amount     Capital      Earnings     Shares      Amount      pensation      Equity

----------------------------------------------------------------------------------------------------------------------------------
Thirteen weeks

------------------------------------------------------------------------------------------------------------------------------------
<S>                               <C>            <C>     <C>          <C>         <C>           <C>          <C>         <C>      
Balance February 1, 1998          28,253,013     $283    $31,382      $178,643    (7,139,074)   ($99,047)    ($4,570)    $106,691
Net earnings                                                             2,107                                              2,107
Cash dividend - $.10 per
 share on a quarterly basis                                             (2,126)                                            (2,126)
Exercise of stock options            185,850        1      1,532                                                            1,533
Restricted stock transactions         89,950        1      1,348                                              (1,349)           0
Amortization and vesting of 
 deferred compensation on 
 restricted stock incentive plan                                           605                                   338          943
Purchase of treasury stock                                                          (449,356)     (6,677)                  (6,677)

------------------------------------------------------------------------------------------------------------------------------------

Balance May 3, 1998               28,528,813     $285    $34,867      $178,624    (7,588,430)  ($105,724)    ($5,581)    $102,471

====================================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.







                                      -5-
<PAGE>   6
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
(in thousands)
                                                                   Thirteen Weeks Ended
                                                                 -------------------------
                                                                    May 3,         May 4,
                                                                     1998           1997

------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
Cash flows from operating activities:
  Net earnings                                                      $2,107         $2,339
  Adjustments to reconcile net earnings to cash
   provided by operating activities
    Depreciation and amortization                                      933            861
    LIFO charge (credit)                                              (400)           500
    Deferred income taxes                                              578            (65)
    Amortization of deferred compensation on
     restricted stock incentive plan                                   338            258
    (Increase) decrease in assets
      Receivables and prepaid expenses                                 904            (54)
      Inventory at current cost                                      2,374          5,724
      Other noncurrent assets                                         (648)            14
    Increase (decrease) in liabilities
      Accounts payable                                                 589          1,491
      Accrued liabilities                                           (1,854)        (1,687)
      Current income tax obligations                                   506         (2,601)
      Postretirement benefits other than pensions                      147            221
      Other liabilities                                                 57            341

------------------------------------------------------------------------------------------
     Net cash provided by operating activities                       5,631          7,342

------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Additions to property and equipment                               (1,643)          (426)
  Other                                                               (704)

------------------------------------------------------------------------------------------
     Net cash used in investing activities                          (2,347)          (426)

------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Net borrowings (repayments) on revolving credit agreement          4,000         (3,000)
  Purchase of treasury stock                                        (6,677)        (1,918)
  Proceeds from exercise of stock options                            1,533            702
  Cash dividends paid                                               (2,126)        (1,728)

------------------------------------------------------------------------------------------
     Net cash used in financing activities                          (3,270)        (5,944)

------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents                        14            972

Cash and cash equivalents:
  Beginning of period                                                7,057          6,870
------------------------------------------------------------------------------------------

  End of period                                                     $7,071         $7,842
==========================================================================================

Supplemental disclosures:
  Cash paid during the period for:
    Interest                                                        $  166         $   25
    Income taxes                                                    $  213         $4,285
==========================================================================================
</TABLE>



See accompanying notes to consolidated financial statements.





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<PAGE>   7





HANCOCK FABRICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1:  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. The statements do reflect all adjustments
(consisting of only normal recurring accruals) which are, in the opinion of
management, necessary for a fair presentation of financial position in
conformity with generally accepted accounting principles. The statements should
be read in conjunction with the Notes to the Consolidated Financial Statements
for the fiscal year ended February 1, 1998 incorporated into the Company's
Annual Report on Form 10-K.

The results of operations for the thirteen week period are not necessarily
indicative of the results to be expected for the full fiscal year.



NOTE 2:  EARNINGS PER SHARE

Earnings per share is calculated in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share," which requires the
presentation of basic and diluted earnings per share. Basic earnings per share
is computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding during 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.



















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<PAGE>   8



HANCOCK FABRICS, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
  RESULTS OF OPERATIONS

FINANCIAL CONDITION

Historically, cash flow from operations has been sufficient to finance the
expansion and operation of Hancock's business. Hancock's principal capital
requirements are for the financing of inventories and to a lesser extent for
capital expenditures relating to store locations and its warehouse and
distribution facility. Funds for such purposes are generated from Hancock's
operations and, if necessary, supplemented by borrowings from commercial
lenders. In addition to cash dividends, Hancock has historically used excess
cash and, if necessary, borrowings from commercial lenders to purchase treasury
stock as market and financial conditions dictate. During 1998, Hancock plans to
open approximately 40 stores and close approximately 25. Hancock opened 6 stores
and closed 7 stores during the thirteen weeks ended May 3, 1998 resulting in a
total of 480 stores at period end.

During the thirteen weeks ended May 3, 1998, an increase in accounts payable
provided cash of approximately $600 thousand due to the timing of payments to
vendors. Total inventory decreased $2.4 million for the thirteen weeks due to
seasonal factors. In the first quarter of this year, cash was used to fund $6.7
million of treasury stock repurchases and a dividend payment totaling $2.1
million. At May 3, 1998, the Company had $14 million in outstanding debt, or
about 12% of total capitalization, compared to no debt in the prior year. Since
the first quarter of last year, Hancock repurchased $19.0 million of treasury
stock and acquired the Northwest Fabrics and Crafts stores for approximately
$20.9 million.

