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 August 1, 2004
                                                ----------------

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

  3406 West Main Street, Tupelo, MS                                38801
(Address of principal executive offices)                         (Zip Code)


               Registrant's telephone number, including area code
                                 (662) 842-2834

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  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act). Yes  X    No
                                                ---     ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practical date.

As of August 1, 2004, the registrant had  outstanding an aggregate of 18,925,618
shares of common stock, $.01 par value.

<PAGE>


INDEX
<TABLE>
<S>                                                                                            <C>

Part I.  Financial Information:
                                                                                               Page Numbers
  Item 1.  Financial Statements (unaudited)

    Consolidated Balance Sheets as of August 1, 2004 and February 1, 2004                           3

    Consolidated Statements of Operations for the Thirteen Weeks and Twenty-six
      Weeks Ended August 1, 2004 and August 3, 2003                                                 4

    Consolidated Statements of Cash Flows for the Twenty-six Weeks Ended                            5
      August 1, 2004 and August 3, 2003

    Consolidated Statement of Shareholders' Equity for the Twenty-six Weeks
       Ended August 1, 2004                                                                         6

    Notes to Consolidated Financial Statements                                                    7 - 10

  Item 2.  Management's Discussion and Analysis of Financial Condition
    and Results of Operations                                                                    11 - 14

  Item 3.  Quantitative and Qualitative Disclosures about Market Risks                              14

  Item 4.  Controls and Procedures                                                                  14

Part II.  Other Information:

   Item 2.        Changes in Securities, Use of Proceeds and Issuer
         Purchases of Equity Securities                                                             15

   Item 4.  Submission of Matters to a Vote of Securityholders                                      15

   Item 6.  Exhibits and Reports on Form 8-K                                                        16

Signature                                                                                           16
</TABLE>


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<S>                                                                <C>               <C>

---------------------------------------------------------------------------------------------------
                                                                     August 1,       February 1,
(in thousands, except for share and per share amounts)                  2004             2004
---------------------------------------------------------------------------------------------------
Assets
Current assets:
          Cash and cash equivalents                                $        3,775    $       4,080
          Receivables, less allowance for doubtful accounts                 1,057              966
          Inventories                                                     159,902          154,984
          Income taxes refundable                                             563                -
          Prepaid expenses                                                  3,122            2,304
---------------------------------------------------------------------------------------------------
          Total current assets                                            168,419          162,334

Property and equipment, at depreciated cost                                68,317           57,142
Deferred tax assets                                                         5,802            6,207
Pension payment in excess of required contribution                         14,876           15,936
Goodwill                                                                    4,480            4,480
Other assets                                                                3,198            3,324
---------------------------------------------------------------------------------------------------
          Total assets                                             $      265,092    $     249,423
===================================================================================================

Liabilities and Shareholders' Equity
Current liabilities:
          Accounts payable                                         $       41,700           42,704
          Accrued liabilities                                              19,062           22,574
          Deferred tax liabilities                                          3,892            3,113
          Income taxes                                                          -            7,299
---------------------------------------------------------------------------------------------------
          Total current liabilities                                        64,654           75,690

Long-term debt obligations                                                 41,000           10,000
Postretirement benefits other than pensions                                22,689           22,368
Reserve for store closings                                                    350              592
Other liabilities                                                           8,980            9,193
---------------------------------------------------------------------------------------------------
          Total liabilities                                               137,673          117,843
---------------------------------------------------------------------------------------------------

Commitments and contingencies
---------------------------------------------------------------------------------------------------

Shareholders' equity:
          Common stock, $.01 par value; 80,000,000 shares authorized;
           32,143,411 and 31,941,582 issued and outstanding, respectively     321              319
          Additional paid-in capital                                       73,383           70,105
          Retained earnings                                               212,219          218,612
          Treasury stock, at cost, 13,217,793 and 13,093,781
             shares held, respectively                                   (153,794)        (151,905)
          Deferred compensation on restricted stock incentive plan         (4,710)          (5,551)
---------------------------------------------------------------------------------------------------
          Total shareholders' equity                                      127,419          131,580
---------------------------------------------------------------------------------------------------
          Total liabilities and shareholders' equity               $      265,092    $     249,423
===================================================================================================
</TABLE>

   See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<S>                                                            <C>           <C>                    <C>             <C>

-----------------------------------------------------------------------------------------        ----------------------------------
                                                                 Thirteen Weeks Ended                 Twenty-six Weeks Ended
                                                               August 1,     August 3,               August 1,      August 3,
(in thousands, except per share amounts)                         2004          2003                    2004           2003
-----------------------------------------------------------------------------------------        ----------------------------------

Sales                                                          $   89,767    $   96,103             $  194,856      $    203,739
Cost of goods sold (1)                                             46,301        46,334                 98,907            99,231
-----------------------------------------------------------------------------------------        ----------------------------------

    Gross profit                                                   43,466        49,769                 95,949           104,508
-----------------------------------------------------------------------------------------        ----------------------------------

Selling, general and administrative expense                        45,706        45,544                 95,085            92,364
Depreciation and amortization                                       1,802         1,585                  3,512             3,037
-----------------------------------------------------------------------------------------        ----------------------------------

    Operating income (loss)                                        (4,042)        2,640                 (2,648)            9,107

