Floor & Decor Holdings, Inc. (FND) Earnings

Management highlights

- Capital allocation: Board authorized share repurchase program for up to 400 million. Prioritize opening new stores, investing in existing stores and commercial flooring platforms, then return excess capital to shareholders. - First quarter results: Teams executed strategy in challenging demand environment. Comparable store sales impacted by adverse weather, but some departments outperformed. West region outperformed, certain merchandise categories had strong performance. Connected customer sales growing. - New store expansion: Opened six new warehouse format stores in first quarter, on track to open 20 in fiscal 2026, with development in Tier 1 and Tier 2 markets. Focus on improving new store productivity and investing in pro loyalty program and B2B platform. - Spartan Services: First quarter results weaker than expected but positioned for gradual improvement as opportunities convert and backlog is released. - Cost management: Align store labor hours with sales trends, manage distribution and call center expenses, tighten discretionary spending.

Guidance

- Sales expected to be in range of $4,770,000,000 to $4,990,000,000, up 1.8% to 6.5% from fiscal 2025, 53rd week expected to contribute ~$65 million. - Comparable store sales estimated flat to down 4%, comp average ticket flat to up low single digits, comp transactions down low to mid single digits. - Gross margin expected to be ~43.6% to 43.8%, first quarter gross margin of 44.0% likely high point. - SG&A as percentage of sales estimated ~38.0%. - Interest expense net expected ~$4 million. - Tax rate expected ~22.5% to 23.0%. - Depreciation and amortization expected ~$250 million. - Adjusted EBITDA expected ~$545 million to $580 million, 53rd week expected to contribute ~$11 million. - Diluted earnings per share estimated ~$1.83 to $2.08 per share, 53rd week expected to contribute ~8 cents, 52-week diluted EPS ~$1.75 to $2. - CapEx estimated ~250 million to 300 million, unchanged from prior guidance.

Segment performance

In fiscal 2026 first quarter, total sales decreased 0.7% to $1,152,000,000, comparable store sales declined 3.7%. Decline in comparable store sales was driven by 5.5% decrease in transactions (adverse weather accounted for 150 - 200 basis points of pressure) partially offset by 1.9% increase in average ticket. West region outperformed with positive comparable store sales excluding new store cannibalization; east and south regions were weakest. Four departments outperformed: installation materials, tile, decorative accessories, wood. Connected customer sales grew 5.4% year over year, representing ~19% of total sales. Spartan Services' first quarter sales and earnings were weaker than expected but customer engagement was solid. Gross profit decreased 0.7 million or 0.1% compared to same period last year, gross margin increased to 44.0% from 43.8%, SG&A expenses increased 11.1 million or 2.5%, operating income declined 18.4%, adjusted EBITDA declined 6.4%.

Risks & headwinds

- Broader economic and capital markets uncertainty, particularly within home improvement, could cause actual future results to differ from forward-looking statements. - Adverse weather conditions can impact sales. - Uncertainty in existing home sales and consumer reluctance towards big-ticket discretionary purchases can affect financial performance. - Rising energy costs and domestic logistics expenses can impact gross margin. - Geopolitical tensions in the Middle East can lead to higher gas prices and further weigh on consumer sentiment.

Analyst Q&A

• Q: When you look at the category trends, especially laminate and vinyl underperforming, what's the perspective?

  A: Shift in consumer preference to lower quality spec and price point sub $2. Team has taken quick action, expects category to be under pressure but aims to take share.

• Q: On EPS sensitivity to sales shortfall and higher energy/logistic costs, how is it?

  A: Higher energy costs have modest impact on gross margin rate, actions taken to offset, historically 10 cents per comp point but current environment has led to adjustments.

• Q: On store opening decision despite weaker demand, why?

  A: View new store openings as priority, encouraged by initial results in opened stores, focus on Tier 1 and Tier 2 markets, optimized store layout doesn't sacrifice experience or assortment.

• Q: On guidance change, why lower at this point?

  A: Unexpected events since last call changed demand environment, so prudent to recalibrate with wider range of potential outcomes.

• Q: On market share, are you seeing gain?

  A: Don't see losing share, feel good about position in other categories, feedback from vendors and public data support this.

• Q: On freight contracts renew and input cost inflation, how?

  A: Ocean contracts renegotiated now, take time to bleed through P&L; domestic costs quicker. PVC input cost inflation currently minimal, will negotiate with vendors and diversify if needed.

• Q: On pro loyalty revamp, any new features?

  A: Details not shared yet, but program led by chief customer officer, aims to be comprehensive for pro customers.

• Q: On buyback, how aggressive?

  A: Discretionary repurchase program, will do programmatic and opportunistic purchases, plan to start in second quarter.

• Q: On Spartan, timing of better results?

  A: First quarter softer than expected, but leading indicators show gradual improvement as opportunities convert and backlog is released.

• Q: On pro-specific pricing and smaller format stores, stance on installation?

  A: No deviation from previous strategy on installation services.

• Q: On expanding loyalty program to external interior design trade?

  A: View as opportunity, will see framework later in year.

• Q: On pricing actions influencing ticket, how?

  A: Flat to low single digit ticket comp influenced by pressure in laminate and vinyl and value-driven options.

• Q: On buyback and cash needs, clarification on share count and minimum cash?

  A: Share repurchase impact not material in current guidance, minimum liquidity considered around 500 million, will not use debt to fund buyback and maintain healthy leverage ratio.