Floor & Decor Holdings, Inc. (FND) Earnings

Management highlights

- Core Operational Performance * Sequential improvement in comparable store sales: declined 5.1% in April, 1.3% in May, and 0.3% in June, with broad geographic improvement: West region delivered positive comps (excluding cannibalization), East region also turned positive on the same basis, and 8 of 16 districts posted positive comps (excluding cannibalization). * Maintained adjusted diluted EPS of 58 cents flat YoY, generated strong free cash flow, and repurchased $65.7 million in common stock during the quarter. * Net promoter scores remain high, driving improved customer conversion; average ticket grew 0.8% YoY, while comparable transaction decline slowed to 2.9% from a 5.5% decline in Q1. - Merchandising Innovation * Launched NatureMatch, a new private label collection across 100 SKUs of porcelain tile, luxury vinyl plank, and waterproof laminate, offering natural material aesthetics at accessible price points to drive customer engagement and cross-category sales. * Penetration of the company's better and best product offerings increased sequentially and YoY, demonstrating sustained adoption of higher-value offerings amid macro pressure. - Store Expansion * Opened 11 new warehouse format stores in H1 2026, including 5 in Q2, bringing 55% of planned 2026 store openings online (ahead of the 35% pace in the prior year, in line with the company's front-loaded opening plan). New stores average ~55,000 square feet, a smaller format suitable for higher-density markets that maintains sales productivity. Remaining 2026 openings are weighted to Q4. - Omnichannel & Digital Transformation * Launched an 18-24 month omnichannel transformation to modernize digital capabilities and create a more seamless online/in-store experience, centered on the distinct needs of pros and homeowners. The new Pro app launching in 2027 will integrate purchasing, loyalty, pricing, and project management to build a differentiated value proposition for pro customers. - Commercial Growth Initiatives * Expanded the Regional Commercial Account Managers (RAM) team to 80 associates to increase commercial customer coverage and pursue non-specified commercial growth; the focus will now shift to improving RAM productivity through better infrastructure, training, and analytics to build a scalable commercial organization.

Guidance

- Overall fiscal 2026 guidance was upwardly revised for adjusted diluted EPS following a better-than-expected Q2, while comparable store sales guidance was maintained at the original range amid ongoing macro uncertainty. * Total sales: Expected in the range of $4.77 billion to $4.99 billion, representing 1.8% to 6.5% YoY growth; the 53rd fiscal week (in Q4 2026) is expected to add ~$65 million in sales. * Comparable store sales: Maintained guidance of flat to a 4% decline; management expresses high confidence in achieving the midpoint of the range despite the wide band, which was retained to account for ongoing macro uncertainty. * Average ticket: Expected to be flat to up low single digits; comparable transactions expected to be down low to mid-single digits. * Adjusted gross margin: Expected to be 43.6% to 43.8%, with Q1 2026's 44.0% gross margin expected to be the full-year high. * SG&A as a percentage of sales: Expected to be ~38%. * Adjusted EBITDA: Expected to be $550 million to $585 billion, with the 53rd week contributing ~$11 million. * Adjusted diluted EPS: Expected to be $1.88 to $2.13, with the 53rd week contributing ~$0.08, implying a 52-week adjusted diluted EPS of $1.80 to $2.05 (an upward revision from prior guidance). * Capital expenditures: Expected to be $240 million to $275 million.

Segment performance

Overall: Total sales increased 3% YoY to $1.25 billion, with comparable store sales declining 2.1% (an improvement from a 3.7% decline in Q1 2026). Pro customer sales grew ~4% YoY, accounting for 55% of total company sales. Omnichannel: Online sales penetration reached 20.3% of total sales, up from 18.6% YoY and 110 basis points sequentially from Q1. Merchandising categories: 1) Installation materials: Delivered strong YoY growth, outperforming the company overall, driven by growing pro market share. 2) Tile: Outperformed company average, with the VEDA Elements Collection continuing to resonate with customers, and remained the company's largest category. 3) Wood: Outperformed company average, with growth driven by market share gains in engineered and unfinished wood and Acoustic Wall Panels. 4) Vinyl flooring: Comparable store and square footage sales improved sequentially, but the category continues to face pressure from slowing demand and excess industry supply, with weakness expected to continue into 2027. Spartan Services (commercial segment): Q2 sales increased 2% YoY, with results improving sequentially from Q1. June 2026 posted one of the strongest monthly written sales in the company's history, and backlogs recovered from 2025 H2 lows, with strong backlog exiting Q2.

Risks & headwinds

- Demand for large discretionary flooring projects remains soft and constrained by ongoing low existing home sales (near 4 million annualized units, a historic low) and poor housing affordability, creating ongoing macro uncertainty for sales performance. * Persistent inflationary pressures and potential changes to import tariffs continue to influence consumer behavior and input costs. * Excess industry supply in the vinyl flooring category is expected to keep pricing and demand pressure on the category through at least the first half of 2027. * Easy year-over-year comparisons are complicated by storm-related sales benefits in the year-ago period, adding noise to back half performance metrics.

Analyst Q&A

• Q: What is the full-year scope of the IEPA tariff refunds, how will the company deploy the proceeds, and did it contribute to June's improved performance? /

  A: The company filed for $87 million in total refunds, and has received substantially all cash as of after quarter-end. A $56 million one-time benefit was recognized for already sold inventory, while $28 million was recorded as a reduction to the carrying value of on-hand inventory, with the majority of that benefit to be recognized in the 2026 back half as inventory sells through. The proceeds will be used to offset inflationary headwinds from oil and supply chain costs, selectively invest in pricing to drive market share gains where there is demand elasticity, fund growth initiatives including store openings, and return excess cash to shareholders via share repurchases. (396 characters)

• Q: Why is the comparable store sales guidance range still wide, despite recent sequential improvement, and what should be expected for back half performance? /

  A: Management intentionally retained the original wider guidance range (flat to down 4%) because of persistent macro uncertainty. While the company is seeing ongoing sequential improvement and is confident in achieving the midpoint of the range, year-over-year comparisons are noisy due to storm-related sales benefits in the prior year period. On a three-year stacked basis, management expects the high end and midpoint of back half comps to increase sequentially from Q2, with only the low end expected to see a slight sequential decrease. (387 characters)

• Q: What is driving weakness in the laminate and vinyl category, and what is the outlook for pricing and performance? /

  A: Downward pressure in the category is almost entirely concentrated in vinyl, caused by excess industry supply that has devalued product across good-better-best tiering, with pressure expected to persist through at least the first half of 2027. Outside of this category, the broader pricing environment remains rational, with no disruptive promotional activity from competitors. The company has responded with three key initiatives: aggressive targeted pricing where elasticity exists, strategic opportunity buys to fill assortment gaps, and a full assortment reset to address market shifts, which has already driven sequential improvement in the category's performance. (421 characters)

• Q: Is the recent sequential improvement an industry inflection, or is it driven by Floor & Decor's own initiatives driving market share gains? Why is pro sales outperforming DIY? /

  A: It is too early to call a broader industry demand bottom, as 60% of the market is made up of private independent retailers with no public performance data. However, Floor & Decor's own initiatives are clearly paying off and accelerating market share gains. Pro customers, who make up 55% of sales and influence up to 20% of remaining DIY sales, are a core strategic focus; strong growth in high-traffic installation materials is driving more pro footfall, creating cross-selling opportunities for other categories, and new store expansion continues to improve convenience for pro customers, driving the segment's outperformance. (419 characters)