RESULTS OF OPERATIONS

Thirteen weeks ended May 3, 1998 compared to thirteen weeks ended
May 4, 1997

Net earnings were $2.1 million, or $.10 per share, compared with $2.3 million,
or $.11 per share, in the comparable period of the prior year. The decrease in
earnings resulted primarily from a 2.0% decrease in comparable store sales.

Sales increased to $97.8 million from $92.0 million in the same period of the
prior year due to $10.5 million of sales from the recently acquired Northwest
Fabrics and Crafts stores, partially offset by the decrease of 2.0% in
comparable store sales and a $2.9 million reduction in sales from net store
opening and closing activity.

Gross margin increased to 48.2% in 1998 from 47.2% in the first quarter of the
prior year. The continued lack of inflation resulted in a $400 thousand LIFO
credit in the first quarter of 1998. For the same period of the prior year, a
LIFO charge reduced gross profit by $500 thousand.



                                       -8-


<PAGE>   9



Total operating and interest expenses as a percentage of sales increased to
44.8% from 43.1% in the first quarter of 1997. Interest expense was higher due
to the average debt level resulting from treasury stock repurchases and the
aforementioned acquisition. Selling, general and administrative expenses as a
percentage of sales were higher, primarily due to the deleveraging of expenses
associated with comparable store sales decreases and certain expenses associated
with remodeling 38 stores.

EFFECT OF INFLATION

The impact of inflation on labor and occupancy costs can significantly affect
Hancock's operations. Many of Hancock's employees are paid hourly rates related
to the Federal minimum wage; accordingly, any increases will affect Hancock. In
addition, payroll taxes, employee benefits and other employee related costs
continue to increase. Costs of leases for new store locations remain stable, but
the renewal costs of older leases are higher. Taxes, maintenance and insurance
costs have also risen. Hancock believes the practice of maintaining adequate
operating margins through a combination of price adjustments and cost controls,
careful evaluation of occupancy needs and efficient purchasing practices are the
most effective tools for coping with increasing costs and expenses.

Inflation is one of the key factors used in the calculation of the LIFO charge
or credit to Cost of Goods Sold. A deflationary trend in recent quarters,
combined with inventory reductions, has caused lower LIFO charges than in
comparable periods of prior years.

SEASONALITY

The Company's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and midsummer.

RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Accounting Standards ("FAS") No. 130, "Reporting Comprehensive Income." FAS
130 establishes standards for the report and display of comprehensive income and
its components (revenues, expenses, gains, and losses)in a full set of general
purpose financial statements. FAS 130 requires that an enterprise (I)classify
items of other comprehensive income by their nature in a financial statement and
(ii)display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital. FAS 130 is effective for
fiscal years beginning after December 15, 1997. The Company does not expect the
impact of FAS 130 to be material. As the Company does not have any items of
other comprehensive income, the new standard does not impact the Company.

In June 1997, the FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." FAS 131 established standards for reporting
information about operating



                                       -9-



<PAGE>   10



segments in annual financial statements and requires reporting of selected
information about operating segments in interim financial reports issued to
shareholders. FAS 131 also establishes standards for related disclosure about
products and services, geographic areas and major customers. FAS 131 is
effective for financial statements for periods beginning after December 15,
1997, and requires the restatement of disclosures for earlier periods for
comparative purposes unless the information is not readily available, in which
case a description of unavailable information is required. As the Company
operates in only one segment, the adoption of this standard had no impact.

FORWARD - LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain qualifying forward-looking statements. Certain information included
in this Form 10Q contains statements that are forward-looking, such as
statements related to financial items and results, plans for future expansion,
store closure and other business development, activities, capital spending or
financing sources, capital structure, stability of interest rates during periods
of borrowings and the effects of regulation and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly impact anticipated results in the future. Accordingly, such
results may differ materially from those expressed in any forward-looking
statements by or on behalf of Hancock. These risks and uncertainties include,
but are not limited to, those described above.

















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<PAGE>   11









                       PART II.  OTHER INFORMATION


ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

        (a) Registrant's Annual Meeting of Shareholders was held
            June 11, 1998.
        (b) Proxies for the meeting were solicited pursuant to Regulation
            14 under the Securities Exchange Act of 1934, there was no
            solicitation in opposition to the management's nominees as
            listed in the proxy statement, and such nominees were elected.
        (c) The vote in the uncontested election of such nominees
            was as follows: 16,477,387 votes cast for and 242,736
            votes withheld for Mr. R. Randolph Devening.
        (d) Inapplicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits -

            11    Statement regarding computation of earnings per share

            27    Financial Data Schedule (SEC Use Only)

        (b) Reports on Form 8-K -

        None














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<PAGE>   12









                                   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/ Bruce D. Smith
                                     -----------------------------
                                         Bruce D. Smith
                                         Senior Vice President and
                                         Chief Financial Officer
                                         (Principal Financial and
                                         Accounting Officer)




Date: June 16,  1998















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