UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

          [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
                         Securities Exchange Act of 1934

                  For the quarterly period ended July 30, 2005

                                       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.)

 One Fashion Way, Baldwyn, MS                                       38824
(Address of principal executive offices)                          (Zip Code)


               Registrant's telephone number, including area code
                                 (662) 365-6000

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 by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes      No X
                                      ---    ---

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

As of July 30, 2005, the  registrant had  outstanding an aggregate of 19,129,674
shares of common stock, $.01 par value.

<PAGE>

<TABLE>
<S>                                                                                      <C>

INDEX

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

    Consolidated Balance Sheets as of July 30, 2005 and January 30, 2005                       3

    Consolidated Statements of Operations for the Thirteen Weeks  and Twenty-six
      Weeks Ended July 30, 2005 and August 1, 2004                                             4

    Consolidated Statements of Cash Flows for the Twenty-six
      Weeks Ended July 30, 2005 and August 1, 2004                                             5

    Consolidated Statement of Shareholders' Equity for the Twenty-six Weeks
       Ended July 30, 2005                                                                     6

    Notes to Consolidated Financial Statements                                               7 - 10

  Item 2.  Management's Discussion and Analysis of Financial Condition
    and Results of Operations                                                               10 - 13

  Item 3.  Quantitative and Qualitative Disclosures about Market Risks                        14

  Item 4.  Controls and Procedures                                                            14

Part II.  Other Information:

   Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds                 15

   Item 6.  Exhibits                                                                          15

Signature                                                                                     16
</TABLE>


                                       2

<PAGE>

<TABLE>
<S>                                                                  <C>            <C>
  PART I. FINANCIAL INFORMATION
  ITEM 1. FINANCIAL STATEMENTS
  HANCOCK FABRICS, INC.
  CONSOLIDATED BALANCE SHEETS
  (unaudited)
  ---------------------------------------------------------------------------------------------------
                                                                     July 30,       January 30,
  (in thousands, except for share and per share amounts)               2005            2005
  ---------------------------------------------------------------------------------------------------
  Assets
  Current assets:
            Cash and cash equivalents                                $  3,467         $  3,794
            Receivables, less allowance for doubtful accounts             588              870
            Inventories                                               170,818          155,857
            Income taxes refundable                                     4,273                -
            Prepaid expenses                                            2,917            2,115
  ---------------------------------------------------------------------------------------------------
            Total current assets
                                                                      182,063          162,636

  Property and equipment, at depreciated cost                          69,436           71,261
  Deferred tax assets                                                   4,032            4,157
  Pension payment in excess of required contribution                   12,966           13,961
  Goodwill                                                              4,480            4,480
  Other assets                                                          3,996            3,030
  ---------------------------------------------------------------------------------------------------
            Total assets                                             $276,973         $259,525
  ===================================================================================================

  Liabilities and Shareholders' Equity
  Current liabilities:
            Accounts payable                                         $ 40,392         $ 41,681
            Accrued liabilities                                        20,051           20,044
            Deferred tax liabilities                                    4,019            4,192
            Income taxes                                                    -              463
  ---------------------------------------------------------------------------------------------------
            Total current liabilities                                  64,462           66,380

  Long-term debt obligations                                           60,169           31,000
  Lease financing obligation                                            1,741                -
  Postretirement benefits other than pensions                          22,878           22,661
  Reserve for store closings                                              400              483
  Other liabilities                                                     9,214           10,435
  ---------------------------------------------------------------------------------------------------
            Total liabilities                                         158,864          130,959
  ---------------------------------------------------------------------------------------------------
  Commitments and contingencies
  ---------------------------------------------------------------------------------------------------
  Shareholders' equity:
    Common stock, $.01 par value; 80,000,000 shares authorized;
    32,360,190 and 32,328,133 issued and outstanding, respectively        323              323
    Additional paid-in capital                                         75,392           75,524
    Retained earnings                                                 200,045          211,032
    Treasury stock, at cost, 13,230,516 and 13,127,250
      shares held, respectively                                      (153,359)        (152,729)
    Deferred compensation on restricted stock incentive plan           (4,292)          (5,584)
  ---------------------------------------------------------------------------------------------------
            Total shareholders' equity                                118,109          128,566
  ---------------------------------------------------------------------------------------------------
            Total liabilities and shareholders' equity               $276,973         $259,525
  ===================================================================================================

