Q1 2020 Earnings Call
[music].
Greetings and welcome to floor and decor holdings Inc. first quarter 2020 earnings call.
At this time, all participants are in listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Wayne Hood, Vice President of Investor Relations. Thank you you may begin. Thank you operator, and good morning, everyone. Joining me on our.
Oh I'm.
I'm Taylor, Chief Executive Officer, Lisa lobby, President and Trevor for language and Chief Financial Officer.
Before.
Language.
Comments made during this conference call and webcast contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties any statement that refers to expectations projections or other characterizations of future events, including financial projections.
Our future market conditions in the forward looking statement the company's actual future results could differ materially from those expressed in such forward looking statement for any reason.
Clearly those listed in the SEC filings warrant a core assumes no obligation to update any such forward looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call. The company will discuss non-GAAP financial measures as defined by FCC regulation G. We believe non.
GAAP disclosure disclosures enable investors to better understand our core operating performance on a comparable basis between periods. A reconciliation of each of these non-GAAP measures to the most directly comparable GAAP financial measure can be found in our earnings press release, which is available on our Investor Relations website at <unk>.
Our dot floor <unk> decor dotcom a record recorded replay of this call together with related materials will be available on our Investor Relations website, Let me I'll turn the call over to Tom.
Thank you Wayne and thanks to everyone for taking the time to join US on our first quarter 2020 earnings conference call.
Where we get started I just want to thank our entire flow into core team, particularly our store associates. They havent Suzy ethically come together in a way to protect the health and safety of all of our associates and customers their efforts have truly been inspirational and our real Testament to the culture of our organization.
Which continues to rise to the occasion to face new challenges that have been placed in front of men the global spread of the novel Corona virus pandemic and the subsequent economic impacts we are facing is truly unprecedented.
On today's call I will discuss some of the highlights of our first quarter 2020 earnings results and then spend more time discussing some of the operational changes that we're making in our stores and store support center to enable us to continue to serve our pro and do it yourself customers and retain sales during this challenging and uncertain time I will.
Discuss in more detail, how we're building on our successful and convenient curbside pickup model that we pivoted to in March by adding pro appointments and are now rolling it out across the country.
Additionally, I will touch on a limited customer entry approach that is happening in two of our Utah stores today, we do see a path forward to restoring growth against the challenging headwinds that we and others are facing we're encouraged by the impact all of our strategies are now having on our sales trends and to the response from our pro appointment strategy.
And White Glove service it offers that sets us apart.
All of our actions have been and we'll continue to be taken with an eye towards first protecting the health and safety of our associates and customers later, Trevor will review, our first quarter financial performance in more detail.
And then discuss how we're managing our liquidity cash flow and profitability in a way that not only bridges us through the cobot 19 pandemic, but ensures we are well positioned on the other side.
Strengths of our balance sheet and access to liquidity enables us to continue to provide our customers quality trend right assortments at the lowest possible price. This is this will directly contribute to further market share growth in 2020 and beyond as consolidation in the hard surface flooring industry likely accelerates as many independent floor.
Retailers may struggle to maintain liquidity in this unprecedented time.
Let me start with our first quarter earnings.
As you saw in our press release, our fiscal 2021st quarter sales increased 16.3% to 554.9 million in our comparable store sales grew 2.4%.
Our first quarter comparable store transactions declined 1% and our comparable store average ticket increased 3.4% prior to the last six days a fiscal March which is our largest sales month of the quarter. We were pleased that our quarter to date comparable store sales grew 6.1% inline with our expectations the growth during that.
Period reflected a 3.4% increase and comparable store transactions and a 2.7% growth and comparable store average ticket.
We are pleased with our first quarter 2020 sales results, considering we experienced a sharp unexpected 46% decline in comparable store sales in the last six days a physical March as the impact from Cobot 19 pandemic broadened to more of our markets.
In response to the pandemic, we proactively began limiting our store operations to convenient curbside pickup on March 20, Onest and in some cases, we were forced to completely closed stores. Despite the unexpected sales declines in late March we are pleased that our first quarter fiscal 2000.
20, GAAP diluted earnings per share increased 20.7% 35 cents from 29 cents in the first quarter of 2019, primarily due to a favorable gross margin and lower than planned corporate expense, our first quarter adjusted diluted earnings per share Inc.
317.2% to 34 cents from 29 cents in the first quarter of 2019 at the high end of our expectations.
Now, let me discuss in more detail some of the near term operational changes that we have made during this period of uncertainty in late March we assembled cross functional leaders to develop strategies and procedures designed to.
Quickly adjust our operating model, while implementing safety protocols for our associates and customers.
Relations or in some cases are completely closed as a point of reference we had as many as 33 warehouse stores or 26.8% of the company completely closed at some point in late March today. There are only four warehouse stores that are completely closed the remaining stores are open with shortened operating.
Hours for convenient herbicide product pickup.
A product which can be ordered.
Online via phone or through our.
With appropriate occupancy limits.
As local conditions change, we intend to do this across the U.S.
At this juncture it is difficult for us to know when our stores will return to full operations. We do expect our reopenings will be staggered and dictated by local state and government authority.
40.
Yes, and health officials mandates because we do expect our stores to eventually opened to full operations. We have chosen to protect our full time associates from furlough, albeit they are working reduced hours all four of our distribution centers are open and fully supporting our stores today, including shipping personal protective.
The equipment to our stores nearly all of our store support center associates are supporting our stores remotely, which speaks to the strength of our business continuity plants.
The curbside model that we pivoted to in March focuses on our strengths as customers answer our parking lot. There will be met by agreed or outside who will qualify the needs of that customer once the needs are.
Chairman.
The customer sent to a designated area to be served are loaded.
Additionally, we moved a small selection of bulk out installation materials outside and added designated runners that can quickly grab samples in the store, thereby making it more convenient and safer for our customers in fact, many process, but like us to maintain this level of concierge service post the impact of the pandemic.
We strongly believe that our pros will remember how we're helping them to continue to operate their business.
During this challenging period. It is exactly during these challenging periods that we believe we can build on our brand awareness. We have moved most of our best selling skews outside and believe our large rolling inspirational merchandising fixtures give us a unique competitive advantage as they allowed us to.
Easily move our great displays outside this is particularly important when we are displaying luxury vinyl plank large format tile.
