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 October 31, 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.)

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

As of  October  31,  2004,  the  registrant  had  outstanding  an  aggregate  of
19,098,735 shares of common stock, $.01 par value.

<PAGE>


INDEX

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

    Consolidated Balance Sheets as of October 31, 2004
     and February 1, 2004                                                 3

    Consolidated Statements of Operations for the Thirteen
     Weeks and Thirty-nine Weeks Ended October 31, 2004 and
     November 2, 2003                                                     4

    Consolidated Statements of Cash Flows for the Thirty-nine
     Weeks Ended October 31, 2004 and November 2, 2003                    5

    Consolidated Statement of Shareholders' Equity for the
     Thirty-nine Weeks Ended October 31, 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. Unregistered Sales of Equity Securities and Use of
     Proceeds                                                            15

   Item 6.  Exhibits                                                     15

Signature                                                                16


                                       2
<PAGE>

PART I. FINANCIAL INFORMATION

HANCOCK FABRICS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<S>                                                                <C>                <C>
---------------------------------------------------------------------------------------------------
                                                                    October 31,      February 1,
(in thousands, except for share and per share amounts)                  2004             2004
---------------------------------------------------------------------------------------------------
Assets
Current assets:
          Cash and cash equivalents                                $        4,616     $      4,080
          Receivables, less allowance for doubtful accounts                 1,165              966
          Inventories                                                     163,874          154,984
          Income taxes refundable                                           2,339                -
          Prepaid expenses                                                  3,065            2,304
---------------------------------------------------------------------------------------------------
          Total current assets                                            175,059          162,334

Property and equipment, at depreciated cost                                70,998           57,142
Deferred tax assets                                                         4,322            6,207
Pension payment in excess of required contribution                         14,261           15,936
Goodwill                                                                    4,480            4,480
Other assets                                                                3,138            3,324
---------------------------------------------------------------------------------------------------
          Total assets                                             $      272,258     $    249,423
===================================================================================================

Liabilities and Shareholders' Equity
Current liabilities:
          Accounts payable                                         $       45,416     $     42,704
          Accrued liabilities                                              19,124           22,574
          Deferred tax liabilities                                          4,579            3,113
          Income taxes                                                          -            7,299
---------------------------------------------------------------------------------------------------
          Total current liabilities                                        69,119           75,690

Long-term debt obligations                                                 44,000           10,000
Postretirement benefits other than pensions                                22,655           22,368
Reserve for store closings                                                    487              592
Other liabilities                                                           8,665            9,193
---------------------------------------------------------------------------------------------------
          Total liabilities                                               144,926          117,843
---------------------------------------------------------------------------------------------------

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

Shareholders' equity:
          Common stock, $.01 par value; 80,000,000 shares authorized;
           32,318,276 and 31,941,582 issued and outstanding,
           respectively                                                       323              319
          Additional paid-in capital                                       75,423           70,105
          Retained earnings                                               210,908          218,612
          Treasury stock, at cost, 13,219,541 and 13,093,781
             shares held, respectively                                   (153,812)        (151,905)
          Deferred compensation on restricted stock incentive plan         (5,510)          (5,551)
---------------------------------------------------------------------------------------------------
          Total shareholders' equity                                      127,332          131,580
---------------------------------------------------------------------------------------------------
          Total liabilities and shareholders' equity               $      272,258     $    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                 Thirty-nine Weeks Ended
                                                          October 31,        November 2,         October 31,        November 2,
(in thousands, except per share amounts)                      2004              2003                2004               2003
--------------------------------------------------------------------------------------------   ------------------------------------

Sales                                                       $   109,914        $    112,699        $   304,770        $    316,438
Cost of goods sold (1)                                           57,290              55,274            156,197             154,505
--------------------------------------------------------------------------------------------   ------------------------------------

          Gross profit                                           52,624              57,425            148,573             161,933
--------------------------------------------------------------------------------------------   ------------------------------------