     See accompanying notes to consolidated financial statements.
</TABLE>


                                       3
<PAGE>

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

----------------------------------------------------------------------------------------------------------------------------------
                                                                         Thirteen Weeks Ended           Twenty-six Weeks Ended
                                                                        July 30,     August 1,          July 30,      August 1,
(in thousands, except per share amounts)                                  2005         2004               2005          2004
----------------------------------------------------------------------------------------------------------------------------------

Sales                                                                  $  83,244     $  89,767           $ 181,084    $ 194,856
Cost of goods sold (1)                                                    42,678        46,301              93,812       98,907
----------------------------------------------------------------------------------------------------------------------------------

    Gross profit                                                          40,566        43,466              87,272       95,949

Selling, general and administrative expense                               46,121        45,706              95,446       95,085
Depreciation and amortization                                              2,191         1,802               4,425        3,512
----------------------------------------------------------------------------------------------------------------------------------

    Operating loss                                                        (7,746)       (4,042)            (12,599)      (2,648)

 Interest expense, net                                                       700           168               1,032          280
----------------------------------------------------------------------------------------------------------------------------------

Loss before income tax benefit                                            (8,446)       (4,210)            (13,631)      (2,928)
Income tax benefit                                                        (3,066)       (1,528)             (4,948)      (1,062)
----------------------------------------------------------------------------------------------------------------------------------

Net loss and comprehensive loss                                        $  (5,380)    $  (2,682)          $  (8,683)   $  (1,866)
==================================================================================================================================

Loss per share
    Basic and Diluted                                                  $    (.29)    $    (.15)          $    (.47)   $    (.10)
==================================================================================================================================

Weighted average shares outstanding
    Basic and Diluted                                                     18,434        18,208              18,386       18,101
==================================================================================================================================

Dividends per share                                                    $     .06     $     .12           $     .12    $     .24
==================================================================================================================================

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

</TABLE>


                                       4
<PAGE>


<TABLE>
<S>                                                                      <C>             <C>
Hancock Fabrics, Inc.
Consolidated Statements of Cash Flows
(unaudited)
-----------------------------------------------------------------------------------------------------
(in thousands)
                                                                          Twenty-six Weeks Ended
                                                                          July 30,       August 1,
                                                                            2005           2004
-----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
  Net loss and comprehensive loss                                        $  (8,683)      $ (1,866)
  Adjustments to reconcile net loss to cash
   flows used in operating activities
    Depreciation and amortization                                            4,425          3,512
    LIFO charge (credit)                                                     2,600           (200)
    Deferred income taxes                                                      (48)         1,184
    Amortization of deferred compensation on
     restricted stock incentive plan                                         1,099          1,267
    Reserve for store closings charges (credits)                               118              -
    Loss on disposition of property and equipment                               86            245
    Interest expense on reserve for store closings                              17             53
    Issuance of shares as compensation for professional services                 5             15
    Issuance of shares under directors' stock plan                             146             90
    Tax benefit of stock options exercised                                       2            494
  (Increase) decrease in assets
    Receivables and prepaid expenses                                          (520)          (909)
    Inventory at current cost                                              (17,561)        (4,718)
    Income tax refundable                                                   (4,273)          (563)
    Pension payment in excess of required contribution                         995          1,060
    Other noncurrent assets                                                    183            126
  Increase (decrease) in liabilities
    Accounts payable                                                        (1,289)        (1,004)
    Accrued liabilities                                                         73         (3,450)
    Current income tax obligations                                            (564)        (6,196)
    Postretirement benefits other than pensions                                217            321
    Reserve for store closings                                                (284)          (357)
    Other liabilities                                                       (1,221)          (213)
-----------------------------------------------------------------------------------------------------
     Net cash used in operating activities                                 (24,477)       (11,109)
-----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
    Additions to property and equipment                                     (2,806)       (14,951)
    Proceeds from the disposition of property and equipment                    120             19
-----------------------------------------------------------------------------------------------------
     Net cash used in investing activities                                  (2,686)       (14,932)
-----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
    Borrowings on revolving  credit agreement                               29,169         31,000
    Proceeds from lease financing                                            1,741              -
    Payments for loan costs                                                 (1,149)             -
    Purchase of treasury stock                                                (630)        (1,889)
    Proceeds from exercise of stock options                                      9          1,152
    Cash dividends paid                                                     (2,304)        (4,527)
-----------------------------------------------------------------------------------------------------
     Net cash provided by financing activities                              26,836         25,736
-----------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents                                         (327)          (305)
Cash and cash equivalents:
    Beginning of period                                                      3,794          4,080
-----------------------------------------------------------------------------------------------------
    End of period                                                        $   3,467       $  3,775
=====================================================================================================
Supplemental disclosures:
Cash paid during the period for:
    Interest                                                             $     792       $    247
    Income taxes                                                         $      36       $  4,029
=====================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>



