Floor & Decor Holdings, Inc. Q2 FY2025 earnings call

• New warehouse format store growth: Opened 3 new warehouse format stores in the second quarter of fiscal 2025, with year-to-date opening of 7 new ones, ending the quarter with 257 locations, on track to open 20 new ones in fiscal 2025 and at least 20 in 2026. - Tariff mitigation: Actively negotiate with vendors, execute product diversification and sourcing strategies, apply balanced portfolio approach to product price. - Connected customer and design services: Connected customer sales rose by 2% year-over-year, design services delivered strong sequential and year-over-year sales growth. - Pro sales: Total and comparable store sales to pro's outpaced overall growth, with pro Net Promoter Score increasing, and pro service managers engaging pros in the field. - Commercial business: Spartan Surfaces showed strong performance, with focus on certain sectors like health care, education, etc., and investments in sales force.

For the second quarter of fiscal 2025, diluted earnings per share increased by 11.5% to $0.58. Sales for the quarter rose by 7.1% to $1.214 billion. Comparable store sales increased by 0.4%. Connected customer sales rose by 2% year-over-year, now accounting for approximately 19% of sales. Total and comparable store sales to pro's once again outpaced the company's overall growth, accounting for approximately 50% of sales. Spartan Surfaces delivered stronger-than-expected sales and EBIT results for the second quarter of fiscal 2025 with sales rising approximately 7% year-over-year, notably with June marking the strongest month in the company's history.

• Total sales expected to be in the range of $4.660 billion to $4.750 billion, increased by 5% to 7% from fiscal 2024. - Comparable store sales estimated to be down 2% to flat. - Average ticket comp estimated to be up low to mid-single digits. - Transaction comp estimated to be down low to mid-single digits. - Gross margin rate expected to be approximately 43.5% to 43.7%. - Capital expenditures planned to be in the range of $280 million to $320 million.

• Impact of tariffs on products. - Economic uncertainty and housing market underperformance relative to expectations. - Cost pressure from new distribution centers.

Q: Curious on how much of that was tariff-induced pricing increases versus any sort of trade up to better and best, as you mentioned. And then going off of that, it seems like the narrative so far has been low to mid-single price increases with the expectation to go higher as the year goes on. How are you thinking about price throughout the year given your inventory cycle? And any chance to come in higher than the low to mid-single-digit ticket comp?

A: A lot of questions in there. This is Tom. I will do my best. If I miss something, one of the team will jump in. I would say for the second quarter that we just finished, much of the benefit that came in average ticket came from mix. Our best performing department is wood, which carries a higher average ticket. So that effect helped us. Additionally, the price changes that we did in the second quarter were not material. We took some prices up, took some prices down. So I would say between wood and between better and best and minor price increase would have affected ticket in the second quarter. We will take some price in the back half of the year. We don't believe it will be that modest with what we know today. Things could change. But with what we know today about tariffs, we think we've done a good job in mitigating a lot of it through moving SKUs into negotiating with our vendors will take some modest price increases. But we think we'll be able to manage it fairly well.

Q: Two parts to my first question. The second half implied negative. And I think, Bryan, you just clarified a little bit on the fourth quarter. Curious if you'd be willing to react to a consensus number for '26. I know it's early. I think the consensus is showing 4%. And thinking about the macro maybe not changing or getting better, tariffs, which should help in the immature stores, just thinking about the natural curve of the progression of this business, how would you react to that 4% number that's out there right now?

A: So this is Tom. I guess, this one is for me. Yes. All right. So it's a little too early to react to 2026. We continue to hope that we see some improvement in existing home sales. I mean we're just not seeing that yet. If you look at the last release on existing home sales of 3.93 million annualized. Rates continue to hover between 6.6% to 6.9%, making household affordability and turnover a bit of a challenge. So it's too early to know. You're right, we'll get some benefit out of our new store maturing. Those things will work in our favor. We'll be lapping easier numbers. Those things work in our favor. We'll have to take some price because of tariff. Those things work in our favor. But all that said, it's too -- little too early to react to next year's guide -- not next year's guide, next year's consensus.