Q4 2020 Floor & Decor Holdings Inc Earnings Call
All participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance store at the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now I'll turn the call over to your host Wayne Hood. Please go ahead.
Thank you operator, and good afternoon, everyone. Joining me on our earnings Conference call Today are Tom Taylor, Chief Executive Officer, Lisa Laube, President and Trevor Lang Executive Vice President and Chief Financial Officer.
Before we get started today I would like to remind everyone of the company's safe Harbor 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 Inc.
Statements that refers to expectations projections or other characterizations of future events, including financial projections for future market conditions is a forward looking statement the company's actual future results could differ materially from those expressed in such forward looking statements for any reason.
<unk> those listed in its SEC filings floor and decor assumes no obligation to update any such forward looking statements. Please also note the past performance or market information is not a guarantee of future results. During this conference call of the company will discuss non-GAAP financial measures as defined by SEC regulation G.
We believe non-GAAP 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 the earnings press release, which is available on our Investor Relations website at IR dot floor and decor dot com at recorded replay of this call together with the related materials will be available.
On our Investor Relations website, let me now turn the call over to Tom.
Thank you Wayne and thanks to everyone for joining us on our fiscal 2024th quarter and full year 2020 earnings conference call on today's call I will discuss some of the highlights of our strong fourth quarter and full year fiscal 2020 results as well as the progress we're making on some of our strategic growth initiatives.
Trevor will then review of fiscal 2024th quarter and full year financial performance and discuss how we're thinking about fiscal 2021, and then we will open the call for your questions.
We delivered exceptional fiscal 2024th quarter earnings results debt represented an acceleration of trends we saw in the third quarter of fiscal 2020 are for.
Fiscal 2024th quarter total sales increased 37, 3% for $196 7 million to $723 $7 million from from $527 million in the fourth quarter of fiscal 2019 exceeding our expectations on a 52 to 52.
Weak basis of fiscal 2024th quarter comparable store sales increased 21, 6% the <unk>.
Strongest quarterly growth rate of the year.
We experienced robust and consistently strong sales across all months end all nine geographic regions in the quarter of fiscal 2024th quarter. Adjusted EBITDA also exceeded our expectations, increasing 65, 9% to $97 6 million from $58 $8 million.
In the fourth quarter of fiscal 2019.
Our fiscal 2020, adjusted fourth quarter diluted earnings per share increased 88%. The 47 from 26 in the fourth quarter of fiscal 2019.
We ended fiscal 2020 with no net debt on our balance sheet and remain our strongest liquidity position in our company's history, our financial performance and strong balance sheet enable us to continue to make significant investments towards further strengthening our competitive position and growing our market share in 2021 and beyond.
Let me now provide an update on our five strategic pillars of growth beginning with new store growth. We opened five new warehouse stores in the fourth quarter of fiscal 2020, bringing the total number of warehouse stores. We operate two of 133 plus two design studios in 31 states at the end of fiscal 2020.
By month, we opened for news warehouse stores in fiscal November 2020, and one new warehouse stores in fiscal December of 2020 the.
These openings were a remarkable accomplishment considering the impact COVID-19 at many elements of new store construction.
As we look at fiscal 2021, we intend to return to 20% unit growth and expect to achieve our long desired objective of a more balanced quarterly new warehouse store opening cadence.
To that end, we expect to open seven new warehouse stores in the first quarter of fiscal 2021 more than double the three new warehouse stores. We opened in the first quarter of fiscal 2020 for the full year, we expect to open 27, new warehouse stores, an increase of 23% from 2020, we <unk>.
About 60% of our new warehouse store openings will be in new markets, particularly in the northeast and the west coast and 40% in existing successful markets. We're continuing to move forward with our design studio pilot by opening two additional locations in the second half of fiscal 2021, we remain very pleased with the sales of water.
Paul among all of our store vintages, particularly our most mature stores and believe the class of 'twenty 'twenty and 2021 stores will represent some of our strongest classes of new stores.
Moving onto our second pillar of growth growing our comparable store sales we.
We are very pleased with the broad based and consistent strength in our fiscal 2024th quarter comparable store sales and the strong start to fiscal 2021 or.
Our reported fourth quarter comparable store sales decreased 21, 6% from last year, but if you adjust for the impact of Christmas moving into the 50, <unk> week, which benefited fiscal December 2020, we estimate our fourth quarter comparable store sales would have increased approximately 25% our comparable store sales were driven by <unk>.