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Designer picks and other hard surface flooring products.
Finally.
<unk> three new warehouse stores in the first quarter of 2020, including new warehouse stores in the Cantor and Sacramento, California, and Algonquin, Illinois, the first quarter openings brought the total number of warehouse stores that we operate to 123 stores up 19.4% from 103 stores at the end of the for.
Quarter 2019.
We had originally planned to open to more stores in late March but due to the pandemic, we have delayed those openings the pandemic, which has caused state and local restrictions on new construction, which is forced us to push some of our new store openings to later in the year or into 2021.
For the fiscal Twoq 2020 full year, we now believe it is financially prudent to temporarily slow our new store growth when we consider all over the near term headwinds caused by the cobot 19 pandemic to that end, we now anticipate you know.
When 11 warehouse stores and a design store pilot in Dallas in Twentytwenty compared with our prior prior plan of 24, new warehouse stores and a design store pilot.
We are taking a partnership approach with our landlords and we are engaged with them to discuss near term rent deferments, we can't be specific about these fluid negotiations, but we are encouraged that our landlord partners are sympathetic to the challenges, we and others are facing with reduced to store operations and close to stores.
That said, we are leveraging our legal options under our lease agreements and renegotiating locations with on executed leases I think most of our landlords recognize that we're one of the few retailers that have plans to open stores over the long run and want to work with US as attended of choice Trevor will cover in his remarks the capital spend.
<unk> cost outs savings that we expect from the temporary reduction in new store openings.
Moving onto our comparable store sales as concern about the cobot 19 pandemic mounted in March we were still seen pros continuing to shop with us. Despite other parts of the economy that we're beginning to shutdown.
So we were pleased that our first quarter comparable store sales grew 6.1% through Friday March Twentyth that change during the last six days of the quarter, where we experienced a 46% decline in comparable store sales as we were forced to close stores, reducing our operating hours and shift to curbside pickup.
While it is not our normal practice to provide intra quarter sales information, we do want to share that our second quarter to date comparable store sales have declined 50%.
While none of US are satisfied with this rate of decline recent trends are slightly slightly improving and we have seen a surge and our sample sales, which tells us customers are interested in flooring projects.
This coupled with our strategies to recapture sales and more phase full store openings in the coming months leaves us optimistic about the further improvements going forward.
Turning to our first quarter sales performance within some of our merchandising categories.
Consistent with previous quarters, our best performing category was our low laminate luxury vinyl plank category, which increased 28.2% and represented 23% of our total.
Sales compared to 20% in the first quarter of last year. This category continues to resonate with our customers added as it has superior technical features is very durable and easy to install we were also pleased with our sales in installation materials, which increased 18.7% and represented 17% of our.
Sales.
The changes we have made and how our installation materials are presented in our improving operating processes is driving sustainable growth in this very important category for our professional customer.
Our adjacent category business, which includes vanities shower doors countertops, and Bath accessories continues to grow and we'll be adding products throughout the year in many of our store locations. While the sales dollar volume in this category is not material today. The growth is strong and we believe it offers incremental growth opportunities.
As I mentioned it has been inspiring to see how our store and store support center associates have enthusiastically rallied together in creative ways.
To meet the unique combination of challenges caused by the cobot 19 pandemic to continue to serve our customers. Let me discuss another example, due to the high demand from our customers to still engaged with our product offering we introduced a virtual design appointment experience in April that is now operating in all of our stores. This is an example of how we are building on our connect.
Good customer strategies, and our stores and designers are excited about this service offering by providing this free live virtual video and Chadick.
Experience, we expand our ability to connect and collaborate with customers that are contemplating a flooring project, but might be under shelter in place restrictions or just prefer the ease of starting their project at home first with a cloud based video conference. This strategy Leverages, our website resources, including our room Visualizer.
My order quote builder and allows our designers to connect with customers while means.
Canyon, social distance distancing guidelines.
Designers can virtually walk customers through a store and share inspirational ideas and collaborate with customers on their desktop browsers and on mobile devices in high definition.
Meetings are easy to schedule through our website and additional participants can be invited.
Also as we have previously discussed when the designers involved and the project our average ticket and margin rate is significantly higher than the company average.
We have modified our advertising spend and messaging we did this with an eye towards letting our pros and do it yourself customers know that our stores are open with banners and yard signs.
And how they can continue to shop with us for hard surface flooring products online or via telephone.
We choose to protect our spending on search social you tube and pinchers as we see customers are still.
Using this media looking for ideas and inspiration.
We have also extended our 18 month no interest credit offering through May 30, Onest, which will give our pros and do it yourself or as an additional line of liquidity for projects.
Additionally in May we will launch are appropriate mere rewards incentive program, where they can earn double and triple points based on their spend we have decided to pause the second quarter 2020 launch of our pro Premier credit card until the operating environment improves.
Florent decor, dotcom and our call center had been critical to staying engaged with our professional and do it yourself customers.
The multiyear investments we have made in our connected customer strategy is paying off to help customers find us educate themselves and be inspired virtually as customers gain comfort and ultimately by online and pick up in stores or have shipped to their job site. Our technology allows for simple and safe social distancing acts.
As to our full product assortment.
As we move to the courts curbside operating model our E. Commerce site has made it very easy for a customer to place an order online and then just pick it up at the store since the model change our ecommerce business is sequentially up 270% and now represents approximately 60% of our company sales.
We have also also invested in the talented call center team and when combined with.
With advanced technology. It has allowed us to flex up and to handle the significant increase in call volume, we're experiencing to help manage the overflow. We added store supports center associates to assist on the phone.
Who are working with customers to help them complete their projects in this new business environment.
Beyond providing critical support during these challenging times our call Center also has emerged as a functional business that drives revenues through its follow up programs, which we began taste and testing late last year.
We continue to make great progress and invested in growing the all important professional and commercial customer base. We continue to find pros cultivate relationships and serve them, while our value message is clear and easy for the professional customer to understand we are open and we are your hard surface flooring supply house. It all starts with substantial quantum.
These of trend right in stock inventory at consistently low prices combined with services such as a dedicated protein free design services free storage, a great loyalty program and credit once pros are identified and input into our proprietary CRM solution, we have many ways to serve and communicate value to them, including.