Other expense (income)
    Interest expense                                                  180           180                    304               274
    Interest income                                                   (12)          (17)                   (24)              (34)
-----------------------------------------------------------------------------------------        ----------------------------------

Earnings (loss) before income taxes                                (4,210)        2,477                 (2,928)            8,867
Income taxes                                                       (1,528)          900                 (1,062)            3,219
-----------------------------------------------------------------------------------------        ----------------------------------

Net earnings (loss) and comprehensive income (loss)            $   (2,682)   $    1,577             $   (1,866)     $      5,648
=========================================================================================        ==================================

Earnings (loss) per share
    Basic                                                      $     (.15)   $      .09             $     (.10)     $        .32
    Diluted                                                    $     (.15)   $      .09             $     (.10)     $        .31
=========================================================================================        ==================================

Weighted average shares outstanding
    Basic                                                          18,208        17,515                 18,101            17,652
    Diluted                                                        18,208        18,345                 18,101            18,452
=========================================================================================      ====================================

Dividends per share                                                 $0.12         $0.10                  $0.24             $0.20
=========================================================================================      ====================================
</TABLE>

(1)  Excluding depreciation and amortization
See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

Hancock Fabrics, Inc.
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<S>                                                                     <C>              <C>

-----------------------------------------------------------------------------------------------------
(in thousands)
                                                                           Twenty-six Weeks Ended
                                                                           August 1,    August 3,
                                                                             2004         2003
-----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
         Net earnings (loss) and comprehensive income (loss)            $      (1,866)   $     5,648
         Adjustments to reconcile net earnings (loss) to cash
           flows used in operating activities
                   Depreciation and amortization                                3,512          3,037
                   LIFO credit                                                   (200)          (200)
                   Deferred income taxes                                        1,184              -
                   Amortization of deferred compensation on
                     restricted stock incentive plan                            1,267            966
                   Loss on disposition of property and equipment                  245              -
                   Interest expense on reserve for store closings                  53             67
                   Issuance of shares as compensation for professional
                   services                                                        15             15
                   Issuance of shares under directors' stock plan                  90             90
         (Increase) decrease in assets
                   Receivables and prepaid expenses                              (909)          (603)
                   Inventory at current cost                                   (4,718)        (6,540)
                   Income taxes refundable                                       (563)             -
                   Pension payment in excess of required contribution           1,060          1,446
                   Other assets                                                   126             41
         Increase (decrease) in liabilities
                   Accounts payable                                            (1,004)        (9,193)
                   Accrued liabilities                                         (3,450)        (3,965)
                   Income taxes                                                (6,196)        (3,527)
                   Postretirement benefits other than pensions                    321            228
                   Reserve for store closings                                    (357)          (317)
                   Other liabilities                                             (213)            87
         Tax benefit of stock options exercised                                   494            569
-----------------------------------------------------------------------------------------------------
                   Net cash used in operating activities                      (11,109)       (12,151)
-----------------------------------------------------------------------------------------------------

Cash flows from investing activities:
         Additions to property and equipment                                  (14,951)        (6,347)
         Proceeds from the disposition of property and equipment                   19             -
-----------------------------------------------------------------------------------------------------
                   Net cash used in investing activities                      (14,932)        (6,347)
-----------------------------------------------------------------------------------------------------

Cash flows from financing activities:
         Borrowings on revolving  credit agreement                             31,000         28,000
         Purchase of treasury stock                                            (1,889)        (9,264)
         Proceeds from exercise of stock options                                1,152          2,064
         Cash dividends paid                                                   (4,527)        (3,735)
-----------------------------------------------------------------------------------------------------
                   Net cash provided by financing activities                   25,736         17,065
-----------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents                                            (305)        (1,433)
Cash and cash equivalents:
         Beginning of period                                                    4,080          4,589
-----------------------------------------------------------------------------------------------------
         End of period                                                  $       3,775    $     3,156
=====================================================================================================

Supplemental disclosures:
Cash paid during the period for:
         Interest                                                       $         247    $       156
         Income taxes                                                   $       4,029    $     5,809
=====================================================================================================
</TABLE>

  See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
<TABLE>
<S>                                         <C>          <C>      <C>        <C>      <C>         <C>

------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except for number of shares)

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

                                                Common Stock     Additional               Treasury Stock   Deferred       Total
                                            -------------------   Paid-in    Retained   -----------------   Compen-    Shareholders'
                                              Shares     Amount   Capital    Earnings    Shares     Amount  sation        Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance February 1, 2004                    31,941,582     $319     $70,105  $218,612 (13,093,781)($151,905) ($5,551)     $131,580

Net earnings (loss) and comprehensive                                          (1,866)                                      (1,866)
 income (loss)
Cash dividends ($.24 per share)                                                (4,527)                                      (4,527)
Issuance of restricted Stock                    40,700                  496                                     (496)            0
Cancellation of restricted stock                (7,350)                 (70)                                      70
Amortization & vesting of deferred
 compensation on restricted stock incentive
 plan                                                                 1,103                                    1,267         2,370
Issuance of shares under directors' stock
 plan                                            6,495                   90                                                     90
Issuance of shares as compensation for
 professional services                           1,034                   15                                                     15
Purchase of treasury stock                                                               (124,012)   (1,889)                (1,889)
Stock options exercised                        160,950        2       1,150                                                  1,152
Tax benefit of stock options exercised                                  494                                                    494
------------------------------------------------------------------------------------------------------------------------------------
Balance August 1, 2004                      32,143,411     $321     $73,383  $212,219 (13,217,793)($153,794) ($4,710)     $127,419
====================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.