Selling, general and administrative expense                      48,846              49,022            143,931             141,386
Depreciation and amortization                                     1,923               1,608              5,435               4,645
--------------------------------------------------------------------------------------------   ------------------------------------

          Operating income (loss)                                 1,855               6,795              (793)              15,902

Other expense (income)
          Interest expense                                          335                 189                639                 463
          Interest income                                           (14)                 (9)               (38)                (43)
--------------------------------------------------------------------------------------------   ------------------------------------

Earnings (loss) before income taxes                               1,534               6,615             (1,394)             15,482
Income taxes                                                        557               2,401               (505)              5,620
--------------------------------------------------------------------------------------------   ------------------------------------

Net earnings (loss) and comprehensive income (loss)         $       977               4,214               (889)              9,862
============================================================================================   ====================================

Earnings (loss) per share
          Basic                                             $       .05        $        .24        $      (.05)       $        .56
          Diluted                                           $       .05        $        .23        $      (.05)       $        .53
============================================================================================   ====================================

Weighted average shares outstanding
          Basic                                                  18,246              17,673             18,149              17,659
          Diluted                                                18,624              18,560             18,149              18,509
============================================================================================   ====================================

Dividends per share                                               $0.12               $0.10              $0.36               $0.30
============================================================================================ ======================================
</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)
                                                                           Thirty-nine Weeks Ended
                                                                          October 31,    November 2,
                                                                             2004           2003
-----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
         Net earnings (loss) and comprehensive income (loss)               $     (889)          9,862
         Adjustments to reconcile net earnings (loss) to cash
          flows (used in) provided by operating activities
                   Depreciation and amortization                                5,435          4,645
                   LIFO charge (credit)                                           550          (500)
                   Deferred income taxes                                        3,351              -
                   Amortization of deferred compensation on
                     restricted stock incentive plan                            1,821          1,595
                   Loss on disposition of property and equipment                  596              -
                   Interest expense on reserve for store closings                  77             98
                   Issuance of shares as compensation for professional
                     services                                                      27             22
                   Issuance of shares under directors' stock plan                 150            135
         (Increase) decrease in assets
                   Receivables and prepaid expenses                              (960)           (317)
                   Inventory at current cost                                   (9,440)         (7,334)
                   Income taxes refundable                                     (2,339)              -
                   Pension expense                                              1,675          2,169
                   Other assets                                                   186            (105)
         Increase (decrease) in liabilities
                   Accounts payable                                             2,712          (5,130)
                   Accrued liabilities                                         (3,140)         (2,975)
                   Income taxes                                                (6,155)         (1,902)
                   Postretirement benefits other than pensions                    287            316
                   Reserve for store closings                                    (492)           (505)
                   Other liabilities                                             (528)             86
         Tax benefit of stock options exercised                                   563             875
-----------------------------------------------------------------------------------------------------
                   Net cash (used in) provided by operating activities         (6,513)          1,035
-----------------------------------------------------------------------------------------------------

Cash flows from investing activities:
         Additions to property and equipment                                  (19,906)        (12,291)
         Proceeds from the disposition of property and equipment                   19              -
-----------------------------------------------------------------------------------------------------
                   Net cash used in investing activities                      (19,887)        (12,291)
-----------------------------------------------------------------------------------------------------

Cash flows from financing activities:
         Borrowings on revolving  credit agreement                             34,000          23,000
         Purchase of treasury stock                                            (1,907)         (9,268)
         Proceeds from exercise of stock options                                1,658           3,220
         Cash dividends paid                                                   (6,815)         (5,606)
-----------------------------------------------------------------------------------------------------
                   Net cash provided by financing activities                   26,936          11,346
-----------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents                                             536              90
Cash and cash equivalents:
         Beginning of period                                                    4,080           4,589
-----------------------------------------------------------------------------------------------------
         End of period                                                  $       4,616       $   4,679
=====================================================================================================
Supplemental disclosures:
Cash paid during the period for:
         Interest                                                       $         551       $     360
         Income taxes                                                   $       4,085           5,732
=====================================================================================================
</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)