Strong 23, 1% growth in comparable store customer transactions. This represents the strongest growth rate in customer transactions in fiscal 2020 and exceeded our expectations.
On the monthly basis.
Our comparable store sales increased 24% in October 19, 4% in November and 24, 9% in December as I mentioned at the 24, 9% increase in December comparable store sales was closer to 21, seven when adjusting for Christmas shifting into the 50 per week.
We are very pleased with our December comparable store sales growth exit rate and the strong start to fiscal 2021.
Year to date of physical 2021 first quarter comparable store sales increased approximately 24% despite severe weather that impacted approximately 20% of our store base over multiple days.
From a merchandising perspective, all of our product categories experienced double digit fourth quarter 2020 comparable store sales growth, excluding our wood category that said the changes we have made at our wood assortments of now leading to modestly higher growth in the category.
The broad based strength in our merchandising categories further validates our position as the one stop solution for all of our customers hard surface flooring needs the strength of our merchandising and supply chain teams has enabled us to continue to successfully deliver on our strategy of offering differentiated and innovative trend right products.
The job lot quantities at everyday low pricing.
Our third strategic pillar of growth of expanding our connected customer experience.
Our fiscal 2024th quarter E. Commerce sales remained strong increasing 93, 7% from the fourth quarter of fiscal 2019 at.
Accounting for 15, 9% of our sales compared with 11, 4% last year.
For the full fiscal year, our e-commerce sales increased 123% to $461 million and accounted for 18, 9% of our sales compared with 10, 1% in fiscal 2019.
We believe we are now seeing our e-commerce sales penetration.
Approaching a more normalized rate following its peak of over 60% in the second quarter of fiscal 2020.
We are very pleased with the fiscal 2024th quarter traffic to our website, which increased 53% year over year, an improvement in growth from the third quarter of fiscal 2020, we continue to see strong double digit growth for pay in organic search as.
As well as direct traffic to our website as our customers are choosing to engage with our brand.
We're particularly pleased with 92% growth in direct traffic to the web site in the fourth quarter, which is the direct result of our growing brand awareness and our teams ability to capitalize on these trends, we will continue to make investments towards delivering the unmatched personalized customer experience with efficient business processes across all.
All of our touch points, including our website mobile app and in store.
For example in 2021, we're excited about rolling out a arm here of.
Vacation, which offers customers the ability to check in contact with and curbside from the personal devices, making for a better pickup experience.
Additionally, later this year, we intend to enable customers to schedule delivery and pickup times.
We are also taking additional actions to further optimize the speed of our web site and mobile experience, which in turn we believe will lead to further improvement in conversion and customer experience. We believe these actions will continue to lead the strong e-commerce performance metrics and growth.
That said our stores remain a critical part of our connected customer experience in the fourth quarter of fiscal 2020 about 88% of our web site orders, excluding simple purchases were picked up in our stores.
Our fourth pillar of growth rests on the successful investments, we are making in our pro and commercial customers to grow our market share.
We are continuing to make investments in our pro mobile App and our award winning pro Premier rewards the PBR program.
Let's drive engagement and loyalty with new and existing pros.
We grew enrolment in the PTR program, 22% in fiscal 2020, despite the headwinds caused by the COVID-19 pandemic.
We were encouraged to see our fiscal 2024th quarter.
Monthly PPR enrollment returned to pre COVID-19 levels and accelerate from the third quarter, leaving us optimistic about further strong growth in 2021.
We had over a 178000 pros and the PPR at the end of fiscal 2020, which represents a 73, 7% increase from fiscal 2019 kind of remarkable accomplishments since its launch in the third quarter of fiscal 2018.
As a result about 77% of our fiscal 2020 pro sales were for PPR members up from 67% in fiscal 2019. The increase enrollment is the direct result of our proteins engaging the pros about the benefits and value of.
The program at now includes over 100, thousands of award items, including unique reward experiences and social good offerings for examples are pros have redeemed over one 8 million points to provide clean water to underdeveloped countries amounted to over 34000 system the water.
Advisors is one of our newest per partner additions to PPR offering members savings as well as the option to redeem points directly for credits for lead generation the life.
Lifeblood of any contracted.
In fiscal 2020, PPR points earned increased 37% versus 2019 end points redeemed rose, 70% further validating the value of our PPI program and engagement with our pros.