                                       6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

NOTE 1:  BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hancock Fabrics,
Inc.  ("Hancock" or the  "Company")  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 entries) 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, 2004 incorporated into the Company's Annual Report on Form 10-K.

The results of operations for the thirteen and  twenty-six  week periods are not
necessarily indicative of the results to be expected for the full fiscal year.

NOTE 2: STOCK OPTIONS

Stock  options  are  accounted  for  using  the  intrinsic  value  method  where
compensation  cost for stock  options is measured as the excess,  if any, of the
quoted  market price of Hancock's  stock at the date of grant over the amount an
employee must pay to acquire the stock. For all periods presented,  the exercise
price of all options granted equaled the fair market value at the date of grant;
accordingly, no compensation expense for stock options has been recorded.

Pro forma  information  regarding  net earnings  (loss) and earnings  (loss) per
share as if the fair value  method had been  applied in  measuring  compensation
expense is presented below (in thousands, except per share amounts):

<TABLE>
<S>                                                            <C>            <C>              <C>           <C>

                                                                   Thirteen Weeks Ended         Twenty-six Weeks Ended
                                                               ----------------------------- -----------------------------
                                                                 August 1,      August 3,      August 1,      August 3,
                                                                    2004          2003            2004          2003
                                                               ------------  --------------   -----------  ---------------

Net earnings (loss), as reported                               $    (2,682)   $    1,577       $  (1,866)    $    5,648
Deduct: Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects                          (362)         (262)           (810)          (424)
                                                               ------------  --------------   -----------  ---------------
Pro forma net earnings (loss)                                  $    (3,044)   $    1,315       $  (2,676)    $    5,224
                                                               ============  ==============   ===========  ===============

Earnings (loss) per share:
   Basic - as reported                                         $      (.15)   $      .09       $    (.10)    $      .32
                                                               ============  ==============   ===========  ===============
   Basic - pro forma                                           $      (.17)   $      .08       $    (.15)    $      .30
                                                               ============  ==============   ===========  ===============

   Diluted - as reported                                       $      (.15)   $      .09       $    (.10)    $      .31
                                                               ============  ==============   ===========  ===============
   Diluted - pro forma                                         $      (.17)   $      .07       $    (.15)    $      .28
                                                               ------------  --------------   -----------  ---------------
</TABLE>



                                       7
<PAGE>

NOTE 3:  EARNINGS PER SHARE

Basic  earnings per share excludes  dilution and is computed by dividing  income
available to common  shareholders  by the  weighted-average  number of shares of
common  stock,  par value $.01  ("Common  Stock")  outstanding  for 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.


COMPUTATION OF EARNINGS (LOSS) PER SHARE
(unaudited)
<TABLE>
<S>                                                                 <C>           <C>            <C>           <C>

-----------------------------------------------------------------------------------------------------------------------------
(in thousands, except for share and                                     Thirteen Weeks Ended       Twenty-six Weeks Ended
                                                                    ---------------------------------------------------------
  per share amounts)                                                 August 1,    August 3,       August 1,    August 3,
                                                                       2004         2003            2004         2003
-----------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:

  Net earnings (loss)                                                  ($2,682)       $1,577        ($1,866)       $5,648
                                                                    ============ ============    ============ ============

  Weighted average number of common shares outstanding
    during period                                                   18,208,093    17,514,570     18,100,932    17,652,365
                                                                    ============ ============    ============ ============

Basic earnings (loss) per share                                         ($0.15)        $0.09         ($0.10)        $0.32
                                                                    ============ ============    ============ ============

Diluted earnings (loss) per share:

  Net earnings (loss)                                                  ($2,682)       $1,577        ($1,866)       $5,648
                                                                    ============ ============    ============ ============

  Weighted average number of common shares outstanding
    during period                                                   18,208,093    17,514,570     18,100,932    17,652,365

   Stock options                                                             -       468,503              -       455,644

   Restricted stock and deferred stock units                                 -       361,765              -       344,381
                                                                    ------------ ------------    ------------ ------------
  Weighted average number of common shares outstanding
    during period adjusted for dilutive securities                  18,208,093    18,344,838     18,100,932    18,452,390
                                                                    ============ ============    ============ ============

Diluted earnings (loss) per share                                       ($0.15)        $0.09         ($0.10)        $0.31
                                                                    ============ ============    ============ ============

Weighted average common stock equivalents not included in EPS
  (stock options) because the effect would be anti-dilutive          1,700,360       430,559       ,456,255       436,863
                                                                    ============ ============    ============ ============
</TABLE>


                                       8
<PAGE>

NOTE 4:  RESERVE FOR STORE CLOSINGS

Reserves  for store  closings  are  established  based on estimates of net lease
obligations and other store closing costs.