-----------------------------------------------------------------------------------------------------------------------------------
                                                             Additional                                      Deferred     Total
                                           Common Stock       Paid-in    Retained      Treasury Stock        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)   $131,580
Net earnings (loss) and comprehensive
  income (loss)                                                             (889)                                            (889)
Cash dividends ($.36 per share)                                           (6,815)                                          (6,815)
Issuance of restricted Stock              151,500        1      1,849                                          (1,850)          0
Cancellation of restricted stock           (7,350)                (70)                                             70
Amortization & vesting of deferred
  compensation on restricted stock
  incentive plan                                                1,144                                           1,821       2,965
Issuance of shares under directors'
  stock plan                               11,403                 150                                                         150
Issuance of shares as compensation for
  professional services                     2,116                  27                                                          27
Purchase of treasury stock                                                            (125,760)    (1,907)                 (1,907)
Stock options exercised                   219,025        3      1,655                                                       1,658
Tax benefit of stock options exercised                            563                                                         563
-----------------------------------------------------------------------------------------------------------------------------------
Balance October 31, 2004               32,318,276     $323    $75,423   $210,908   (13,219,541) ($153,812)    ($5,510)   $127,332
===================================================================================================================================
</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 thirty-nine  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           Thirty-nine Weeks Ended
                                                               ------------------------------  -------------------------------
                                                                October 31,    November 2,      October 31,     November 2,
                                                                   2004           2003              2004           2003
                                                               ------------------------------  -------------------------------

Net earnings (loss), as reported                               $      977      $     4,214       $    (889)      $   9,862
Deduct: Total stock-based employee compensation
  expense determined under fair value based method
  for all awards, net of related tax effects                         (389)            (265)         (1,199)           (689)
                                                               ------------   ---------------  -------------   ---------------
Pro forma net earnings (loss)                                  $      588      $     3,949       $  (2,088)      $   9,173
                                                               ============   ===============  =============   ===============

Earnings (loss) per share:
   Basic - as reported                                         $      .05      $       .24       $    (.05)      $     .56
                                                               ============   ===============  =============   ===============
   Basic - pro forma                                           $      .03      $       .22       $    (.12)      $     .52
                                                               ============   ===============  =============   ===============

   Diluted - as reported                                       $      .05      $       .23       $    (.05)      $     .53
                                                               ============   ===============  =============   ===============
   Diluted - pro forma                                         $      .03      $       .21       $    (.12)      $     .50
                                                               ============   ===============  =============   ===============
</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       Thirty-nine Weeks Ended
                                                                    ---------------------------------------------------------
  per share amounts)                                                October 31,  November 2,     October 31,  November 2,
                                                                       2004         2003            2004         2003
-----------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share:

  Net earnings (loss)                                                      $977       $4,214          ($889)       $9,862
                                                                    ============ ============    ============ ============

  Weighted average number of common shares outstanding
        during period                                                18,246,095   17,673,313     18,149,320    17,659,362
                                                                    ============ ============    ============ ============

Basic earnings (loss) per share                                           $0.05        $0.24         ($0.05)        $0.56
                                                                    ============ ============    ============ ============

Diluted earnings (loss) per share:

  Net earnings (loss)                                                      $977       $4,214          ($889)       $9,862
                                                                    ============ ============    ============ ============

  Weighted average number of common shares outstanding
        during period                                                18,246,095   17,673,313     18,149,320    17,659,362

   Stock options                                                        168,580      440,456              -       450,581

   Restricted stock and deferred stock units                            209,216      446,102              -       398,718
                                                                    ------------ ------------    ------------ ------------
  Weighted average number of common shares outstanding
        during period adjusted for dilutive securities               18,623,891   18,559,871     18,149,320    18,508,661
                                                                    ============ ============    ============ ============