Our PPI program as an important tool for us and we have found the PPR members spend nearly three times more in shop, two five times more frequently the non PPI members.
As we move into 2021 will further enhance our PPR program and build on our segmentation and personalization efforts to drive engagement and lifetime loyalty and we intend to reward our pro customers for use of credit cards.
We continue to be very pleased with the growth in commercial sales, particularly the sales that are generated by our regional account managers for rents, which are now in most of our major markets while.
While sales from our 22 regional account managers are small relative to the size of our retail business. We are excited about the opportunity to see sales tripled in fiscal 2020.
Prompting us to further build out this organization with plans to add approximately 12 regional account managers in fiscal 2021.
Overtime, we expect commercial sales to become a material part of our growth is leverage key Florida core strength merchandising and our direct sourcing model.
Let me now discuss the progress we are making with our free design services the fifth pillar of growth.
We are pleased with the momentum in our free design services, where our fiscal 2024th quarter sales increased meaningfully from fourth quarter fiscal 2019.
Key performance metrics, including the appointment conversion rate average ticket and sales penetration, where the highest of the year as consumer staff safe inside our large stores are physical 2020 design appointments of 193000 of.
A record as we augmented in person design appointments with virtual ones.
Sign of appointments and product recommendations of very important to homeowners pros and our conversion rate.
So we were pleased to learn through our design survey debt among homeowners and pros, who had design appointments of Florida core debt over 90% were very or somewhat satisfied.
We have seen sales tied to a designer of more than double since 2018 and have strategies to drive continued strong growth in 2021 at BR.
We are focused on building the consistent high touch best in class and seamless design service for our homeowner and pro customers.
To that end, we'll continue to elevate the talent and design services.
As we have discussed when the designers involved with the project the average ticket end margin or above the company average.
Let me now turn my comments to what we have learned about our customers following our updated homeowner demographic and customer market segmentation analysis.
We now have information on over 2 million customers in our CRM database that we have combined with external research to create strategies for our different types of customers.
Within our two homeowner segments do it yourself and buy at yourself. We now have further define them into nine distinct personas.
Also have more clarity on the professional side of our business as to what percent of our business comes from the remodeling flooring specialists general contractor property owner architect and designer.
Based on our most recent research we believe approximately 70% of our sales come from the homeowners and 30% from professional customers more importantly, when looking at who makes the determination of where to shop, we still believe the pro influences about 40% of ourselves and homeowners 60 per cent.
Additionally, we now estimate that 85% of flow into curved purchasers involve of professional and the installation.
Our strategy has always been to serve both homeowners and professional customers, but this new information and granular level of detail in our CRM database allows us to enhance store connected customers end marketing strategies to find new customers as well as obtain more wallet share from existing customers. We are now much better informed.
As to why customers buy from us buy sometimes you don't get yourself.
We have begun to refine our targeting strategies through digital advertising and have created more personalized and relevant communications throughout the homeowner and pro shopping journey.
We're also building a collaborative strategies between our protest and free design services. Finally, we are enhancing our pro Premier rewards loyalty program by segmenting, our pros by dollar spend which we expect will allow us to increase engagement and loyalty.
Let me close by saying that our strong fiscal 2024th quarter and full year earnings of the <unk>.
Net result of our associates tirelessly, serving our customers and each other in 2020, we learned that we can successfully operate our business under extreme circumstances and unexpected events due to the collaborative strength of our people and culture.
Our entire executive leadership team I'd like to thank them for their hard work and dedication to serving our customers and each other I will now turn the call over to Trevor to discuss in more detail, our fiscal 2024th quarter and full year financial results.
Thanks, Tom.
Our strong fourth quarter and fiscal 2020 earnings results are an exceptional accomplishment considering the unique and challenging operating environment, we face to face in fiscal 2020.
It is a testament to the resiliency of our business model and our associates tireless effort to serve our customers at each other.
We are pleased with two consecutive quarters of double digit comparable store sales growth driven by transaction growth, which is encouraging as we enter 2021.
We are particularly proud of our second half financial performance in fiscal 2020 as it represents the highest operating and EBITDA margin performance in our recent history.
Let me now turn my comments of some of the changes among the major line items in our fiscal 2024th quarter income statement balance sheet and statement of cash flow and then I'll discuss how we're thinking about fiscal 2021.
As a reminder of fiscal 2020 year, which ended December 31, 2020 is a 53 week period compared with fiscal 2000 1952 week period, ending December 26 2019. This.
