Floor & Decor Holdings, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights:

• Appointment: Brad Paulsen appointed CEO effective fiscal 2026, Tom Taylor to become Executive Chair.
• Earnings: Fiscal 2025 Q3 diluted EPS $0.53, up 10.4% y/y. Total sales up 5.5%. Comparable store sales down 1.2%. Disciplined expense management and highest Net Promoter Scores in September.
• Store Growth: Opened 5 new stores in Q3, 12 YTD; on track to open 20 in fiscal 2025 and 20 in 2026. Opened 5th distribution center in Seattle. Reduced new store construction costs.
• Sales Details: Comparable store sales declined in Q3 and YTD Q4; product mix impacted average ticket. Design services and Pro sales grew.
• Financials: Gross margin rate 43.4%, down 10bps. Selling and store operating expenses up 7.3%. General and administrative expenses flat. Adjusted EBITDA up 4.4%.

Segment Performance:

• Total sales grew 5.5% to $1.180 billion in fiscal 2025 third quarter. Comparable store sales declined 1.2%.
• Design services delivered robust year-over-year sales growth, with total and comparable store sales outperforming the company. Connected customer sales rose 2% year-over-year, representing 18.8% of total sales.
• Sales to Pro customers rose year-over-year, modestly outpacing overall company growth and representing approximately 50% of total sales. Comparable store sales for Pros were essentially flat, while homeowners' comparable store sales showed sequential improvement.
• Spartan Surfaces delivered 13.3% year-over-year sales growth in the third quarter amid softness in commercial multifamily housing projects.

Guidance:

• Fiscal 2025 Outlook: Total sales expected $4.660B - $4.710B (+5%-6% y/y). Plan to open 20 new stores. Comparable store sales down 2%-1%. Average ticket comp up low single digits. Transaction comp down low to mid-single digits. Gross margin rate ~43.6%-43.7%. Selling and store operating expenses ~31.5% of sales. General and administrative expenses ~6%. Preopening expenses ~0.6% of sales. Interest expense net ~$4M. Tax rate ~21%. Adjusted EBITDA ~$530M - $545M. Diluted EPS ~$1.87 - $1.97.

Risks:

• Housing Market: Persistent softness, high mortgage rates, low existing home sales.
• Competition: Industry-wide decline, but Floor & Decor's growth outpacing competitors in smaller markets.
• Distribution Centers: Impact on gross margin from new distribution centers.

Q: Perception of timing of recovery and core store growth opportunity.

A: Tom says Brad is the right guy to lead the next chapter, new store productivity in trough, class of 2026 in mid-tier/top-tier markets.

Q: Home equity lines of credit and flooring.

A: Tom says home equity lines up good for home improvement, early to tell but green shoots in regions.

Q: New store performance slowdown cause.

A: Tom says contracting industry, competitors worse, when market turns new stores will improve.

Q: Pricing changes and consumer response.

A: Tom says modest price increases, better and best products outperform, consumers buying more expensive products but less square footage.

Q: Commercial build vs buy.

A: Tom says pushed Spartan to invest, Brad talks about building Pro desk and RAM team.

Q: Design services top of mind.

A: Tom says better marketing, telling story, designers roaming store; Brad says driving awareness, focusing on quote follow-up.

Q: Ad spend and brand awareness.

A: Brad says investing in telling story, tactical with spend, staying ahead of tech changes.

Q: Labor inflation.

A: Tom says not dealing with labor inflation, contractors aggressive.

Q: Average ticket mix.

A: Bradley says mix shift in laminate/vinyl (lower ticket), job size tick down; Bryan says Q4 ticket implied flat, transactions low to mid-single digits.