Floor & Decor Holdings, Inc. Q3 FY2026 earnings call

• Pro Business Growth: Pro penetration increased to 55% (from 50% YoY). Pro sales growth accelerated, with September seeing 9% growth. The new Pro Loyalty program is in pilot in select markets, with a national launch targeted for Q1 2027.
• Store Expansion Strategy: Opened 12 warehouse stores in the first three quarters. Plan to open 8 more in Q4, totaling 20 for fiscal 2026. For 2027, management plans to moderate openings to 10-15 stores due to macroeconomic headwinds, though the long-term goal of 500 stores remains unchanged.
• Digital & Omnichannel: Online penetration reached 20.3%, up 150 basis points YoY. Site conversion improved by 380 basis points.
• Commercial Sales: Commercial Regional Account Managers (RAMs) showed positive momentum with increasing sales per rep and broad-based improvements in managed account comparable sales.
• Spartan Surfaces: Sales increased approximately 6% year-over-year, driven by continued momentum in key verticals despite mixed commercial conditions.
• Board Updates: Norman Axelrod will not stand for re-election. Tom Taylor will transition from Executive Chair to Chair effective Jan 1, 2027. Lauren Taylor-Wolfe will join as an independent director.

Total sales increased 3% to $1,214.6 million. Comparable store sales declined 1.4%, improving sequentially from prior quarters. Tile (23% of sales) grew 5%. Installation materials (22% of sales) grew 10%. Laminate and vinyl flooring (23% of sales) saw sequential improvement but remained negative year-over-year. Wood products also outperformed the company average.

• Full-year sales expected at $4,765 million to $4,835 million (2% to 3% increase), including ~$65 million contribution from the 53rd week.
• Comparable store sales estimated down 3.5% to down 2.0%; average ticket up low single digits; transactions down mid single digits.
• Adjusted gross margin expected at approximately 43.6%.
• SG&A as a percentage of sales estimated at approximately 38.5%.
• Tax rate expected at 21.5% to 22.0% (down from previous guidance).
• Diluted EPS estimated at $2.19 to $2.29; Adjusted diluted EPS at $1.88 to $1.98.
• Adjusted EBITDA expected at $535 million to $550 million.
• Capital expenditures estimated at $235 million to $250 million.

• Macroeconomic Headwinds: High 30-year mortgage rates (>7%) and subdued existing home sales are pressuring demand for big-ticket discretionary projects.
• Supply Chain Costs: Record-high diesel fuel prices created a significant headwind (~100 bps) to gross margins in Q3, with further pressure anticipated in Q4.
• Consumer Sentiment: Higher energy costs and inflationary pressures continue to weigh on household budgets and selective spending habits.
• Housing Market Weakness: Continued weakness in both existing and new home sales limits total addressable market growth.

Q: Analyst asked about LBT category pricing strategy and whether price cuts would be used to boost velocity.

A: Management stated they are taking 'surgical' price investments only where elasticity exists, supported by new SKUs and special buys. While progress is being made (declines narrowing from -10.4% in Q1 to flat in Q3), the category remains pressured due to supply overhang, which is expected to persist until existing home sales improve. They do not plan broad price reductions but are using tariff refunds to fund strategic pricing and absorb supply chain costs.

Q: Analyst asked if the company would protect profit margins if housing demand does not recover.

A: CEO Brad Paulsen emphasized a 'balanced' approach, protecting profitability while investing surgically in areas with proven price elasticity. CFO Bryan Langley highlighted operational flexibility, noting that labor hours can be flexed (70% naturally with transactions) without sacrificing customer service scores, which remain at all-time highs. The company has taken out nearly $100M in comp store expenses since late 2023 and will continue to align G&A to the environment.

Q: Analyst asked about the investment timeline and financial impact of the Pro Loyalty program.

A: Management confirmed the program is in beta testing in three markets with positive early feedback regarding customer understanding and value perception. It is scheduled for a national launch in Q1 2027. The program is modeled to be a slight headwind to gross margin rate initially but is expected to drive incremental volume and share-of-wallet, ultimately becoming accretive to operating income over time. Ramp-up will be gradual, not immediate.

Q: Analyst asked if the reduction in 2027 store openings (to 10-15) signals a permanent change or just pacing.

A: CEO clarified this is strictly a pacing decision, not a change in the long-term commitment to 500 stores. The slowdown allows the company to focus on higher-return Tier 1/2 urban markets with smaller footprints (55k-65k sq ft) and avoid opening stores in a challenging macro environment. They have no fast-follower competitor, allowing them to wait for better demand signals before re-accelerating growth.

Q: Analyst asked about the impact of AI/agentic commerce on the business.

A: Management acknowledged AI as a transformative technology that is 'top of mind.' While specific implementations are not yet ready to share, they believe their visual category is well-positioned to benefit. The focus is on how agentic tools will evolve the customer journey and drive productivity. They aim to be leaders in adopting these technologies to enhance engagement and decision-making tools for customers.