<TABLE>
<S>                                    <C>          <C>        <C>       <C>        <C>          <C>
HANCOCK FABRICS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
------------------------------------------------------------------------------------------------------------------------------------
(in thousands, except for number of shares)

------------------------------------------------------------------------------------------------------------------------------------
                                                               Additional                                                 Total
                                           Common Stock        Paid-in   Retained       Treasury Stock      Deferred  Shareholders'
                                        ---------------------                         -------------------
                                          Shares    Amount     Capital   Earnings     Shares      Amount    Compensation  Equity
------------------------------------------------------------------------------------------------------------------------------------
Balance January 30, 2005               32,328,133    $323      $75,524   $211,032   (13,127,250) ($152,729)   ($5,584)    $128,566

Net loss and comprehensive income                                          (8,683)                                          (8,683)
Cash dividends ($.12 per share)                                            (2,304)                                          (2,304)
Issuance of restricted stock               60,000                  410                                           (410)
Cancellation of restricted stock          (52,200)                (603)                                           603
Amortization & vesting of deferred
 compensation on restricted stock
 incentive plan                                                   (101)                                         1,099          998
Issuance of shares under directors' stock
 plan                                      21,628                  146                                                         146
Issuance of shares as compensation for
 professional services                        554                    5                                                           5
Purchase of treasury stock                                                             (103,266)      (630)                   (630)
Stock options exercised                     2,075                    9                                                           9
Tax benefit of stock options exercised                               2                                                           2
------------------------------------------------------------------------------------------------------------------------------------
Balance July 30, 2005                  32,360,190    $323      $75,392   $200,045   (13,230,516) ($153,359)   ($4,292)    $118,109
====================================================================================================================================
</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 January
30, 2005 incorporated into the Company's Annual Report on Form 10-K.

For fiscal year 2004,  Hancock  maintained its financial records on a 52-53 week
fiscal year  ending on the Sunday  closest to January  31.  Beginning  in fiscal
2005, the Company began maintaining its financial records on a 52-53 week fiscal
year ending on the Saturday closest to January 31.

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 loss and 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
                                                                  July 30,     August 1,       July 30,      August 1,
                                                                    2005          2004           2005          2004
                                                               -------------  ------------   ------------   -------------

Net loss, as reported                                          $     (5,380)   $  (2,682)      $  (8,683)    $  (1,866)
Deduct: Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects                           (310)        (362)           (665)         (810)
                                                               -------------  ------------   ------------   -------------
Pro forma net loss                                             $     (5,690)   $  (3,044)      $  (9,348)    $  (2,676)
                                                               =============  ============   ============   =============

Loss per share:
   Basic and Diluted - as reported                             $       (.29)   $    (.15)      $    (.47)    $    (.10)
                                                               =============  ============   ============   =============
   Basic and Diluted - pro forma                               $       (.31)   $    (.17)      $    (.51)    $    (.15)
                                                               =============  ============   ============   =============
</TABLE>


                                       7
<PAGE>

NOTE 3:  LOSS PER SHARE

Basic and diluted loss per share  excludes  dilution and is computed by dividing
the net loss by the weighted-average number of shares of common stock, par value
$.01 ("Common Stock"), outstanding for the period.