Through our pro Premier rewards loyalty program email marketing direct communication from our in store pro teams and through our pro App, which continues to be used at higher and higher rates. We are confident these strategies continue to work to simply.
Working with them to safely support them during this challenging time and they like US look forward to us re opening our doors again.
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Hammock outlook and associated sales on it.
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Cost saving measures, we have taken steps to <unk> judiciously Reese size, our costs structure to protect our liquidity profitability and <unk>.
Cash flow during this uncertain period.
Yeah.
Well most of these decisions were difficult for us to make we made them with an eye towards not placing at risk are longer term growth priorities and our competitive position.
In late March we made the difficult decision to re sized our store and store support centre payroll costs in anticipation that sales could continue to decline for some period of time from the cobin 19 pandemic and that a recovery could be slow once the economy begins to reopen.
We were first to four we were forced to furlough about 2000 of our part time associates.
Part time associates account for about 30% of our in store associate hours and our fulltime associates account for the remaining 70 per cent.
We have currently not furloughed, our fulltime store associates, we did reduce their hours to 32 hours from approximately 40 hours per week and our department head hours from 240 hours per week from approximately 45 hours per week as business conditions improve we are prepared to play orphans by flexing up yeah.
Of our fulltime associates, the base salaries of our senior management team as well as other teammates and our store support center, where temporal air reduced by graduated amounts I will not receive a base salary other than the amount that will cover the benefits provided by the company the base salaries for Lisa lobby, our president and Trevor we're both produced by 50%.
Our board of Directors also agreed to temporarily suspend their cash retainers.
Let me close by saying again, how inspiring it has been to see how our store and store support associates have rallied together to the unique combination of challenges caused by the cobot 19 pandemic their tireless and creative efforts have enabled us to continue to serve our customers, particularly our pros that operate small businesses.
We have ended physical 2019, and the first quarter of 2020 in a strong financial position with our sales.
And the quantity at the highest levels in our 20 year history. We believe we have correctly re sized our costs structure and capital spending plans have adequate access to liquidity to bridges through this challenging time, our confidence in the power of our business model and our ability to navigate this crisis is unwavering and we will remain committed to long term.
<unk> growth I will now turn the call over to travel to discuss it more details are first quarter of financial results and how we are thinking about managing our liquidity profitability in cash flow during these unprecedented times.
Let me again by saying that our entire executive leadership team is extremely proud of how we quickly changed our operations challenges that'd be covered night cranberry.
Ethnicity are incredibly talented associates and your best we've made in our business model.
Allergy to enable us to quickly and into a curbside model elaborate <unk>.
It's Tom nature, since we implemented curbside pickup R.E. commerce business about 270% sequentially and now represents 6% of our company sells.
You'd better be amazed copy commerce and changes in our small operation enables to retain significant amount of cells, while our sport or close to the public.
Problems that awfulness.
Resilience, our organization integrated and how they bombed it's even more than before the crisis.
We are confident we will come out of this as a as strong as ever will continue to grow in the future.
<unk> like many other companies have chosen to withdraw or prior sales are you guys outlook statements with respect to the school 2020 as we believe there are just too I know variables that will affect our results I will tell you. We have never worked harder and culture as a team commander business Board Accords Blessed to have an experience board imagine seeing that it's been.
Together for a long time, we believe the short and long term decision. We have made will set us apart and we look <unk> as in the past this pandemic and we will remain strong on the other side of Kobe 19, I'm running again by focusing on how we're managing our.
Castillo profitability during this challenging times and then briefly discuss our first quarter results.
First we were fortunate to have refinanced our terminal facility and our revolving credit facility on February 14th 2020.
Performance conservative leverage and refinance that but isn't the best financial position are 20 year history, including the most accordingly in our history.
<unk> refinancing give them access a high levels of cash at lower costs with maturity date bar in the future money's going out to the features of our credibility they'd give us financial flexibility.
Yeah, the first quarter, because I was 20, we had 144.600 million outstanding under our come on disability.
Maturity date February 14th 2027 are terminal facility.
According to feature that allows us under certain circumstances to increase the size of our facility bottom out up to the greater 270 million or 100 per cent of consolidating with that.
We also could increase the terminals facility by an additional amount under certain conditions, including.
Such an increasingly secure on a parody pursuit basis with loan under the term loan facility up to a consolidated leverage ratio to to have if suddenly disappeared on a junior basis with alone on the terminal at the story up to a consolidated secured leverage ratio three and a half.
Oh man and such increases on security up to a consolidated some of leverage ratio three and a half.
Certain adjustments under certain circumstances, we could also increase our it's all its own leverage four and a half.
<unk> increased the facility of course, Susan <unk> markets are functioning and currently they are albeit at more expensive levels and when we bring negotiator remotes in February.
In conjunction with our term loan.
We also <unk> upside the asset base blending agreement or anybody else. So.
Under a million dollars and it's been admitted maturity date February 14th 2025.
<unk> A.B.L. facility has an accordion feature that allows it increased inside the 500 million or and even higher amount agreed to by Islanders. We can draw on R.A.B.L. So you have to certain percentages are available borrowing base, an inventory and credit card receivables less certain losers as a cautionary proactive measures we drew.
175 million or approximately 80% of what was available on R.A.B.L. facility and late March as an uncertainty in a credit markets like.
And one of the first quarter of 2020, our net debt to a jog dial excluding preopening expenses was 0.5 and 2.7 on at least adjusted leverage basis.
In order for leverage to go to three times, which would not be an aggressive leverage ratio our deck increased by approximately 715 million or six times, our first quarter net deposition, while we have no attention to the bar anywhere near that amount or close to that level. It shows liquidity, we have our model I'd be the first quarter.
I have no materials that maturity and no financial maintenance comments on our senior <unk>.
Maybe on the big started coverage ratio, yeah, <unk>, 90% of available.
We had 375.600 million unrestricted liquidity available to us at the end of March, including 289 million 900, thousands in cash cash equivalent.
<unk> 80, 590, 700000 borrowing under our 80 or so.
We've laid immediate liquidity available to us coupled with our credit facilities and actually we have taken to reduce costs about as the business.
Intermarriage Freudian back to go with 19 is having on our business.
That said, we can think of prudently examine all financing alternatives to ensure we had the greatest possible financial flexibility if needed.
We've also evaluated the terrorist act and the second impact them out of equating financial statements currently anticipate anything from three main factor sections.