At August 1, 2004, the total reserve balance  included in current and noncurrent
liabilities was $1,257,000  which represents the present value of the future net
lease obligations for the locations which have been closed. The 2004 activity in
the reserve is as follows (in thousands):


<TABLE>
<S>                          <C>              <C>                  <C>             <C>              <C>

                                                 Addition to
                               February 1,      (Reduction in)                                        August 1,
                                  2004             Reserve            Interest        Payments           2004
                             ---------------- -------------------  --------------- ---------------- ---------------

2004
   Lease obligations         $      1,561     $             -      $         53    $       (357)     $      1,257
                             ================ ===================  =============== ================ ===============
</TABLE>


NOTE 5: RETIREMENT BENEFITS

On  December  8,  2003,  the  Medicare   Prescription   Drug,   Improvement  and
Modernization  Act of 2003 (the  "Act") was  signed  into law.  The Act  expands
Medicare to include  coverage for prescription  drugs.  Hancock sponsors medical
programs,  including  prescription  drug coverage for retirees,  and the Company
expects that this legislation will eventually reduce the Company's cost for some
of these programs.  On January 12, 2004, the FASB issued FASB Staff Position No.
106-1,   Accounting  and  Disclosure   Requirements   Related  to  the  Medicare
Prescription  Drug,  Improvement and Modernization Act of 2003, which allows the
deferral  of  financial  recognition  of the Act  until  the FASB  issues  final
accounting  guidance.  Hancock  elected  to defer  the  recognition  of the Act.
Therefore,  the  Company's  net  periodic  postretirement  benefit cost does not
reflect the effects of the Act. The FASB's  specific  authoritative  guidance on
accounting for the federal subsidy is pending,  and that guidance,  when issued,
could require a change to the amounts  recorded in the financial  statements and
disclosed in the Notes to the Consolidated Financial Statements.

The following  summarizes  the net periodic  benefit cost for Hancock's  defined
benefit pension retirement plan and its postretirement  health care benefit plan
for the twenty-six weeks ended August 1, 2004 and August 3, 2003:


<TABLE>
<S>                                                   <C>             <C>                  <C>             <C>

                                                            Retirement Plan              Postretirement Benefit Plan
(Dollars in thousands)                                    2004           2003                2004           2003
-----------------------------------------------------------------------------------------------------------------------
Service costs                                         $    1,436      $  1,240             $    330        $    280
Interest cost                                              1,940         1,838                  496             466
Expected return on assets                                 (2,776)       (2,322)
Amortization of prior service costs                           36            40                 (124)           (126)
Recognized net actuarial (gain) loss                         424           650                 (117)           (180)
-----------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                             $    1,060      $  1,446             $    585        $    440
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

Hancock's  minimum  required  contribution for 2004 under its retirement plan is
$0, while the maximum amount that may be contributed and deducted for income tax
purposes is $4,335,000. Hancock does not expect to make a contribution in 2004.


                                       9
<PAGE>

NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS

In August 2003, the FASB issued SFAS No. 150,  Accounting for Certain  Financial
Instruments with  Characteristics  of both Liabilities and Equity. The Statement
establishes   standards  on  how  to  classify  and  measure  certain  financial
instruments with  characteristics of both liabilities and equity. This Statement
is effective for financial  instruments  entered into or modified  after May 31,
2003, and otherwise for interim periods  beginning after June 15, 2003.  Hancock
adopted  SFAS No. 150 as of June 1, 2003 and  August 4,  2003,  and there was no
impact on its financial statements.

During November 2003, the EITF reached a consensus on Issue 03-10,  "Application
of Issue No.  02-16 by  Resellers  to Sales  Incentives  Offered to Consumers by
Manufacturers". EITF 03-10 addresses the accounting and disclosure treatment for
consideration  received by a reseller from a vendor that is a  reimbursement  by
the vendor for  honoring  the  vendor's  sales  incentives  offered  directly to
consumers.  EITF 03-10 is effective for sales  incentives  tendered to consumers
for fiscal years beginning  after December 15, 2003.  Hancock adopted EITF Issue
03-10 on February 2, 2004, and there was no impact on its financial statements.

During  December 2003, the FASB issued SFAS No. 132 (revised  2003),  Employers'
Disclosure  about Pensions and Other  Postretirement  Benefits,  an amendment of
FASB  Statements  No.  87,  88,  and  106.  This  Statement  revises  employers'
disclosures  about pension and other  postretirement  benefit plans and replaces
SFAS No. 132,  Employers'  Disclosure  about  Pensions and Other  Postretirement
Benefits.  SFAS No. 132 (revised)  requires  additional  disclosures to those in
SFAS No. 132 about assets, obligations, cash flows, net periodic benefit cost of
defined  benefit  pension  plans and other  postretirement  plans.  SFAS No. 132
(revised) is effective for fiscal years ending after December 15, 2003.  Hancock
adopted the disclosure  requirements of SFAS No. 132 (revised) as of February 1,
2004.

During  December  2003,  the FASB  issued FIN No. 46  (revised  December  2003),
Consolidation of Variable Interest  Entities.  FIN No. 46 (revised) replaces FIN
No. 46,  Consolidation of Variable Interest Entities,  and provides guidance for
companies having ownership of variable interest entities,  typically referred to
as special purpose entities, in determining whether to consolidate such variable
interest  entities.  FIN No. 46 (revised) is effective for public  entities with
interests in variable interest entities or potential  variable interest entities
for periods ending after  December 15, 2003. For public  entities with interests
in all other types of entities,  FIN No. 46 (revised) is effective for financial
statements  for  periods  ending  after  March 15,  2004,  with  early  adoption
permitted. Hancock adopted FIN No. 46 (revised) as of February 1, 2004 and there
was no impact on its financial statements.

