Floor & Decor Holdings, Inc. Q1 FY2025 earnings call

• CEO Tom Taylor mentioned that first quarter results exceeded the low end of earnings expectations despite comparable store sales being at the lower end of forecast. They are operating in an uncertain economic environment and have strategies to address tariffs, including forming a tariff Steering Committee, negotiating with vendors, diversifying sourcing, considering price increases, and focusing on American made products. China's contribution to products sold has declined significantly over the years.
• President Brad Paulsen discussed comparable store sales by region, with the West Division outperforming. Second quarter quarter-to-date comparable store sales increased, and adjacent categories expanded with a semi-custom cabinet program. Connected customer sales grew, and design services maintained strong momentum. Sales to Pros continued to grow, and commercial business faced economic uncertainty but Spartan Surfaces showed growth.
• CFO Bryan Langley talked about financial performance, with gross profit rising due to sales growth and gross margin rate increase. Selling and store operating expenses increased but were offset by some factors. General and administrative expenses increased due to store growth investments. Balance sheet and liquidity were strong, with unrestricted liquidity of $949.8 million at the end of the first quarter.

Fiscal 2025 first quarter total sales increased by 5.8% to $1.161 billion. Diluted earnings per share were $0.45, compared to $0.46 per share in the same period last year. Comparable store sales in the first quarter decreased by 1.8% from the same period last year, with the West Division outperforming the company's 1.8% decline. By month, comparable store sales declined by 1.4% in January, 1.5% in February, and 2.2% in March. The first quarter benefit from Hurricanes Helene and Milton to comparable store sales was approximately 100 basis points, and the adverse impact of winter storms was approximately 50 basis points. In the second quarter of fiscal 2025, quarter-to-date comparable store sales increased by 1.1%. Among major merchandise categories, first quarter sales growth was strongest in laminate, luxury vinyl plank, wood, installation materials, and adjacent categories. Connected customer sales increased by 2.1% from the same period last year, accounting for approximately 18.3% of sales. Sales and comparable store sales to Pros continued to grow, accounting for approximately 50% of total sales. Spartan Surfaces' first quarter fiscal 2025 sales increased by 3.8% from the same period last year, with EBIT increasing by 1.7% from the same period last year.

Floor & Decor Holdings' 2025 fiscal first quarter earnings call includes guidance updates. Total sales are expected to range from $4.66 billion to $4.80 billion, a 5%-8% increase from fiscal 2024. Comparable store sales are estimated to be down 2% to up 1%. Average ticket comp is expected to be low to mid-single digits growth, transaction comp down low to mid-single digits. Gross margin rate is projected at 43.5%-43.8%. Selling and store operating expenses as a percentage of sales are estimated at 31.5%-32%. General and administrative expenses as a percentage of sales are estimated at 6%. Adjusted EBITDA is expected to be $520 million to $560 million. Diluted earnings per share is estimated in the range of $1.70 to $2. Capital expenditures are planned to be $310 million to $360 million.

• Economic environment uncertainty with high volatility, lack of clarity, and tail risk of recession.
• Tariff complexity and challenges, including potential higher incremental tariffs, impact on competitors, and China sourcing diversification risks.
• Commercial market uncertainty due to economic slowdown affecting project starts and quotes.
• Supply chain risks related to global supply chain changes and product availability.

Q: Follow-up on guidance and tariff impact, specifically on how to offset tariff impact and China sourcing diversification.

A: Tom Taylor said merchants have dealt with tariffs before, made progress in diversifying outside China, and can offset impact with price increases and maintaining spreads. Brad Paulsen added that average ticket comp incorporates modest retail. Bryan Langley said diversifying outside China helps expand gross margin.

Q: Perception of business weakening and guidance reduction. Why is that wrong?

A: Tom Taylor said they control what they can, have experience dealing with tariffs, and have plans to manage costs. Bryan Langley said guidance assumes different scenarios and they are being prudent, with Q1 sales towards the low end of guidance and Q2 showing improvement.

Q: On store unit growth, how 20 was arrived at and criteria for further reduction.

A: Bryan Langley said 20 was initial, no evidence to go lower yet, but if business deteriorates beyond the low end of guidance, they can reduce store count further.

Q: On Q2 pickup, quarter-to-date, and tariff price increase. Why top line outlook lower.

A: Tom Taylor said price increases can be net positive for sales, and back half outlook is considered. Bryan Langley said pickup was in ticket and transactions, not pull forward.

Q: On sourcing structural advantage post-tariff world. Does it diminish?

A: Bryan Langley said they are buying from more countries now, Ersan Sayman added that US production can't satisfy demand and buying from around the world is still an advantage.

Q: On gross margin maintenance and ranking of factors. How to maintain gross margin.

A: Tom Taylor said factors include better costs, consumer buying up in assortments, supply chain cost benefits, design sales, and price as a lever.