This means we had 14 weeks of operations in the fourth quarter of 2020 versus 13 weeks of fiscal 2019 fourth quarter.
We estimate the additional week added approximately 41.800 million in sales.
$8 5 million of operating income.
6.400 million and net income of <unk>.
<unk> to our diluted earnings per share and 8.800 million to adjusted EBITDA.
My comments from here will be on a 14 week the 13 week basis.
Our fiscal 2020 reported fourth quarter gross margin rate contracted the 42, 5% from 43, 6% in fiscal 2019 due entirely to the 270 basis points of $14 million in section 301 tariff refunds discussed in fiscal 2019 related primarily to rigid core vinyl.
Excluding the 270 basis points benefit from last year, our gross margins improved 150 basis points driven by higher product margins due to continued enhancements to our merchandising strategies and improved leverage of our distribution center and supply chain infrastructure on higher sales.
Turning to our fiscal 2024th quarter expenses at.
For fiscal 2024th quarter, selling and store operating expenses increased 29, 2% to $191 million 100000 from 147.900 million for fiscal 2019, leveraging approximately 170 basis points.
The year over year improvement is the direct result of the expense leverage that comes from the strong 37, 3% growth in our total sales of.
Our staffing levels sequentially improved in the fourth quarter of fiscal 2020 relative to the third quarter of fiscal 2020, but we ran at Lee and some stores due to COVID-19.
Our fiscal 2024th quarter General and administrative expenses increased 21% to 40.900 million from $34 million in the fourth quarter of fiscal 2019, leveraged 90 basis points year over year the law.
Average was due to the increase in sales as well as we incurred 2.400 million in last year's fourth quarter related to the relocation of our new store support center and the exit of our Miami distribution Center.
Our 2024th quarter Preopening expenses increased to 26, 4% the 7.600 million from $6 million at the same period in the prior year, primarily due to the opening of five new warehouse stores in Q4, 2020 and spend per 10 stores expected to open throughout 2021 versus the opening seven stores in Q4 2019.
And spend for five stores that opened in 2020.
We are pleased at our strong second half 2020 of results and out of the enabled us to pay $2 $5 million in spot bonuses to our store associates and reimburse the store support center associates for salary reductions that took in the second quarter of fiscal 2020 due to the COVID-19 pandemic.
Fourth quarter net interest expense increased 34, 3% to 2.300 million from 1.700 million at fiscal 2019, primarily due to higher average total debt outstanding with our term loan when compared to the same period in fiscal 2019.
Fourth quarter of fiscal 2019 included a benefit of approximately 335000 related to the section 301 pair free from.
Without the benefit of interest expense of would've increased 15, 9% in the fourth quarter of 2020.
Our fiscal 2024th quarter provision for income taxes was <unk> 8.600 million of 13, 1% of pretax income compared with 5 million women of 1000 of 12, 6% in fiscal 2019.
The lower effective income tax rate when compared to our statutory rate is primarily due to the income tax benefits for tax deductions in excess of book expense related to stock option exercises.
Turning to our profitability, our fiscal 2024th quarter adjusted EBITDA margin rate increased 230 basis points to 13, 5% from 11, 2% in fiscal 2019, primarily due to the 150 basis point improvement in our gross margin rate, which when coupled with expense leverage led to our adjusted EBITDA growing 65 nine.
The 97.600 million from 58.800 million at the same period in fiscal 2019.
Our fiscal 2024th quarter GAAP net income increased 61, 7%. The 57 million of 100000 from 35.300 million at the same period in fiscal 2019.
Our GAAP diluted earnings per share increased 58, 8% for 54 from 34 per share in the fourth quarter of 2019.
Our fiscal 2024th quarter non-GAAP adjusted net income increased 86% to 50 million for 200000 from $27 million in the fourth quarter of fiscal 2019.
Our fiscal 2024th quarter adjusted diluted earnings per share increased 88% to <unk> 47 from 26 at the same period in fiscal 2019.
A reconciliation of our fiscal 2024th quarter earnings. The non-GAAP earnings is provided in today's earnings release.
Moving onto our fiscal 2020 balance sheet and cash flow. We are pleased that during these unprecedented times that we have been able to maintain a strong balance sheet and have the strongest liquidity position in our company's history to support our growth plans.
As of December 31, 2020, there was 217.800 million in gross debt outstanding related to our term loan facility.