Diluted earnings (loss) per share                                         $0.05        $0.23         ($0.05)        $0.53
                                                                    ============ ============    ============ ============

Weighted average common stock equivalents not included in EPS
  (stock options) because the effect would be anti-dilutive           1,679,477      421,658      1,605,068       431,795
                                                                    ============ ============    ============ ============
</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  October  31,  2004,  the total  reserve  balance  included  in  current  and
noncurrent  liabilities was $1,146,000 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)                                       October 31,
                                  2004             Reserve            Interest        Payments           2004
                             ---------------- -------------------  --------------- ---------------- ---------------

2004
   Lease obligations         $         1,561    $             -     $         77     $       (492)    $      1,146
                             ================ ===================  =============== ================ ===============
</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
reduction in Hancock's accumulated  postretirement benefit obligation related to
the  subsidy is $3.3  million  and the Company  recognized  a  reduction  in net
periodic  postretirement  benefit cost of  approximately  $150  thousand for the
third quarter and the nine months ended October 31, 2004.

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 thirty-nine weeks ended October 31, 2004 and November 2, 2003:


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

                                                   Retirement Plan              Postretirement Benefit Plan
(Dollars in thousands)                           2004           2003                2004           2003
--------------------------------------------------------------------------------------------------------------
Service costs                                $    2,136      $   1,859            $     457      $     420
Interest cost                                     2,912          2,757                  701            699
Expected return on assets                        (4,069)        (3,482)
Amortization of prior service costs                  50             60                 (186)          (189)
Recognized net actuarial (gain) loss                646            975                 (247)          (270)
--------------------------------------------------------------------------------------------------------------
Net periodic benefit cost                    $    1,675      $   2,169            $     725      $     660
--------------------------------------------------------------------------------------------------------------
</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.  As disclosed in Note 5, the Company  prospectively adopted
FAS 106-2 during the third quarter of 2004.

                                       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.

For the first  nine  months  of the  year,  inventory  increased  $8.9  million,
partially offset by a $3.5 million increase in accounts payable,  as the Company
seasonally  prepared for its busiest quarter and purchased  merchandise for next
spring early this year to avoid distribution bottlenecks. Property and equipment
also  increased  $13.9  million  due to  capital  expenditures  in excess of $19
million related, primarily, to the new Baldwyn distribution center and corporate
offices,  as well as the continuing  installation of point-of-sale  equipment in
our stores.  Depreciation  expense  totaling $5.4 million  partially  offset the
increase in property and  equipment.  Income taxes payable of $7.3 million swung
to a refundable  of $2.3  million  during the  thirty-nine  week period due to a
reduction of net income and the timing of the payment of 2003 income taxes.

During the thirty-nine weeks ended October 31, 2004, borrowings of $34.0 million
and proceeds from stock option exercises totaling $1.7 million were used to fund
the aforementioned capital expenditures and increase in inventory,  $6.8 million
in cash dividends paid and $1.9 million of treasury stock purchases.  At October
31,  2004,  Hancock  had  outstanding  debt of $44  million,  or  25.7% of total
capitalization,  compared to $23  million,  or 7.1% of total  capitalization  at
February  2, 2004.  Hancock  opened 21 stores  and  closed 21 stores  during the
thirty-nine weeks ended October 31, 2004,  resulting in a total of 433 stores at
quarter  end.  We expect to open 10 to 15 stores and close 5 to 10 stores in the
fourth quarter and plan to have 5 to 10 net additions for the year.

RESULTS OF OPERATIONS

Thirteen  weeks ended  October  31,  2004  compared  with  thirteen  weeks ended
November 2, 2003

Net earnings were $1.0 million,  or $.05 per diluted  share,  compared with $4.2
million, or $.23 per diluted share, in the same period of 2003.  Operations were
adversely  affected by a decline in both sales and gross  margin,  including  an
increase  in the  Producer  Price  Index that  resulted in a LIFO charge of $750
thousand in the third quarter of 2004 compared to a $300 thousand  credit in the
same period of 2003.