In April 2004, the FASB issued FASB Staff Position (FSP) FAS 106-2,  "Accounting
and  Disclosure   Requirements  Related  to  the  Medicare   Prescription  Drug,
Improvement and Modernization Act of 2003" (MMA). The FSP requires  companies to
assess  the  effect  of  MMA  on  their  retirement-related  benefit  costs  and
obligations  and reflect the effects in the  financial  statements,  pursuant to
SFAS  106,  "Employer's  Accounting  for  Post-retirement  Benefits  Other  Than
Pensions."  In order to  estimate  the impact of the MMA,  companies  must first
determine if the benefits provided under its plan are actuarially  equivalent to
the  benefits  provided  under  Part D of the MMA.  If a  company  is  unable to
determine actuarial equivalency,  due to the lack of authoritative guidance, the
company is required to disclose the  existence of the Act and the absence of any
impact on the accumulated  post-retirement  benefit  obligation and net periodic
post-retirement  benefit cost.  Once actuarial  equivalency  is determined,  the
effect of the FSP is reflected either  prospectively  or  retroactively  and the
impact is  disclosed.  The FSP is effective for the Company in the third quarter
of fiscal  year 2004.  The  Company  is  currently  analyzing  the impact of the
standard and has not  reflected  any impact to the  accumulated  post-retirement
benefit obligation and net periodic post-retirement benefit cost associated with
the subsidy. Adoption is not expected to have a material impact on the Company's
condensed statements of consolidated earnings, financial position or cash flows.


                                       10
<PAGE>

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 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 allow.

During the  twenty-six  weeks ended August 1, 2004,  borrowings of $31.0 million
and proceeds from stock option exercises totaling $1.2 million were used to fund
$14.9  million in  additions  to property  and  equipment,  $4.5 million in cash
dividends  paid,  $1.9 million of treasury stock  purchases and $11.1 million of
cash used in  operating  activities,  which  included  a $4.7  million  seasonal
increase in inventory and a $6.2 million reduction of income tax obligations. At
August 1, 2004,  Hancock had outstanding debt of $41 million,  or 24.3% of total
capitalization,  compared to $28 million,  or 18.9% of total  capitalization  at
August 3, 2003.  Hancock opened eleven stores and closed eight stores during the
thirteen  weeks  ended  August 1,  2004,  resulting  in a total of 433 stores at
quarter  end.  We expect  to open 10 to 12 stores  and close 7 to 8 in the third
quarter and plan to have 5 to 10 net additions for the year.

RESULTS OF OPERATIONS

Thirteen weeks ended August 1, 2004 compared with thirteen weeks ended August 3,
2003

A net loss of $2.7 million,  or ($.15) per diluted share,  was recognized in the
second quarter, compared with income of $1.6 million, or $.09 per diluted share,
in the same period of 2003.  Operations were adversely  affected by a decline in
both sales and gross margin.

Sales  decreased to $89.8  million from $96.1  million in the same period of the
previous  year  primarily  as the result of a 6.7% decline in  comparable  store
sales.  Comparable  store sales were adversely  affected by a weaker offering of
spring/summer  merchandise  coupled with some  disruption from the changeover of
several notion product lines.  Approximately two-thirds of the sales decline was
due to a lower average  ticket,  with the remainder  being due to a reduction in
customer  traffic.  Store selling square footage increased from 5,014,000 at the
end of last year's second quarter to 5,099,000 this year due to new stores being
larger in size than the  stores  that were  closed and the net  addition  of two
stores.

Gross margins declined from 51.8% to 48.4% due largely to promotional efforts to
improve the slowing sales and clear inventory in preparation for fall goods.

Selling, general and administrative expenses as a percentage of sales were 50.9%
compared to 47.4% in the second quarter of 2003. The deleveraging  impact on the
expense ratio that results from negative  comparable store sales was the primary
factor affecting the comparison, as expense dollars were up only $162 thousand.

Depreciation and amortization increased to 2.0% of sales from 1.6% due primarily
to capital expenditures related to the new distribution center and the continued
roll-out of point-of-sale ("POS") systems to our stores. At quarter end, POS had
been  installed  in 300  stores,  and the  Company is on track to  complete  the
roll-out in the remaining stores by fiscal year end.


                                       11
<PAGE>

Interest  expense did not change  between years as a $7 million  higher  average
outstanding debt level,  incurred in connection with funding construction of the
new distribution center, was offset by lower interest rates.

Income  tax  expense  decreased  $2.4  million  due to the  reduction  in pretax
earnings from the same period in 2003. Hancock's effective tax rate was 36.3% in
both years.

Twenty-six  weeks ended  August 1, 2004  compared  with  twenty-six  weeks ended
August 3, 2003

A net loss of $1.9 million,  or ($.10) per diluted share,  was recognized in the
first  half of the  year,  compared  with  income of $5.6  million,  or $.31 per
diluted share, in the same period of 2003.