First where a million our tax return to take advantage of a temporary five your net operating loss period back allowance and the technical corrections qualified lethal improvements, which changes 30 39 your property the 15 year property eligible for 100% tax bonus depreciation back here.
Back to benefit from a temporary here for all of them pull your payments for social security taxes.
Third we expect benefit from employee retention credits and potentially other provisions within the cares Act, where a finalizing our estimated positive cash flows from the cares that provision and expecting to rather tens of millions in cash in the coming months to further helping liquidity.
I spend a few minutes discussing how we made spending reductions the right size are called structure and protect our cash flow and so we are able to restore stores to pull operations.
We may cost reduction decisions collaborated with all of our leaders with an eye towards reducing or defray costs aggressively in the short term, but also knowing this too shall pass and focusing on maintaining the long tenure full time employee partnerships. We have created over the last decade. So then we will remain evaluate sought after employer and partner.
It was hari and associated supply chain <unk> distribution centers in stores is our largest catch them by far we have good technology into large smart leaders that evaluate or on hand.
In transit or punishment purchases, so that we can quickly adjust or inventory in supply chain purchases, we haven't materials load or imagery purchase orders based on these factors and we believe we are appropriately balancing the current slowed man with our future by themselves and his stock levels.
We have also work with our been department temporarily extend out payment terms to further support our cash flow.
The next been bucket bucket of spending the capital expenditures. It's Tom mentioned, we have slowed are 2020, new store opening plan as long as produced other areas for capital expenditures in response to the curve is 19 pandemic.
Oh capital expenses are currently planned between 147 million to 157 million compared to approximately 255 million between 65 million. We had originally planned.
Based on these changes, we expect our depreciation and amortization to be approximately 90 $193 million in 2020, our plans capital expenditures and appreciation couldn't very materially from our estimates as we are operating in a very unique environment, but this is our current best estimate.
Wherever he each line out and then the P. now and have cut costs judiciously, including temporarily freezing most new hires.
Using our advertising not essential store operating expenses instead of compensation traveling entertainment.
National to use recruiting a new location and new store Preopening expenses.
Yeah proactively working with our landlord partners to reduce our near term store occupancy costs.
Yeah, I'm, creating great relationship to be valued partners over the years and we know they appreciate our collaborative approach.
One of the view retailers, who has been averaging 20% unit grow for the past seven years, we have no strong relationships.
Came to grow new stores, and we noticed has value for a man for the landlord can maybe we also tend to go faster pace in the future when we notice has value.
By the thoughtful and realizing you partners that businesses to run too.
Now as long as in the future.
We have lower our cash expenditure for fiscal 2025 rounds, approximately $400 million.
Lowering our operating expenses by about $100 million or capital expenditure by $110 million and our inventory and associated splashing costs by approximate $190 million.
As previously outlined we're not getting sales and earnings, but our current expectation and modeling support from potential flow through on load cells to be in the 25% to 30% range on our sales below our previous scabs.
While we have model just blow through level in detail. It is difficult to forecast in this environment in our flowed who could be different.
We have taken on some incremental covert 19 expenses that are separate from our normal operations in a call those out <unk> originally and intend to do so so long as their material.
Once upon a foreigner liquidity before I go into our first quarter performance.
Enhanced on already you tell financial models for the rest of 2020, including downside scenarios and stress test another quitting our current abuse is.
<unk> strong throughout 2020.
Yeah.
Approximately 130 250 million of cash from it into the first quarter early dream as our sales will be negatively impacted my covert 19, and as we pay bills that were occurred pre covert 19, as we get past early June we're modeling increasing cash balances due to approve cells, assuming our stores reopens in public and spaces are lower due to signal.
Changes we've made in our culture as previously described.
Forecasting in this environment, obviously difficult, but I'm happy with outperformed on modeling April both from a sales and recording perspective.
Putting ourselves in a position to have enough cash to completely pay off or 80 out in the fourth quarter should we choose to do so.
Let me now turned on 2021st quarter earnings goals are first quarter gross margin rate increase 30 basis points, the 42.5% from 42.2% last year and a slightly above our expectations.
You're you're both marching expansion was largely driven by our product margins modestly offset from our distribution center costs related to our new Baltimore distribution center that open in the fourth quarter of 2019 improve product margin reflects the benefit of low cost from the elimination of certain terrorists as well as merchandising strategies to improve product gross margin.
According to our first quarter 2020 expenses are first quarter, Sally and store operating expenses increased 20.2% 253.100 million.
127.400 million last year <unk>.
We expect rate the expense rate elaborate <unk> basis points to <unk>, 27.6% from 26.7% last year was due to open its once used for since March 20, 80019, as well as the lower than planes sales last six days a march.
1.3 million to meet cost associated with mitigation to cope with 19 or business.
Are comparable store selling and store operating expenses as a percentage of comparable stores decrease approximately 70 basis points as we leverage occupancy advertising and incentive compensation expense.
General administrative expenses, which are typically expenses incurred outside of our stores increased 700000 or 2.2%. During the 13 weeks ended March 26, 2020 compared to the corresponding prior your period do do it continues investments in personnel for our store support functions and increased appreciation new technology investments and spoke to support our store growth.
Our general administrative expenses as a percentage net sales decrease approximate 80 basis points to 5.6% from 6.4% and the corresponding prior to your period due to lower schools or employee instead of compensation. During the 13 weeks ended March 26, 2020, as a result covert 19.
Reopening expenses for the first quarter increased 1.400 million or about 35% from the same period last year.
<unk> increases primarily the results of higher occupancy cost me a longer period of possession prior to the store opening as walls and increasing the number of new stores that would that we are preparing to open compared to the part of your period. We opened three stores are in each of the 13 weeks ended March 20, 60020 and March 28000 nights.
First quarter net interest expense decrease the 1.100 million, 38.1% from the same period last year to decrease interest expense was primarily due to a decrease in interest rates as well as an increase in interest income earned compared to the corresponding prior your period.
Our first quarter affected saturating, 17.4% compared to 16.6% in the same period last year, increasing effective tax rate was primarily due to a higher discrete expenses for lost <unk> I'm certain facts positions.
Offset by the recognition of a higher income tax benefits related to stock option exercises compared to the corresponding prior year period.