When considered the 307.800 million in cash and cash equivalents on our balance sheet. We had no net debt outstanding as of December 31, 2020.
Further we can access of approximately 378.700 million of unused borrowings available under our $400 million ABL facility.
Our fiscal 2020 operating cash flow almost doubled to 406.200 million from 204.700 million in fiscal 2019, primarily due to strong growth in our net income and a decrease in working capital.
The decline in the working capital was primarily due to 11% growth in new stores in fiscal 2020, compared with our historical 20% group growth in new units.
Turning to capital expenditures for fiscal 2020, our total capital expenditures for $212 million and 400000 compared to 196 million for fiscal 2019.
While we opened fewer stores in fiscal 2022, and 2019, we intend to open more stores in early 2021, then the 2022 at an increase of new store capital spending for future year openings.
We also spent more on our distribution centers as we bought land and intend to own a new larger distribution center near our current facility outside of Houston, Texas for.
For fiscal 2020, approximately 66% of our capital expenditures were for new stores, 23% for existing store and distribution center of Reinvestments, while the remaining spending was associated with information technology E Commerce and store support center of investments to support our growth.
Let me now turn my comments of how we're thinking about fiscal 2021.
From a macroeconomic perspective fiscal and monetary policies look to remain very accommodative over the intermediate term, which we believe will continue to provide a tailwind for existing and new home sales the.
Secular demand for homes continues to exceed available the supply, which we believe will continue to lead the moderate growth and home price appreciation and support home reinvestment projects will be our sales growth has accelerated and has remained robust across geographies and merchandize categories and the probe backlog remains strong into 2021.
While we are optimistic about the prospects of the sustained economic recovery in 2021, and the momentum in our business. We recognize the business risks remain elevated from COVID-19 from the COVID-19 pandemic.
For that reason in the interim we are continuing our practice of not providing specific annual sales and earnings guidance that was established in the second quarter of fiscal 2020.
However, we are providing select annual guidance for new store openings at.
And financial measures that we believe can reasonably be forecasted.
As business risks improve we expect to return to annual sales and earnings guidance.
While we're not providing specific annual sales and earnings guidance for fiscal 2021, let me provide some context of items to consider.
We will be cycling past increasingly different difficult comparable store sales comparisons in the second half of fiscal 2021, and we believe measuring our growth on a two and three year stack basis in the second half of 2021 is the better analytical way to gauge our underlying trends.
As a reminder, our fiscal 2023rd quarter and fourth quarter comparable store sales increased 18, 4% at 21, 6% respectively.
We are planning on depreciation and amortization to be approximately of $116 million to $118 million.
We are planning on interest expense to be approximately $5 million the.
Lower interest expense is due to the recently amended term loan where we paid down $10 million of the higher cost of 75 million of our term loan b, one as well as lowering our interest rate by about 300 basis points on the remaining balance.
Diluted weighted average shares outstanding is estimated to be approximately $107 million in our fiscal 2021 tax rate is estimated to be approximately 24%.
As a reminder, this guidance does that consist of the tax benefit due to the impact of stock option exercises that may occur in fiscal 2021.
Our 2021 capital.
Expenditures are expected to accelerate from fiscal 2020, as we return to 20% growth in new warehouse store openings and make other strategic long term investments.
For fiscal 2021 total capital expenditures of our plan to be approximately 440 million for $460 million, which will be funded primarily by cash from operations and cash on hand.
We intend to open 27 warehouse format stores.
Two small format design studios and start construction on store openings in fiscal 2000 2022.
We expect these warehouse store openings to be equally balanced throughout the quarters in fiscal 2021.
We also intend to relocate two distinct stores in early 2022, and we will have construction costs incurred in fiscal 2021.
Collectively these investments are expected to acquire 285 million for $295 million in cash in fiscal 2021.
Most of the year over year increase reflects an acceleration of store openings to 27, new warehouse stores, which is more than double the 13, new warehouse stores opened in fiscal 2020.
We plan to relocate our Houston, Texas distribution center to a nearby location at fiscal 2021.
We have purchased the land at already started construction on a new 1.500 million square feet building that we intend to own for the long term.
This new DC will double our capacity and do some of the 1 million of 500000 square feet and increased our total D. C capacity by 17% the 5.500 million square feet.
<unk>, we intend to open a new trans load distribution facility in Los Angeles that will allow us to maximize cargo weight, leaving the fuel containers, which will drive ocean freight and drayage savings in fiscal 2020 to.