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

-------------------------------------------------------------------------------------------------------------------------
(in thousands, except for share and                                    Thirteen Weeks Ended     Twenty-six Weeks Ended
                                                                    -----------------------------------------------------
  per share amounts)                                                 July 30,     August 1,      July 30,    August 1,
                                                                       2005         2004           2005         2004
-------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share:

  Net loss                                                             ($5,380)     ($2,682)       ($8,683)     ($1,866)
                                                                    ============ ============  ============  =============

  Weighted average number of common shares outstanding
    during period                                                   18,433,938   18,208,093     18,385,810   18,100,932
                                                                    ============ ============  ============  =============

Basic and diluted loss per share                                    $     (.29)  $     (.15)    $     (.47)  $     (.10)
                                                                    ============ ============  ============  =============

Weighted average common stock equivalents not included in EPS
  (stock options) because the effect would be anti-dilutive          2,056,887    1,700,360      2,090,858    1,456,255
                                                                    ============ ============  ============  =============
</TABLE>

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 July 30, 2005, the total reserve  balance  included in current and noncurrent
liabilities was $1,017,000  which represents the present value of the future net
lease obligations for the locations which have been closed. The 2005 activity in
the reserve is as follows (in thousands):

<TABLE>
<S>                           <C>              <C>                  <C>             <C>              <C>
                                                 Addition to
                               January 30,      (Reduction in)                                         July 30,
                                  2005             Reserve            Interest        Payments           2005
                             ---------------- -------------------  --------------- ---------------- ---------------

   Lease obligations         $        1,166   $            118     $          17   $         (284)  $       1,017
                             ================ ===================  =============== ================ ===============

</TABLE>

NOTE 5: RETIREMENT BENEFITS

On  December  9,  2003,  the  Medicare   Prescription   Drug,   Improvement  and
Modernization  Act of 2003 (the "Act") was signed into law. The Act introduces a
prescription  drug  benefit  under  Medicare,  as well as a federal  subsidy  to
sponsors of retiree health benefit plans that provide prescription drug benefits
that  are at  least  actuarially  equivalent  to  Medicare's  prescription  drug
benefits.  During the third quarter of 2004, Hancock adopted FASB Staff Position
No.  106-2,  Accounting  and  Disclosure  Requirements  Related to the  Medicare
Prescription  Drug,  Improvement and  Modernization  Act of 2003, and determined
that  the  Company's  prescription  drug  coverage  for  retirees  is  at  least
actuarially  equivalent  to the Medicare  coverage  provided  under the Act. The
Company elected to adopt the provisions of FSP No. 106-2 prospectively.

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 July 30, 2005 and August 1, 2004:

                                       8
<PAGE>


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

                                                            Retirement Plan              Postretirement Benefit Plan
(Dollars in thousands)                                    2005           2004                2005           2004
-----------------------------------------------------------------------------------------------------------------------
Service costs                                         $      1,400   $    1,436          $      336       $      330
Interest cost                                                2,000        1,940                 475              496
Expected return on assets                                   (2,826)      (2,776)
Amortization of prior service costs                            (45)          36                (126)            (124)
Recognized net actuarial (gain) loss                           466          424                (135)            (117)
-----------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                             $        995   $    1,060          $      550       $      585
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

NOTE 6: REVOLVING LINE OF CREDIT

On June 29, 2005,  the Company  entered into a senior  collateralized  revolving
credit facility  ("Facility") with Wachovia Bank and other lenders. The Facility
replaced the Company's  existing  revolving  credit  agreements  with Southtrust
Bank,  and with Union  Planters  Bank and  BancorpSouth  Bank which the  Company
terminated on June 29.