Moving onto our profitability, our first quarter adjusted increased 21.7% to 73.100 million from 60.100 million into prior your quarter as are just even that margin rate increase 16 basis points to 13.2% from 12.6% over the same period.
Our fiscal 2021st quarter gap and income increased 20.6% for 37.100 million from 30.700 million last year.
Our first quarter adjusted that income increased 21.3% to 36.300 million were 34 cents per diluted share from 30 million or 29 cents per diluted share last year.
We ended the first quarter with 105.500 million diluted weighted average shares outstanding compared to 104.300 million shares last year.
Because I want to personally think all versus just for their tireless work and dedication serving our customers. During this challenging circumstances, but that I think we'll turn the call over the questions.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question you may pressed star one nine your telephone keypad.
Confirmation telling indicate your line isn't the question cue.
You May press Star too if you would like to remove your question from the queue.
Four participants using speaker equipment, it may be necessary to pick up your handset before pressing the star Kate.
The interests of time, we ask you. Please let me yourself to one question and one follow up question. So we may take every once question.
Our first question comes from the line of semantic got men with Morgan Stanley pleased to see what's your question.
Thanks, and hope everyone's well my first question I wanted to get your view on housing and home improvement demand and realizing there's no guidance here. Some have a view that downturn come look a little different for the segment for different reasons curious what your take on it is it do you think home improvement ends up being more insulated than.
A normal downturn.
Hey, send me and this is Trevor you know I I think we're we're all expecting things to be tougher you know the consumers going to be in a tough spot they're going to go back their personal balance sheets and so I do think the sector. You know, we'll be impacted just like a a lot of such as well.
I will say the you know if you go back and look at history back to that 2000 62008 timeframe peak to trough were you know two and a half your period boring sales decline, 35% and that's a lock obviously during that time, you know 40 40 pretty well.
Adequate product. So we can sell to people who needed. It we have no incredibly low prices you know very inspirational design center and I'll prices are low and so when you look at the overall value that exists. We think are attributes are situated events. During this environment. So yes, we think the environment will be tougher as we look for.
But I'd be value matters, and you know we have value in that sense about the product and low prices are really good looking product great. So people integrated website approaching the circuit professional customer and so all those things you give us a conviction that yes, it's gonna be it's our environment, but all the things we have will allow us to outperformer market like we have for a long period.
Okay. Thanks, and then my my follow up is on the competitive environment and then something that Tom had mentioned can you share what you're seeing competitively you do operate against a lot of smaller businesses and I wonder if if others have stayed open through and essential classification any anecdotes, you're getting about hardship against competitors.
When when you open up do you think you're going to open up to full slate of them and then related to what Tom said about leaning and you know following this period.
I mean that in if if things are back to normal in 2021 do you open up the stores that didn't get open this year and you add them to the to the expected 21 class.
That that is saved lock along follow on question I'll try to get as much of it as I can.
Certainly.
We have you know we put the safety of our customers in our associates first and we.
We we made the decision very early on to you know go to a curbside only model that's evolved and we're operating three models now we've got a curbside model. We've got a pro appointment model and we do have to stores in Utah that have limited entry models.
And the competitors are all over the board some cities. They are doing what we do some cities, they're staying completely open and it really various by market and that's just like you know I've I've told my team who's very aggressive to get US back opened up safety for our customers and are supposed to be first and will as as the government.
Allows will continue to open our stores. So that's the first part of it I think you know the other side of this it's hard to tell who will be standing certainly.
If the the independent the smaller flowing stores, they're going to have a hard time maintaining liquidity in this environment and you know we anticipate there probably be some more consolidation at the end of this.
The last question or plan and I didn't I know I, probably get the all the questions, but as many for that could our plan is to get back to 20% unit growth next year. So you know, it's just that everything's kind of shut down it's kinda hard to get the stores built so.
Assuming that the economy, reopens and and and a good fashion.
You know our plans or to to get back to our original plan.
Thank you good luck.
Oh next question comes on the line of Stephen Forbes with Guggenheim Security pleased to see with your question.
Good evening.
But I want to focus really on the trends in the business post the transition to the curbside model I mean is or is there a particular category or region that differs greatly from the chain since that transition.
From a performance standpoint in in anything you can you can call out that's driving that difference whether it's just geographical presence urban burst suburban.
County exposure et cetera.
I mean, you know the curbside models doing it's been pretty consistent since you've opened it's actually start to get a little bit better as time has gone on.
It's hard it's it's really hard to pinpoint saying okay.
We reopen the stores and let us let customers coming in a normal basis, I think it's going to be hard for us to see if it's going to be better in urban or better in rural. It's just hard hard to give an answer on that on a product standpoint, when I've seen any difference really the consumers are fine what they bought that just to despite less of it.
Well I just had two things one you know we actually did last year. They accomplish five to the fourth quarter and we said before covert 19 hit those those last previous those last six days you know we camped up six warm so we got our business would accelerate a little bit and it did so we were pleased with that you know continues the trends across a business continued where you know Richard.
Violent continues to be our best category. The natural wood category. There must be you know probably our challenge category, our new markets continue out perform aren't just the marker. So everything just got a little bit better and I do and I do think I want to meet you one more thing that the the the follow up on city is a question about real estate <unk>.
What has been interesting throughout this period of time is we're now getting opportunities and real estate locations that we are that we would have lost who've been and would've jumped jumped in a long time ago, and so I do think to some of the benefits out of this is the way we've handled ourselves a negotiated landlords and just the streets of the business is more now getting opportunities.
Dense markets that would have been difficult for us to get into otherwise. So we we are you know one bright lining up this difficult environment is the real estate opportunities are getting better force.
And then just a follow up on the <unk> design services <unk> you spend some time in the prepared remarks on the virtual services and just the engagement.
With the pro Ah, but maybe just expand on on weather right. Your recent experience here in in the engagement with you know both did the I wind the <unk> consumer.
<unk> has changed your you know investment plans as it relates to design services, whether that's yeah, just number of design associates in the stores or or any sort of.
Marketing plans around that et cetera.
<unk> well I mean since most of our fulltime associates a lot of them were designers, they're still working.
He's tried to just accelerator virtual design opportunity for customers and were.
The acceptances been incredible people still want to engage with our product and so.
It's their new appointments or in some <unk> customers that we had previously been worked with the number of appointments that we're doing has increased every week since we started it.