Collectively these are expected to use of approximately 72% to $76 million in cash.
We will invest in existing store remodeling and expansion projects and existing distribution center, using approximately $56 million of $59 million of cash.
Finally, we plan to continue to invest in information technology infrastructure E Commerce, and other store support center initiatives approximate using approximately $27 million to $30 million of cash.
As we look beyond 2021, our goal is still to achieve $329 million and adjusted EBIT in 2022 as described in our 2020 annual proxy statement. If achieved this would be quite a feat to double our EBIT over a three year period in the throes of the worst pandemic in the century as.
As we look for the next three years, we believe our long term growth algorithm of 20% unit growth mid to high single digit comparable store sales growth along with modest gross margin improvement should lead to net income growth of at least at 25%.
Due to the COVID-19 pandemic of this growth path will not be for straight line, but over the longer term, we believe the goals are achievable.
In closing I would like to say that our entire leadership team is proud of how we performed in 2020 and we remain encouraged by the momentum that has continued into fiscal 2021, we believe our best days and years lie ahead of us.
Our entire executive team would like to personally thank all of our associates for the great work, they're doing every day to serve our customers.
Operator, we will now take your questions.
At this time, we will be conducting a question and answer session.
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Please limit to one question and one follow up.
Our first question comes from Christopher <unk> with Jpmorgan. Please go ahead.
Thanks. Good evening, guys can you talk a little bit about the puts and takes of gross margin end 'twenty 'twenty. One of as you think about at obviously Theres a lot of press about free freight costs and there's tariffs out there and can you also give some.
Site around the cadence perhaps of the year given some of the investments that you make in the.
At the comparisons.
Thank you chase.
Yes, Chris this is Trevor.
We have exited the year with the very strong gross margin as we mentioned in the prepared comments up nicely. If you could be back at the section 301 tariffs a lot of reasons for that we've talked about over the years, Lisa and her team and the supply chain team for the fantastic job in putting the assortment of the other good better best.
Theres a mix benefit with.
People buying more of our decorative accessories.
Some of the installation accessories, and just really overall product margins across the board. So we exited the year very strong.
As you think about the first half of the year you will remember at the end of 2019, we put them at Baltimore distribution Center, which was up.
Pretty big expense for us at that time, it was at 50% expansion. So we've gotten beverage in the back half of the year, we would expect to continue to get leverage out of that in the first half of this year. So we would expect in the first half of may be modest moderately better gross margins.
As you did for the second half of the year.
At that 25% tariff is going to start the way into our gross margins eroded feel much of that yet because as we said in the last call. We bought a lot of inventory in anticipation of that we have.
Certainly seeing the same things that everybody else is seeing with higher international container cost higher domestic transportation costs.
And so we will probably see more cost pressure in the back half of the year for probably the most important point I want to make is as we look at our business. We look at the uniqueness of our assortment, we look at our pricing power relative to the competition.
We feel great about the pricing power, we have and as you know we believe we are the lowest lowest price leader out there. So.
To summarize that I think the problems, we've got a little bit of margin upside in the first half of the year the back half of the year could be flat to down just a little bit only because of some of those cost pressures, but as you have now worked at this for many years.
We try to maintain the same gross profit dollars. So if we have to raise costs.
Because we see costs going up we think we have the ability to raise retails to offset that.
That's super helpful. I really appreciate that and typically your people don't stop putting in Florida, because they lost power for a period of time, you talked about having exposure, obviously with Texas to the severe weather and that impacting your business quarter to date, but still paying out of 24. So I guess, how much do you think that you left.
On the table.
<unk> would get back.
Go ahead.
So, yes, I think thats right.
Our debt.
The Thompson at about 20% of ourselves that were impacted.
There might be some big pipes burst and for US got busted deal, we've had a little bit more of that that more businesses and homes.
With that and that could shift happens of what the wait and see all of that plays out.
But there was definitely an impact on that 24 comp our comps definitely would have been higher had we not impacted that had not been impacted by the storms at 16% of our store base is in Texas in the last 567 days at AR.
The effect of Tennessee, and Alabama, and a little bit too.
Okay. So we do like our per store per day, we can extrapolate that off of that and it probably comes back do you expect it to come back typically pretty quickly.
And also just depends of what we've seen.
History too.
Two kind of storms, we saw hurricane Harvey hit Us a few years back.
We saw a massive increase in sales obviously in that market because people were so damaged.