The new  Facility is a five year  commitment  that allows for  borrowings  up to
$110,000,000.  The Company has the option of selecting  either a "prime rate" or
Eurodollar loan.  Advances under the Facility will accrue interest either (x) at
the Applicable  Margin (as defined in the Loan and Security  Agreement) plus the
higher of (i) the rate of  interest  periodically  announced  by Wachovia as its
"prime rate",  or (ii) the federal funds  effective  rate from time to time plus
0.50% or (y) at the Applicable  Margin plus the Adjusted  Eurodollar Rate (which
is a rate  derived  from the London  Interbank  Offered  Rate).  The Facility is
collateralized by a first priority  perfected  collateral  interest in and liens
upon all of each of the Company's  present and future assets.  The Facility also
contemplates  the issuance of letters of credit  aggregating up to  $25,000,000,
provided that all borrowings under the Facility do not exceed $110,000,000.

NOTE 7: RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of
ARB No. 43, Chapter 4. SFAS 151 clarifies that abnormal  inventory costs such as
idle  facilities,  excess  freight  and  handling  costs,  and  waste  materials
(spoilage)  are  required  to be  recognized  as  current  period  charges.  The
provisions of SFAS 151 are effective for inventory  costs incurred during fiscal
years  beginning  after June 15, 2005.  Hancock does not expect adoption of SFAS
151 to have a material impact on its financial statements.

During  December  2004,  the FASB issued SFAS No. 153,  Exchanges of Nonmonetary
Assets - an amendment of APB Opinion No. 29. SFAS 153 amends APB Opinion No. 29,
Accounting  for  Nonmonetary  Transactions,   to  eliminate  the  exception  for
nonmonetary  exchanges  of  similar  productive  assets and  replaces  it with a
general  exception  for  exchanges  of  nonmonetary  assets  that  do  not  have
commercial  substance.  SFAS 153 is effective for  nonmonetary  asset  exchanges
occurring in fiscal  periods  beginning  after June 15,  2005.  Hancock does not
expect  the  adoption  of SFAS 153 to have a  material  impact on its  financial
statements.

In  December  2004,  the FASB  issued SFAS No.  123(revised  2004),  Share-Based
Payment,  which replaces SFAS No. 123, Accounting for Stock-Based  Compensation,
and  supercedes  APB Opinion No. 25,  Accounting  for Stock Issued to Employees.
SFAS 123R requires  that all grants of employee  stock options and other similar
share-based  awards be  recognized in the  financial  statements  based on their
grant-date fair values.  SFAS 123R is effective for fiscal years beginning after
June 15, 2005. Hancock is in the process of evaluating the impact SFAS 123R will
have on its financial statements and has not yet determined whether the adoption
will result in amounts  that are  similar to the  current pro forma  disclosures
under SFAS 123R.

In March 2005, the FASB issued Interpretation No. 47 ("FIN 47"), "Accounting for
Conditional  Asset  Retirement  Obligations," an  interpretation  of FASB issued
Statement No. 143 ("SFAS 143"),  "Accounting for Asset Retirement  Obligations."
FIN 47 clarifies that the term "conditional asset retirement obligation" as used
in SFAS 143 refers to a legal obligation to perform an asset retirement activity

                                       9
<PAGE>

in which the timing and (or) method of settlement  are  conditional  on a future
event that may or may not be within the control of the entity. The obligation to
perform the asset retirement  activity is unconditional  even though uncertainty
exists  about the timing and (or) method of  settlement.  FIN 47 also  clarifies
when an entity would have sufficient information to reasonably estimate the fair
value of an asset retirement  obligation.  FIN 47 is effective no later than the
end of fiscal years ending after  December 15, 2005.  Retrospective  application
for interim financial  information is permitted but is not required. We have not
yet determined the financial statement impact, if any, of implementing FIN 47.

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.