The feedback it's been terrific I was in a store last week and watched a virtual appointment and it's.
Designer walking around the store and showing customer products and giving them inspiration it's pretty incredible. So it's been a great experience. We're very excited about it we're telling people on our website about it so that they know and that they can engage in it I don't know lease if there's anything that you want to add about the appointments.
Now the only other thing that I've had is that it he's done extremely well I think probably better than expected and I would say that again going forward finish. This evil feature we don't know how comfortable people are going to be <unk> do we think it personal design appointments can be a great way for our customers to engage with it sure I'm in a product that forever coming in and we think it and you may.
Competitive advantage and even when it doors are open we plan to continue to get the cost. Many options you have a virtual did high appointments or come in and see one of our design or some person.
[noise] [noise], we apologize, but any interest of time could you. Please let me yourself to one question.
Our next question comes from the line of Chris <unk> with J.P. Morgan. Please proceed with your question.
If there's one really long question does that count [laughter]. So a question. So first your your quarter didn't comp is pretty consistent with the last week of of the quarter and it seems like give a lot more stores quote unquote open is that right and and and what why not better is that.
Lack T.I. why is it less pro where the consumer doesn't want that that that professional coming in and and making the installation this or some sort of you know lack in pact, that's that's going on or maybe the pro becoming non essential in more states can't talk about that trend overall.
I'll start and outlet gelett, Trevor jump in as well Chris I. It's it's it's been it's been pretty consistent since we went to curb side.
And I you know first I didn't know how it would go I really I wasn't sure. If we went to curbside that it was going to be people, just finishing projects and so it may start off good and then slow down and that's that hasn't been the case, it's been consistent and then recently it's gotten better.
Think as time goes on.
You know people are they're still engaged with the product and they still want to do <unk> look at how many virtual appointments were doing how many samples for selling out of our on our website people still when engaging the product and they still want to do it. So you know we're going to try to do our part and you know.
Helping our pros think about how they can be safer in customers homes and how they can you know make sure that their customers is they're getting into the end users homes that they can execute the right social distance scene and they can be taken the right measures to make sure that that customer feel safe from their store. So I mean, that's a question mark and how and how they're <unk> consumer will feel but.
From what you know from people that I've talked to and from what I've seen.
And and from what I've seen in you know, it's only it's a small sample of stores, but we have reopened.
A a couple of our stores, where there's not sheltering place guidelines and no. They're cops went from really negative to positive. So I think you know they're still need for the categories still desire for the category.
It's hard it's hard hard to really to Chris to say is it is it a pro or d. It yeah, why I mean, everything's kind of slowed I think you know the pros when you go to the stores and you watch the curbside mild.
[music] a lot of pro still picking our product.
Oh. The next question comes on the line segment with Credit Suisse. Please proceed with your question.
Thanks for taking the question up everybody's doing well I wanted to ask about the investments that you had initially plan for this year I think it was expected to be somewhat of an elevated year of investments and store growth in some other areas that just shift into next year or Conversely is this a situation that serves as maybe a catalyst for longer.
Term efficiency should we actually be thinking about perhaps better operating leverage coming out of this as sales starts to normalize.
This is Trevor you know when it when it first of all happened, we went through and and as mentioned in some of the prepared comments and looked at every single on on I mean anything that that we didn't fill his mission critical we decided to to delay on or cut and so I think we cut our capital expenditures by low 40% cut and they're really trying to do everything.
It wasn't customer facing are needed to be down. So we have no printing cutting our cat backs. Obviously, you know going down to 11, new stores plus the other design center I had an impact as well, we actually sort of increased our budget a little bit for the class of 2021, just because of what we think we're gonna open early next year and hopefully you know this one other silver lining of this is.
Likely that we will have a an equally caters them openings in fiscal 2021, and so I think on the operating side, we still some more and more to do there's opera. We're we're learning things in this that we would've probably never learned before and so I think it's probably too soon tell but.
I don't know time at least.
That was my answer.
I think that I I think that's right Trevor I do think that is that we are we are learning about different ways that we can operate which could take some costs other business and.
You know will be thoughtful and that approach and and and take the red steps to try to me.
Oh next question comes in the line of Mike Lasser with U.B.S. Please proceed with your question.
Ah good even think no question.
You use awkward a lot of <unk> <unk> on the call what so ever said that during the long.
Lording, 35%.
Unemployable matters more than anything you mentioned that we open up a couple stories. They com positive in the may or may not be pin up man because.
<unk> have been allowed him.
Oh.
<unk>.
That together.
Create a cool factor that we're all trying to determine <unk> one yeah, whatever the normally up and running we'll call it and the third and fourth quarter. She we think about relative to that benchmark instead of flooring being down 35.
<unk> should flooring be down maybe half as much this time around and because of the competitive positioning exploring the court you can do.
Twice is better than that so it's it's the categories down 15 to 20 <unk> <unk> in light of everything.
It's reasonable to expect that maybe your come through down and maybe <unk>.
Yeah. This is <unk> one of the thing I think it's interesting. We're we're obviously a much bigger companies you know when when the when the last down turn the company was like 200 million and no. This this time around it covert 1990. It we would have been around two and a half so much much bigger company, but the one one of the benefits being a bigger companies. We just have a lot more information and data.
You know at least teams a a really good effort in helping us understand our customer better and we've done through some of that you are are average customer income now we estimates between 100 125000 versus the U.S.D.M. in the in the 60000 dollar range. We age we're probably 35 to 64 years old they.
Lived in that house for 11 to 15 years.
Yeah, when you add all that up that consumer that that person is buying from US has a good amount of discretionary income and when you look at the people who are unfortunately being impacted by this you know it's it's the lower income level folks that are that are being heavily impacted by that that's what I do think that with a combination of when you look at the industry with all the success we've had.
Robert success, the the home centres have had over the last 10 years.
<unk> issue today is still 65% small <unk> independent type companies and I think they will struggle and this and and as I mentioned before the value player value in price value meeting trend route assortment value is talking before you know, we believe will pick a disproportionate share a mortgage here during this period of time so.
I.
Exactly what that looks like we're all trying to figure that out over the coming months, but we have.
Yeah, certainly easily put ourselves in a position by keeping all of our full timers.