Sales  decreased to $194.9 million from $203.7 million in the same period of the
previous  year  primarily  as the result of a 4.8% decline in  comparable  store
sales. Sales were adversely affected by a weaker offering of spring merchandise,
together with a delay in the first quarter in delivering the spring  assortments
to our stores on a timely  basis as the result of  relocating  our  distribution
center to a new facility.  In addition,  there was a loss of sales in the second
quarter from product  changeovers  that were phased out prior to the replacement
lines becoming available.

Gross margins declined from 51.3% to 49.2% due largely to promotional efforts to
improve the slowing sales and clear inventory in preparation for fall goods.

Selling, general and administrative expenses as a percentage of sales were 48.8%
compared  to 45.3% in the first  half of 2003.  The  deleveraging  impact on the
expense ratio that results from negative  comparable store sales was the primary
factor  affecting the  comparison.  Also, the Company  incurred some  additional
costs  in the  first  quarter  in  connection  with  the  transition  to the new
distribution facility.

Depreciation and amortization increased to 1.8% of sales from 1.5% due primarily
to capital expenditures related to the new distribution center and the continued
roll-out of the POS systems to our stores.

Interest  expense  increased  slightly due to higher  average  outstanding  debt
levels incurred in connection with funding  construction of the new distribution
center. The effect of higher borrowings was partially offset,  however, by lower
interest rates.

Income  tax  expense  decreased  $4.3  million  due to the  reduction  in pretax
earnings from the same period in 2003. Hancock's effective tax rate was 36.3% in
both years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  recorded  amount of  assets  and
liabilities  at the date of the financial  statements  and revenues and expenses
during  the  period.   Significant  accounting  policies  employed  by  Hancock,
including  the use of estimates and  assumptions,  are presented in the Notes to
Consolidated  Financial  Statements  contained in the Company's Annual Report on
Form 10-K. Management bases its estimates on its historical experience, together
with other relevant  factors,  in order to form the basis for making  judgments,
which will affect the carrying values of assets and  liabilities.  On an ongoing
basis,  management  evaluates its estimates and makes changes to carrying values
as deemed necessary.

OFF-BALANCE SHEET ARRANGEMENTS

Hancock has no off-balance sheet financing arrangements.


                                       12
<PAGE>

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Hancock has an arrangement  that provides up to $5 million in letters of credit.
At August 1,  2004,  Hancock  had  commitments  under this  arrangement  of $2.6
million  on  issued  letters  of  credit  which  support   purchase  orders  for
merchandise  to be imported.  Hancock also has a $5.5 million  standby letter of
credit to guarantee  payment of potential future workers'  compensation  claims.
Hancock leases its retail fabric store locations under operating leases expiring
at various dates through 2024.

Hancock has no standby  repurchase  obligations or guarantees of other entities'
debt.

EFFECTS 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 Federal and State minimum wage requirements;  accordingly, any increases will
affect Hancock. In addition, payroll taxes, employee benefits and other employee
costs continue to increase. Health insurance and workers' compensation insurance
costs,  in  particular,  continue  to rise at an  unsettling  rate in the United
States each year, and higher employer  contributions  to Hancock's  pension plan
have been necessary  recently in light of weaker  investment  returns.  Costs of
leases for new store locations remain stable,  but renewal costs of older leases
continue to increase.  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 increased costs and expenses.

Inflation is one of the key factors used in the  calculation  of the LIFO charge
or credit to Cost of Sales.  During the first six months of 2004,  a decrease in
the Producer Price Index resulted in a LIFO credit of $200,000.  During the same
period of 2003, the company also recorded a LIFO credit of $200,000

SEASONALITY

Hancock's  business is slightly  seasonal.  Peak sales  periods occur during the
fall and  pre-Easter  weeks,  while the lowest  sales  periods  occur during the
summer and the month of January.


FORWARD-LOOKING STATEMENTS

This  Report  contains  forward-looking  statements  within  the  meaning of the
Private  Litigation Reform Act of 1995. Such statements are not historical facts
and reflect the Company's current views regarding matters such as operations and
financial performance. In general,  forward-looking statements are identified by
such words or phrases as "anticipates", "believes", "approximates", "estimates",
"expects",  "intends"  or  "plans"  or the  negative  of  those  words  or other
terminology.    Forward-looking    statements   involve   inherent   risks   and
uncertainties;  the Company's actual results could differ  materially from those
expressed in our  forward-looking  statements.  The risks and uncertainties that
could  cause  our  actual  results  to  differ  from  those   expressed  in  our
forward-looking statements include, but are not limited to:

    o     Transition of  operations to the Company's new corporate  offices will
          result in higher operating expenses than historically  experienced and
          may disrupt our operations
    o     Changes in customer demand or purchase patterns
    o     Competitive  changes,  including  but not  limited  to, an increase in
          advertising,   an  increase  in  promotional   pricing   activity  and
          liquidations  of inventory in Hancock's  markets in connection  with a
          competitor's store closing or need to dispose of old inventory


                                       13
<PAGE>

    o     Adverse general economic trends
    o     Delays or interruptions in the flow of merchandise  between  Hancock's
          suppliers and/or its distribution center and its stores
    o     Disruption in the Company's data processing services
    o     The stability of interest rates during periods of borrowing