For the first half of the year,  inventory  increased  $15.0  million due to the
normal  seasonal  build-up from  year-end,  when inventory is typically at a low
level,  as well as expanded  assortments in fleece and fashion  apparel  fabric,
upholstery  and drapery fabric for the home,  designer and  name-brand  quilting
cottons  for the  serious  quilter,  specialty  yarns for  knitters,  and sewing
accessories for everyone, ranging from sewing machines to instructional books to
ribbon and trimmings. The addition of these wider assortments was based on input
from our stores and customers and was in response to what we believe has been an
incomplete presentation of product in our core categories.  Accounts payable and
accrued liabilities decreased $1.3 million primarily due to the timing of higher
year-end payments  associated with the seasonal nature of the Company's business
and the payment in the first  quarter of a $1.8  million  liability  incurred in
connection  with the  acquisition in 2004's fourth quarter of stores operated by
certain of Hancock's independent wholesale customers.  Also, there has been some
shortening  of payable  terms as we source more product  overseas,  because such
purchases  are  typically  paid quicker than  domestic  purchases.  Income taxes
payable of $463 thousand  changed to a refund  receivable of $4.3 million during
the twenty-six week period due to the Company's loss in the first two quarters.

During the twenty-six weeks ended July 30, 2005, borrowings of $29.2 million and
proceeds of $1.7 million  from lease  financing  transactions  were used to fund
capital  expenditures of $2.7 million,  cash dividends totaling $2.3 million and
working capital requirements.

During the second quarter, Hancock entered into an agreement with Wachovia Bank,
National Association, and Wachovia Capital Markets, LLC (together,  "Wachovia"),
for a  collateralized  revolving  loan and  letter  of credit  facility  of $110
million. The new facility replaced Hancock's uncollateralized $50 million credit
agreement.  The new  facility  contains  less  restrictive  covenants  than  the
previous facility and should allow the Company greater financial flexibility.

During April and May 2005,  Hancock entered into an agreement to lease a portion
of the Company's  former  distribution  center which is currently being held for
sale. The three-year lease agreement is expected to generate  approximately $500
thousand annually in rental income.

Hancock  opened two stores and closed two during the  thirteen  weeks ended July
30, 2005, resulting in a total of 446 stores at quarter end. In addition,  three
stores  were  relocated.  We expect to open and  close  approximately  20 stores
during the year, resulting in zero net additions.

                                       10
<PAGE>

RESULTS OF OPERATIONS

Thirteen  weeks ended July 30, 2005 compared with thirteen weeks ended August 1,
2004

Net losses were $5.4  million,  or $.29 per  diluted  share,  compared  with net
losses of $2.7 million, or $.15 per diluted share, in 2004's second quarter.

Sales  decreased to $83.2 million from $89.8 million in the same quarter of 2004
due to an 8.1% decline in comparable  store sales.  The  comparable  store sales
decrease was attributable to ineffective marketing and incomplete assortments in
the Company's  home  decorating,  quilting and apparel  fabric core  categories.
Hancock is currently in the process of  addressing  these  matters in connection
with the  Company's  implementation  of a strategic  makeover plan that involves
new/expanded merchandise lines, changes in advertising strategy and enhancements
to store  presentation,  all of which are scheduled for completion  prior to the
fall selling  season.  Store selling  square  footage  increased  from 5,099,000
selling square feet at the end of last year's second quarter to 5,269,000 square
feet this year due to the net addition of 13 stores.

Gross margins  increased from 48.4% to 48.7%,  as the Company  strives to return
its margin to the levels experienced prior to the downturn in 2004. Efforts have
been made to improve the margin  through more  opportunistic  purchases of value
fabric.  An  increase  in the  Producer  Price  Index  ("PPI")  used to  measure
inflation resulted in a LIFO charge of $1.6 million during the second quarter of
2005,  compared  with a LIFO credit of $50  thousand in the same period of 2004,
thereby partially offsetting the aforementioned margin improvement.

