Floor & Decor Holdings, Inc. Q4 FY2024 earnings call

• Appointment of Brad Paulson: In January 2024, Brad Paulson was appointed as President, bringing nearly two decades of relevant experience in retail, commercial, and service-based organizations. - Store Growth: December 2024 marked the opening of the 250th warehouse format store, with plans to open 25 new warehouse format stores in fiscal 2025. - Comparable Store Sales: Fourth quarter comparable store sales decreased by 0.8%, showing improvement from prior quarters, with factors like existing home sales growth and average ticket comp increase contributing. - Merchandise Initiatives: Plan to expand merchandise offerings, including testing a semi-custom cabinet program, resetting decorative accessories, and expanding outdoor/pool offerings and XL Slab program. - Supply Chain: Monitors tariffs, with efforts to diversify countries of origin and negotiate with vendors to mitigate costs. - Design Services: Design service sales growth accelerated in fiscal 2024, achieving the highest net promoter score for design services. - Spartan Surfaces Focus: In fiscal 2025, Spartan will focus on healthcare, education, senior living, and hospitality sectors, investing in sales representative growth and infrastructure.

Warehouse Format Stores: In fiscal 2024 fourth quarter, total sales increased by 5.7%, while comparable store sales decreased by 0.8%. The company opened 30 new warehouse format stores in fiscal 2024, ending the year with 251 warehouse format stores and 5 design studios in 38 states. For fiscal 2025, it plans to open 25 new warehouse format stores. Connected Customer Sales: Fourth quarter connected customer sales increased by 6% compared to the same period last year, accounting for approximately 18% of sales. Full year connected customer sales rose by 3%, accounting for approximately 19% of sales. Pro Sales: Total sales to pros continued to grow in the fourth quarter of fiscal 2024, accounting for approximately 50% of total sales, with pro-comparable store sales improving sequentially. Spartan Surfaces: Fourth quarter sales declined 17.9% from the same period last year. In fiscal 2024, Spartan Surfaces sales grew by 10.1% to $215.2 million, but EBIT declined 25.4% to $14.3 million.

• Total sales for fiscal 2025 are expected to be in the range of $4.740 billion to $4.900 billion, an increase of 6.5% to 10% from fiscal 2024. - Comparable store sales are estimated to be flat to an increase of 3%. - Gross margin rate is expected to be approximately 43.4% to 43.7%. - Adjusted EBITDA is expected to be approximately $540 million to $575 million. - Diluted earnings per share is estimated to be in the range of $1.80 to $2.10.

• Macroeconomic Conditions: Uncertainty around macroeconomic factors and their impact on the flooring industry. - Weather Impacts: Weather events like snow and forced store shutdowns can affect quarter-to-date business. - Immigration Policy: Potential effects on the contractor workforce, though not currently materially impacting demand. - Tariff Uncertainties: Fluctuations in tariffs, particularly between the U.S. and China, and efforts to mitigate their impact.

Q: Given the slightly weaker performance quarter-to-date, what do you think is driving that, and how have you factored in some of the potential from the change in administration into your outlook for the year?

A: Tom Taylor said the slight slowdown in comp from quarter-to-date versus Q4 is due to weather noise like snow and forced store shutdowns, and it's expected to rebound over time. On immigration policy changes, it's too early to tell if it's impacting demand.

Q: You saw much greater flow through in the fourth quarter than your normal rule of thumb would suggest. So, how telling is that experience moving forward?

A: Tom Taylor said the fourth quarter demonstrated good flow through when sales are better than expected, and Bryan Langley added that when taking out the derivative legal settlement benefit, the natural flow through was in the low 40s, expecting high 30s flow through in 2025 with higher comps.

Q: With the lower cost structure in general, could you help frame whether or not there would be more torque, I guess, on the upside to EPS with a 1% delta in comps?

A: Trevor Lang and Bryan Langley mentioned that with a lower cost structure, at a 5% comp increase, the entire ecosystem starts to lever, and the mature stores are leveraging their environment, with the comp needing to be around 5% for the entire base to lever.