I'd taken care of our professional customers by taking care of all of our Bender partners that we are not in the best shape possible to take care about that customer when we open the doors in his palm Beach, and it's only a to store test or two sources that we open. This end, but you know went from probably not negative or positive and so yeah, we'll see that a lot of lots of learned over the that coming months, but.
And I were in a fantastic position that they take the most amount of business. It's available as we open our doors.
Mm mm.
Oh next question comes from the line of Matt Mcclintock with Raymond James. Please proceed with your question.
Oh, yeah. Good afternoon, everyone sounds like you've been quite busy a lot of detail just cos I really appreciate it I guess the the first quick question is I I kinda want to ask this question differently.
Wouldn't you maybe do surveys of the pro right now or talk to the pro when you're in the store <unk> what are they saying about jockey installations versus just jobs being pushed back on terms or the for all I got I'm, just trying to get a better since how much demand outright was just cut off versus how much demand is likely they're just waiting for people to be able to go back.
Comfortable going to get have these contractors come in their house et cetera, I have heard the majority now anecdotally right. So talk into the stores in our operators and talking to some pros, where I've been able to be in stores.
It has been more.
Push back and but not cancellation and you know I I.
We have an installation partner, let's you know that they can have an arm's length relationship that we can recommend to customers and they're telling us. The same thing that it's it's not job cancellation to shop, Pushbacks and I think that as as restrictions ease and as as pros get educated on how they have to communicate to the end user how they're going to enter the.
Home, how they're gonna you know wear masks and how they're going to wear gloves, and how they're going to disinfect during the job and how they're going to maintain social distancing, then I think consumers will become more and more.
Acceptable as I mentioned in their homes, but we're not yet, but I don't think it's a big cancellation of jobs I've absolutely heard it's more of a of a delay in shops.
Oh next question comes from the line <unk> <unk>. Please.
<unk>.
[noise]. Thanks was curious if you.
I think there might be some longer term reaction to source product coming from China.
You.
Factors down into your long range sourcing strategy.
Hi, Lisa so yeah, it's really interesting question army immediate term thankfully I most countries have reopened and we're starting to get product. After we've not pointing any customer preference change you know as the parents to enemy 80, D. and D.V.D. change since it happened in the last year and a half percent <unk>.
Dramatically reduce our reliance on China first forest products pretty much the only thing like in China right. Now are they think they can only come from China and South if we have another country option. We no product. She does country. Then we will continue to do that so whether it's working with some of our manufacturing open at manufacturing in other countries or finding.
Resources that we didn't know about in other countries. You know that that means continues to change that yes, I think for US we will continue to make sure that weren't diversified and that we have to products that customers. He didn't want expects from huh.
Mm.
Oh and X. question comes on line of Peter Keith with Piper family. Please proceed with your question.
Hi, Thanks, a lot congrats guys, yet tough environment, you guys can be doing a great job that it's funny to say you have got it'd be a down to 50 per cent because we thought it probably worse than that so that that feels or not so bad given everything that's going on.
There's a thesis going around that yeah people are spending a lot more time at home that they're probably getting a little more fed up on their flooring and other aspects of the home.
And I was wondering if you could give us some commentary on maybe what you're seeing with your web traffic it might be a little hard to to segregate the stores close but does it feel like there's a little more browsing more shopping going on that that could suggest potentially some pent up demand at the back after a year.
Well, it's very hard to say that comes with the curbside model I think we I had mentioned in the script something like 60% of sales right now coming through the website cousin. The concept now so it's a little hard you can look at that differently, but we didn't look traffic into traffic is on the site conversion is obviously write a majority that sounds are coming from that people network.
<unk> store to purchase there now purchasing online and then go into the store to pick it up yeah. We have seen definitely an increasing traffic increase in time that increasing visualizer utilization. So I I do believe that in this new environment, we will see more customer shopping online and say either.
Picking up or maybe even having that product and leverage for us that yes. We are near hearing half and we are working on now other things to do for our website you make that even better easier shopping experience at a cost smoke on falling.
I think Peter the other thing I'd say in again, it's it's not it's more anecdotal but it's.
<unk>, where are we are hearing a lot of as people have had the shelter in their homes and stay in place that there is lots of they're finding a floor that they may not have liked or a backsplash that they're tired of or a bathroom, that's really old and so if people are going to travel less and they're going to while the economy reopens in the country.
Reopens and they'd get out.
They still you know they may they may put some of that discretionary income that they had that they would have used for vacations I might put that into their house. So we are hearing some of that as well, but but no one really knows we'll see.
Oh next question comes on the line of Chuck ROM with Gordon Haskett pleased to see with your question.
Hey, guys.
No well you've seen it in certain markets I think are too when you're <unk>, you're opened up the stores and <unk> have turned positive which is obviously it breaks on.
You're looking ahead.
Being a little bit conservative when you guys could open the majority of the chain you know there's a number of companies. Even you know Macy's today articulated at the plant plans to open up all their stores by the Middle June. So I guess, just what are what are you guys looking for two to open up the stores and as a follow up to that just curious and the April quarter to date number of down 50 per cent.
If there's any geographical differences in in in between the close to the middle the country down South what you guys. So I would be helpful. Thank you.
Yeah, I'll I'll I'll take the first part on the openings and in the last part really not seen much difference geography wise, it's it's it's hard.
It's really hard to to ascertain that we're not seen much of a difference there I will say that will open up.
A bunch of stores tomorrow as states have lifted some orders, we'll be able to get some of our stores open it into a limited entry controlled.
Amount of customers that will be allowed to that will vary by local jurisdiction, but we'll have a decent amount of stores they get to let customers backing starting tomorrow and we anticipate that by the end of May we would have about 70% of our stores open. So you know that could change we're going to you know we're going to follow as we say.
That in the in my my prepare comments you know the reopenings will be staggered and it'll be dictated by local state government authorities in health official mandate. So we'll we'll be thoughtful in the way that we do that but as we sit here today I was I'm actually a little surprised that we're going to be able to open up more stores tomorrow, and but you know we do in <unk>.
By everything I read it and see that by the end of my 70%.
Yeah.
Oh. We're next question comes in line of Kate Mcshane with Goldman Sachs leaves you with your question.
Hi, Good evening. Thanks for taking my question just finding up on the question earlier about the supply chain. It doesn't sound like you're having any major supply constraints right now, but just wondering tianlin current state of the world and the environment, if suppliers are willing to negotiate anymore on price.