Selling,  general and administrative expenses as a percentage of sales increased
to 55.4% in the second quarter of 2005 from 50.9% in the second quarter of 2004.
This  increase was the result of the  deleveraging  impact on the expense  ratio
that results from negative comparable store sales, general inflationary pressure
on expenses and approximately  $300 thousand of expense incurred in a chain-wide
store makeover program.

Depreciation  and amortization  expense  increased to 2.6% of sales from 2.0% in
the second  quarter of 2004 due to completion of  construction  of the Company's
corporate office facility in Baldwyn,  Mississippi and the  implementation  of a
point-of-sale ("POS") system in Hancock's stores.

Interest  expense  increased  $532  thousand  over the prior  year due to higher
average  outstanding debt levels and a higher interest rate environment.  Income
tax benefit increased due to the increase in pre-tax losses. Hancock's effective
tax rate was 36.3% in both years.

Twenty-six weeks ended July 30, 2005 compared with twenty-six weeks ended August
1, 2004

Net losses in the first twenty-six weeks were $8.7 million,  or $.47 per diluted
share, compared with $1.9 million, or $.10 per diluted share, in the same period
of 2004.

Sales  decreased to $181.1  million from $194.9  million in the previous  year's
first 26 weeks  primarily  as the result of a 7.5% decline in  comparable  store
sales,  attributable to ineffective marketing and incomplete  assortments in the
Company's home decorating, quilting and apparel fabric core categories.

Gross  margins  declined from 49.2% to 48.2% due to the impact of a $2.6 million
dollar LIFO charge in the current year compared to a $200 thousand credit in the
same time period of 2004. Excluding the impact of this charge,  margins improved
slightly  over the  prior  year  due to more  opportunistic  purchases  of value
fabric.

Selling, general and administrative expenses as a percentage of sales were 52.7%
compared  to 48.8% in the first  half of 2004.  The  deleveraging  impact on the
expense ratio that results from negative  comparable store sales was the primary
factor affecting this comparison, together with general inflationary pressure on
expenses and  approximately  $300  thousand of expense  incurred in a chain-wide
store makeover program.

                                       11
<PAGE>

Depreciation and amortization increased to 2.4% of sales from 1.8% primarily due
to capital  expenditures  related to the new corporate  office  facility and the
implementation of POS systems in our stores.

Interest expense increased $752 thousand due to higher average  outstanding debt
levels and a higher interest rate environment.

Income tax benefit  increased  almost $3.9 million due to the increase in pretax
losses from the same period in 2004.  Hancock's  effective tax rate was 36.3% in
both years.

LIQUIDITY AND CAPITAL RESOURCES

Bank credit facilities

During the second quarter,  Hancock entered into an agreement with Wachovia Bank
for a  collateralized  revolving  loan and  letter  of credit  facility  of $110
million. The new facility replaced Hancock's uncollateralized $50 million credit
agreement.  The new  facility  contains  less  restrictive  covenants  than  the
previous facility and should allow the Company greater financial flexibility.

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.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

Hancock has an  arrangement  within its new  collateralized  revolving  loan and
letter of credit  facility that provides up to $25 million in letters of credit.
At July 30, 2005,  Hancock had commitments of $665 thousand on letters of credit
under  its new  facility  with  Wachovia,  which  support  purchase  orders  for
merchandise  to be imported.  Hancock also has a $6.2 million  standby letter of
credit to guarantee payment of potential future workers' compensation claims and
merchandise  letters of credit issued under the prior credit agreement.  Hancock
leases its retail fabric store  locations  under  operating  leases  expiring at
various dates through 2025.

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 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 could be necessary if investment returns
are weak.  Costs of leases for new store  locations  remain stable,  but renewal

                                       12
<PAGE>

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 2005, an increase in
the PPI  resulted  in a LIFO charge of $2.6  million.  During the same period of
2004, the Company recorded a LIFO credit of $200,000.

SEASONALITY

Hancock's  business is 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  Securities  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 those that are
discussed below.