Sales  decreased to $109.9 million from $112.7 million in the same period of the
previous year as the result of a 2.6% decline in sales of stores which were open
more than one full year ("comparable store sales").  Comparable store sales were
adversely  affected  by sluggish  consumer  behavior,  particularly  in the home
decorating  area. In addition,  four hurricanes in our southeastern and Atlantic
coast markets hurt sales in September.  Approximately three-fourths 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
5,060,000 at the end of last year's third quarter to 5,111,000  this year due to
new stores  being  larger in size than the stores  that were  closed and the net
addition of one store.

                                       11
<PAGE>

Gross margins declined from 51.0% to 47.9% due largely to promotional efforts to
improve the slowing sales,  more aggressive  markdowns to clear inventory before
the end of the season and the impact of the current year LIFO charge  versus the
prior year LIFO credit.

Selling, general and administrative expenses as a percentage of sales were 44.4%
compared to 43.5% in the third quarter of 2003. The  deleveraging  impact on the
expense  ratio that  results  from  negative  comparable  store  sales drove the
percentage increase as expense dollars were actually down $176 thousand.

Depreciation and amortization increased to 1.8% of sales from 1.4% 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 374  stores,  and the  Company is on track to  complete  the
roll-out in the remaining stores by fiscal year end.

Interest expense increased $146 thousand versus the prior year as a result of an
increase  in the  average  debt  outstanding  during  the  quarter  incurred  in
connection  with  funding  construction  of  the  new  distribution  center  and
corporate offices.

Income  tax  expense  decreased  $1.8  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.

Thirty-nine  weeks ended October 31, 2004 compared with Thirty-nine  weeks ended
November 2, 2003

A net loss of $889 thousand,  or ($.05) per diluted share, was recognized in the
first three quarters of the year,  compared with income of $9.8 million, or $.53
per diluted share, in the same period of 2003.

Sales  decreased to $304.8 million from $316.4 million in the same period of the
previous  year  primarily  as the result of a 4.0% 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 51.2% to 48.7% due largely to promotional efforts to
improve the slowing sales,  more aggressive  markdowns to clear inventory before
the end of the  season  and the  impact  of a current  year LIFO  charge of $550
thousand versus a prior year credit of $500 thousand.

Selling, general and administrative expenses as a percentage of sales were 47.2%
compared to 44.7% in the same  period 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  due to  higher  average  outstanding  debt  levels
incurred in connection with funding  construction of the new distribution center
and corporate offices.

Income  tax  expense  decreased  $6.1  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.

                                       12
<PAGE>

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  that provides up to $5 million in letters of credit.
At October 31, 2004,  Hancock had  commitments  under this  arrangement  of $2.1
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 nine months of 2004, an increase in
the Producer Price Index resulted in a LIFO charge of $550,000.  During the same
period of 2003, the company recorded a LIFO credit of $500,000.

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

                                       13
<PAGE>

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     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
    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
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 October
31, 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: 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 third quarter 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
------------------------------------------------------------------------------------------------------------------------

August 2, 2004 through
September 5, 2004                               24            $11.17                      24                  253,813
----------------------------------------------------------------------------------------------------------------------

September 6, 2004 through
October 3, 2004                                  -                 -                       -                  253,813
----------------------------------------------------------------------------------------------------------------------

October 4, 2004 through
October 31, 2004                             1,724            $10.29                   1,724                  252,089
----------------------------------------------------------------------------------------------------------------------


Total                                        1,748            $10.30                   1,748
------------------------------------------------------------------------------------------------------------------------
</TABLE>

      (1)The number of shares  purchased during the third quarter includes 1,724
      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 1,747,911 shares purchased
      under this authorization through October 31, 2004.

ITEM 6: 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

                                       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

                                                Senior Vice President and
                                                  Chief Financial Officer
                                                (Principal Financial and
                                                   Accounting Officer)
December 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:  December 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:  December 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 October 31, 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:  December 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