Mmm, it's interesting question. So I. So far we have had done some work on that mean currency has helped the on fuel and not pricing has helped that something yes. I do think there is some opportunity on that front I'm going forward.
Oh, that's a question comes from the line of Greg milk with Evercore I.S.I. pleased to see if we didn't question.
Hi, Thanks that one quick follow up did you guys say that that the I. why was a stronger than pro since you're close to stores I thought I heard that but it it cut out for a second.
No I don't I, we didn't say that.
Hmm.
Our next question comes on the line of Jonathan <unk> with Jeffrey <unk>, we should see with your question.
Right.
And you guys alluded to the pro appreciating them in that context like services, you're offering at curbside and and mentioned that many of them are asking for those to continue on the other side of it. So are there other changes that you need in the business you know beyond the virtual design.
An appointment <unk> that you would anticipate to carry over on the other side of it.
[noise], we are looking at that I mean, there's absolutely you know if you go free <unk>.
Coven 19, when a customer wanted to pick up something our store they they pulled up to the back of the store they checked in at a command center.
Then they had to go back outside and wait and and we've we've change to this where you pull up to the store there's someone outside to greet you and finds out or get your determinations communicates to inside the store.
To get the product out quicker and.
Certainly every pro that I've talked to like this is terrific I don't have to go to my truck I really like that so I think we'll have to pay attention to that and I think we'll have to react to some of them I think.
Between that and I think the you know the virtual design is is a learning I still don't think virtual design. It it's doing good because customers can't come into the store I I think it'll do good but it won't replace a customer's wanting to touch and feel the product and get inspiration out of our store. So I think that you know they'll want to continue to come in but a big part of we'll have to change lots of the way that.
Operate we're learning and we're surveying people that are buying in the stores today to get an understanding what they like much at all I can and will react accordingly.
Great. Thank you.
Oh next question comes on the line of sets Bash them with what Bush Securities pleased to see with your question.
Thank you and good afternoon.
My question is pretty simple and could you give us any color on what you're seeing from next perspective as relates to good better that I've seen customers train down at all our trade from one category to another thank you.
[noise] at the end of the first quarter, our best category continued to be our best performing category. The cops on our best <unk> skews are better than are good and are better than our better so.
<unk>, we haven't seen the tray down and and so far that even during the drive through we really as we've got to a curbside motto, we haven't seen customers trading down to just by an opening price put or things of that nature. Yet you know, we'll we'll see as thing goes but the value of our best products. So significant in the looks of our best product are so great.
That we still think when a customer's going to take on this type of project got stuff that they're going to lean towards the better stuff.
Oh.
Our final question comes in line of Greg Mouse with Evercore eyesight.
But your question.
Hi, Thanks for let me back on for the question <unk>.
I'd love to hear if there's anything and the cares acts that you guys are able to take advantage of a Andorra that you could help some of your pro customers particular used as they try to manage their business through this tough time. Thanks.
<unk>. So there is there's three main pieces of the cares act that are going to help us it's going to be in the tens of millions of dollars biggest one for US is most of the Catholics. We spent on our stores. The R.S. makes us appreciate that over 39 and a half years.
They change that we're going to need to take an immediate deduction for that.
Tens of millions alone. The government has also allows companies to not play to the to defer the payment the 6.2% and social security taxes employer portion of that that's probably about $10 million for us that we will then pay back in 2021 in 2022.
Then there's also components of the <unk> that relate to boy credits for people that were negatively impacted by code 19. So if we had to make someone stay home or someone will yeah. We'll get we'll give you know several million for that we think as well, but also analyzed there's lots of opportunities to borrowed the banks.
And they as you know thanks to the government are still figure now that we've analyzed all of those as well as we said that.
Don't think we really need to borrow anymore and we don't think we would use the government funds, we have access to capital markets. The banks would love to run to US credits yellows and those both with loved ones are so we analyze that too, but I don't think we would go down that that either.
One other thing I think just based on some of these questions at least and Tommy answer good but I thought it was interesting that there were talks about the demand is wasting our sample sales go through the roof.
And we already had a strong sample process already and so that also gives us a bit of an indication that no question, if you're looking and they're wanting to see things and you know U.R.C. or in tools, we have capabilities to both of those customers and so as we open our doors from say remember the log of the words is Friday, well, okay, 70% of the doors open in the mother May and June all of our stores will be.
In a different environment, you know really aggressive and following up with those in one of my favorite Pro peace, it's up to a couple of pros as well.
What they said before they had as much backlog and they wanted in the past and now they just they felt backlog, it's just not as much as it was.
I thought those were some interesting posts components are approach. So busy they just they just need to be able to get back into afterwards, and and when the consumers feel more comfortable with it I think there's still have a backlog of work to to work.
Yeah.
This concludes our today's session I'd like to hand, Nicole back to Tom Taylor for closing remarks.
Well things first I'd like to thank everyone for their interest in our company in in a in really appreciate everyone. Joining our call I also know there's a lot of associates in the store support center and then the our stores that are listening to the call and I'd like to thank them for all of their hard work in for our associates when our stores for putting safety for.
Entered hearing to our safety protocols, it's a tough time to talk about business with all of the human tragedy, that's come about because of covert 19 pandemic and you know the priorities of the country in the world have to be to stop the spread into find a cure that's the most important priority, but when it comes to Florida core.
It's yeah. We ended 2019 as we send our strip with a record sales record profits highest liquidity levels ever highest service scores ever and an incredible culture intact within our store support center within our stores.
And we've tried to be thoughtful in the way that we think about this and we do see we do you see a path forward to restrain growth again, we we like I said earlier, we believe that 70% of our stores will be open during the month of May we do believe that in 2021, we will get back to 20% unit gross and we're fortunate.
Because of the cuts that maybe we were thoughtful in our store support centre associates are still there and our fulltime associates are still there and we're able to ramp them back quickly. So you know, we're we're poised to come out on the other side of this pandemic in in a really strong position and should have a great ability to six year. So again, thanks, everyone for joined the call and.
We look forward to updating you in the next quarter. Thank you.
Ladies and gentlemen, this doesn't food today's teleconference. Thank you for your participation you may disconnect Airlines at this time and have a wonderful day.