Forward-looking  statements  speak only as of the date made, and neither Hancock
Fabrics nor its  management  undertakes  any  obligation to update or revise any
forward-looking statement.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Hancock does not hold derivative financial or commodity instruments at August 1,
2004.  Hancock  is exposed  to  financial  market  risks,  including  changes in
interest rates. All borrowings  under Hancock's  Revolving Credit Agreement bear
interest at a negotiated  rate, a floating rate (the higher of the federal funds
rate plus 1/2% or the prime rate), a rate derived from the money market rate, or
a rate derived from the London  Interbank  Offered Rate. An increase in interest
rates of 100 basis points would not significantly  affect Hancock's results. All
of Hancock's business is transacted in U. S. dollars and,  accordingly,  foreign
exchange rate fluctuations have never had a significant  impact on Hancock,  and
they are not expected to in the foreseeable future.

ITEM 4: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Hancock  carried  out an  evaluation  of  the  effectiveness  of its  disclosure
controls  and  procedures  (as defined in Rule  13a-15(e)  under the  Securities
Exchange  Act of 1934) as of the end of the period  covered by this report under
the supervision  and with the  participation  of its  management,  including its
chief executive officer and chief financial  officer.  Based on that evaluation,
Hancock's  chief executive  officer and chief  financial  officer have concluded
that its  disclosure  controls  and  procedures  are  effective  to ensure  that
material   information   relating  to  Hancock,   including   its   consolidated
subsidiaries, is made known to them by others within such entities, particularly
during the period in which this report was  prepared,  in order to allow  timely
decisions regarding required disclosure.

Change in Internal Control Over Financial Reporting

There was no change in Hancock's  internal control over financial  reporting (as
defined  in Rule  13a-15(f)  under the  Securities  Exchange  Act of 1934)  that
occurred during its most recent fiscal quarter that has materially affected,  or
is reasonably likely to materially  affect,  its internal control over financial
reporting.


                                       14
<PAGE>

PART II.  OTHER INFORMATION:

ITEM 2: CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER
         PURCHASES OF EQUITY SECURITIES

This table  provides  information  with  respect to  purchases by the Company of
shares of its Common Stock during the first half of 2004:


Issuer Purchases of Equity Securities
<TABLE>
<S>                         <C>                     <C>               <C>                      <C>
------------------------------------------------------------------------------------------------------------------------

                                                                        Total Number of               Maximum
                                                                      Shares Purchased as      Number of Shares That
                            Total number of (1)     Average Price       Part of Publicly       May Yet Be Purchased
Period                        Shares Purchased      Paid Per Share    Announced Plans (2)         Under the Plans
------------------------------------------------------------------------------------------------------------------------

May 3, 2004 through
June 6, 2004                           6,474            $13.32                   6,474                    259,585
------------------------------------------------------------------------------------------------------------------------

June 7, 2004 through
July 4, 2004                           5,642            $12.28                   5,642                    253,943
------------------------------------------------------------------------------------------------------------------------

July 5, 2004 through
August 1, 2004                           106            $11.82                     106                    253,837
------------------------------------------------------------------------------------------------------------------------


Total                                 12,222            $12.83                  12,222
------------------------------------------------------------------------------------------------------------------------
</TABLE>

      (1)The number of shares purchased  during the first two quarters  includes
      123,512   shares  deemed   surrendered  to  the  Company  to  satisfy  tax
      withholding obligations arising from the lapse of restrictions on shares.

      (2)In June of 2000 the Board of Directors  authorized the repurchase of up
      to 2,000,000  shares of the Company's  Common Stock from time to time when
      warranted by market conditions. There have been 1,746,163 shares purchased
      under this authorization through August 1, 2004.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS

(a)    Registrant's Annual Meeting of Shareholders was held on June 10, 2004.

(b)    Roger T. Knox and  Bernard J. Wein were  elected to serve on the Board of
       Directors  until  2007.  Don L. Fruge and Larry G. Kirk will  continue to
       serve on the Board of Directors until 2006. Jack W. Busby,  Jr. and Donna
       L. Weaver will continue to serve on the Board of Directors until 2005.

(c)    The vote in the  uncontested  election of the  nominees  for the Board of
       Directors  elected to serve until 2007 was as follows:  16,830,446  votes
       for and 639,342 votes withheld for Mr. Knox and 17,391,600  votes for and
       78,188 votes withheld for Mr. Wein.

  (d)  Not applicable


                                       15
<PAGE>

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

  (a)  Exhibits

         31.1  Certification of Chief Executive Officer
         31.2  Certification of Chief Financial Officer
         32    Certification of Chief Executive Officer and Chief Financial
               Officer Pursuant to 18 U.S.C. Section 1350

  (b)  Reports on Form 8-K

- Current Report on Form 8-K filed May 19, 2004 announcing quarterly earnings.