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

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


                                       13

<PAGE>

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Hancock does not hold derivative financial or commodity  instruments at July 30,
2005.  Hancock  is exposed  to  financial  market  risks,  including  changes in
interest rates. All borrowings under Hancock's  Collateralized  Revolving Credit
Agreement bear interest at the applicable  margin plus the higher of the federal
funds rate plus 1/2% or the prime rate, or the applicable margin plus 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:  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     This table provides information with respect to purchases by the Company of
     shares of its common stock during the second quarter of 2005:

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

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

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

   May 1, 2005 through
   May 28, 2005                             68                $6.48                      68                    244,060
   ------------------------------------------------------------------------------------------------------------------------

   May 29, 2005 through
   July 2, 2005                         89,964                $5.79                      12                    244,048
   ------------------------------------------------------------------------------------------------------------------------

   July 3, 2005 through
   July 30, 2005                             8                $6.74                       8                    244,040
   ------------------------------------------------------------------------------------------------------------------------

   Total                                90,040                $5.79                      88
   ------------------------------------------------------------------------------------------------------------------------
</TABLE>

     (1)The number of shares purchased during the second quarter includes 89,952
     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 1,755,960 shares purchased
     under this  authorization  through July 30, 2005.  The shares  discussed in
     footnote (1) are excluded from this column.

ITEM 6: EXHIBITS

     10.1  First Amendment to Credit Agreement dated July 26, 2005
     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 Rule 13a-14(b) under the Securities Exchange Act of 1934
           and 18 U.S.C. Section 1350


                                       15
<PAGE>

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

                                               Executive Vice President and
                                                 Chief Financial Officer
                                                 (Principal Financial and
                                                    Accounting Officer)

September 8, 2005


                                       16
<PAGE>



                                                                 Exhibit 31.1

                    Certification of Chief Executive Officer

I, Jane F. Aggers, 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))  and  internal
       control  over  financial  reporting  (as  defined in  Exchange  Act Rules
       13a-15(f) and 15d-15(f)) 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)     designed such internal control over financial reporting, or caused
              such  internal  control  over  financial  reporting to be designed
              under our supervision,  to provide reasonable  assurance regarding
              the  reliability  of financial  reporting and the  preparation  of
              financial statements for external reporting purposes in accordance
              with generally accepted accounting principles;

       c)     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

       d)     disclosed in this report any change in the  registrant's  internal
              control  over  financial   reporting  that  occurred   during  the
              registrant's first 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 8, 2005
/s/ Jane F. Aggers
---------------------
Jane F. Aggers
President 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))  and  internal
       control  over  financial  reporting  (as  defined in  Exchange  Act Rules
       13a-15(f) and 15d-15(f)) 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)     designed such internal control over financial reporting, or caused
              such  internal  control  over  financial  reporting to be designed
              under our supervision,  to provide reasonable  assurance regarding
              the  reliability  of financial  reporting and the  preparation  of
              financial statements for external reporting purposes in accordance
              with generally accepted accounting principles;

       c)     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

       d)     disclosed in this report any change in the  registrant's  internal
              control  over  financial   reporting  that  occurred   during  the
              registrant's first 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 8, 2005

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

                                       18
<PAGE>

                                                                    Exhibit 32


      Certification of Chief Executive Officer and Chief Financial Officer
          Pursuant to Rule 13a-14(b) under the Securities Exchange Act
                       of 1934 and 18 U.S.C. Section 1350

Each of the undersigned,  Jane F. Aggers and Bruce D. Smith,  certifies pursuant
to Rule  13a-14(b)  under  the  Securities  Exchange  Act of 1934 and 18  U.S.C.
Section 1350 that:  (1) this quarterly  report on Form 10-Q of Hancock  Fabrics,
Inc.  ("Hancock")  for the quarter  ended July 30, 2005 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 8, 2005

/s/ Jane F. Aggers
---------------------

Jane F. Aggers
President and Chief Executive Officer

/s/ Bruce D. Smith
---------------------

Bruce D. Smith
Executive Vice President and Chief Financial Officer





                                       19