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)

September 9, 2004


                                       16
<PAGE>

                                                                    Exhibit 31.1

                    Certification of Chief Executive Officer


I, Larry G. Kirk, certify that:

1.     I have reviewed this  quarterly  report on Form 10-Q of Hancock  Fabrics,
       Inc.;

2.     Based on my knowledge,  this report does not contain any untrue statement
       of a material fact or omit to state a material fact necessary to make the
       statements  made,  in  light  of  the  circumstances   under  which  such
       statements  were made, not misleading  with respect to the period covered
       by this report;

3.     Based on my knowledge,  the  financial  statements,  and other  financial
       information  included  in this  report,  fairly  present in all  material
       respects the financial condition, results of operations and cash flows of
       the registrant as of, and for, the periods presented in this report;

4.     The  registrant's  other  certifying  officer and I are  responsible  for
       establishing  and  maintaining  disclosure  controls and  procedures  (as
       defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
       and we have:

       a)     designed such disclosure  controls and procedures,  or caused such
              disclosure  controls  and  procedures  to be  designed  under  our
              supervision,  to ensure that material  information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others  within those  entities,  particularly  during the
              period in which this report is being prepared;

       b)     evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls  and   procedures   and  presented  in  this  report  our
              conclusions about the effectiveness of the disclosure controls and
              procedures,  as of the end of the period  covered  by this  report
              based on such evaluation; and

       c)     disclosed in this report any change in the  registrant's  internal
              control  over  financial   reporting  that  occurred   during  the
              registrant's  most  recent  fiscal  quarter  that  has  materially
              affected,  or is  reasonably  likely to affect,  the  registrant's
              internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed,  based on
       our most recent evaluation of internal control over financial  reporting,
       to the  registrant's  auditors and the audit  committee  of  registrant's
       board of directors:

       a)     all significant deficiencies and material weaknesses in the design
              or operation of internal  control over financial  reporting  which
              are reasonably likely to adversely affect the registrant's ability
              to record,  process,  summarize and report financial  information;
              and

       b)     any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal control over financial reporting.


Date:  September 9, 2004


/s/ Larry G. Kirk
-------------------------
Larry G. Kirk
Chairman of the Board and Chief Executive Officer


                                       17
<PAGE>

                                                                    Exhibit 31.2

                    Certification of Chief Financial Officer


I, Bruce D. Smith, certify that:

1.     I have reviewed this  quarterly  report on Form 10-Q of Hancock  Fabrics,
       Inc.;

2.     Based on my knowledge,  this report does not contain any untrue statement
       of a material fact or omit to state a material fact necessary to make the
       statements  made,  in  light  of  the  circumstances   under  which  such
       statements  were made, not misleading  with respect to the period covered
       by this report;

3.     Based on my knowledge,  the  financial  statements,  and other  financial
       information  included  in this  report,  fairly  present in all  material
       respects the financial condition, results of operations and cash flows of
       the registrant as of, and for, the periods presented in this report;

4.     The  registrant's  other  certifying  officer and I are  responsible  for
       establishing  and  maintaining  disclosure  controls and  procedures  (as
       defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
       and we have:

       a)     designed such disclosure  controls and procedures,  or caused such
              disclosure  controls  and  procedures  to be  designed  under  our
              supervision,  to ensure that material  information relating to the
              registrant, including its consolidated subsidiaries, is made known
              to us by others  within those  entities,  particularly  during the
              period in which this report is being prepared;

       b)     evaluated  the   effectiveness  of  the  registrant's   disclosure
              controls  and   procedures   and  presented  in  this  report  our
              conclusions about the effectiveness of the disclosure controls and
              procedures,  as of the end of the period  covered  by this  report
              based on such evaluation; and

       c)     disclosed in this report any change in the  registrant's  internal
              control  over  financial   reporting  that  occurred   during  the
              registrant's  most  recent  fiscal  quarter  that  has  materially
              affected,  or is  reasonably  likely to affect,  the  registrant's
              internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed,  based on
       our most recent evaluation of internal control over financial  reporting,
       to the  registrant's  auditors and the audit  committee  of  registrant's
       board of directors:

       a)     all significant deficiencies and material weaknesses in the design
              or operation of internal  control over financial  reporting  which
              are reasonably likely to adversely affect the registrant's ability
              to record,  process,  summarize and report financial  information;
              and

       b)     any fraud,  whether or not material,  that involves  management or
              other  employees who have a significant  role in the  registrant's
              internal control over financial reporting.


Date:  September 9, 2004

/s/ Bruce D. Smith
-------------------------
Bruce D. Smith
Senior Vice President and
Chief Financial Officer


                                       18
<PAGE>

                                                                      Exhibit 32

      Certification of Chief Executive Officer and Chief Financial Officer
                       Pursuant to 18 U.S.C. Section 1350

Each of the undersigned, Larry G. Kirk and Bruce D. Smith, certifies pursuant to
18 U.S.C.  Section 1350 that: (1) this quarterly  report on Form 10-Q of Hancock
Fabrics,  Inc.  ("Hancock")  for the quarter ended August 1, 2004 fully complies
with the  requirements of Section 13(a) or 15(d) of the Securities  Exchange Act
of 1934,  and (2) the  information  contained in this  quarterly  report  fairly
presents,  in all material  respects,  the  financial  condition  and results of
operations of Hancock.

Date:  September 9, 2004

/s/ Larry G. Kirk
------------------------
Larry G. Kirk
Chairman of the Board and Chief Executive Officer


/s/ Bruce D. Smith
------------------------
Bruce D. Smith
Senior Vice President and Chief Financial Officer



                                       19