But we've also seen storms in Florida, where there was a lot of wind damage and other damage and people have to then take their discretionary income that they otherwise would of putting the floor is and put them to roofs, and fixing fences and things like that where its actually hurt ourselves. So on balance we would expect to have a little bit of of benefit because I do think theres been some damage because of the burst pipes and things like that.
But just too early to say, whether it'll be the material upside yet.
Thanks, guys best of luck.
Thank you.
Next question, Michael Lasser with UBS. Please go ahead.
Good afternoon. Thanks, a lot for taking my question. It seems like the equivalent is accelerating.
Net.
<unk> believes the 85% of your sales.
The revolver pro in one way or another.
The pipeline for this.
The pro customers.
Why.
Y O y.
The per well.
Continue the accelerating.
And we get to a reopening.
Thanks again.
We shape the house in a way that for even more comfortable for them.
They'll have more comfort, allowing the appropriate.
Why wouldn't the simple confirmed.
Yeah.
Hi, Michael I had a really hard time understanding all of that question Youre a bit muffled so the travel agent.
A question I think of that.
Yes, I mean pipeline I think I heard pipeline part of the question.
Right.
This is like the Tom Brady commercial of growth.
Our guidance.
Yes.
The order for the question Tom Wise.
How big is your pipeline of why shouldn't the business continued to accelerate from here.
Yes, I mean, the pipeline for what we hear from our professional customers as there is a 4% to six week backlog the dam.
Just with plenty of work so.
The other point that I would make too is that people are still in GAAP.
Look at people are still engaging within the category I look at our website traffic, which as you know when people are starting the projects you look at the website theyre going to go there first and the fourth quarter of our traffic was up 53% year to date were up 79%. So the traffic on our web site continues to be.
Pretty robust and then that leads to.
Pretty good demand so.
We feel good about the tone of business were strongest drivers as we said in our prepared remarks are strong across all geographies the strong across all categories.
Okay.
Kevin you mentioned.
You mentioned the long term guidance could you put out there at <unk>.
In bright given what's happening at the state of the business.
Youre going to do much better and that long term guidance what factors should consider debt.
Is the value of that.
At goal.
The <unk> exceeded that the outperformance at this point.
That's a great question Michael on your Crystal ball is better than mine.
I just don't there's just too many unknowns I think one thing when at $329 million goal was put out there that at that time with the executing 20% of unit growth and.
That would have been 24 stores opened in the fiscal year, we just opened versus the 13 stores.
Of our 10-K, we disclosed that we want new stores. The grew two 5 million and first of all EBITDA. You can then assume they are doing a lot more than that in years, two three and for so we lost 11 stores that would have been contributing over $3 million in profit of 11 times stood at $30 million of of EBIT that we're not going to get but we still think we can overcome that and still get.
There.
I hope you're right I think that we've got a long track record of of making the most of it I think this last quarter was a great example, with you kind of.
Simplifies and think about one of the on a 13 week basis to a 13 week basis.
Our sales were up 29% and our net income was up 62% if the environment continues to be robust.
We will we absolutely intend to grow our profit at a much much higher rate themselves, which we've done in many years in past and certainly in the second half of this year.
Last quarter. The mineral example work ourselves up over 30% of our net income was up over 100%. So we will make the most of it F&B sales continued to be robust.
Thank you very much of good luck.
Next.
Kate Mcshane with Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks, so much for taking my questions.
Robert You had mentioned last quarter about the favorable Brian. Thank you first of all.
Bobby Ralph.
Hi, I just wonder free.
For much later.
Just how you're viewing the opportunity beyond 2021.
Has the real estate finance.
Evolved in any way.
I'll take that.
Yes, the real estate pipeline continues to be good we're getting we're seeing opportunities that we didn't think that you would see.
The classes, we mentioned in our prepared comments, we feel extremely good about the class of 2021.
And we have visibility to after the class of 'twenty two and then it looks good also so.
As we've had eight consecutive years of 20% unit growth deals have started to come our way over the last few years in the meaningful way and so.
So.
Feel good about and I think the only just put some numbers to that Kate.
You look at the class of 'twenty, one of 27 stores, we know what all of those stores are going to be our rent per square foot is going to be about half of what we behave in the past revenue would probably close to the 14 to $16 per square foot and I think we're going to end the high single digits or until we're going be in the high single digits. So the real estate team has just done a fantastic job and we're putting stores at Tommy.
Mentioned more stores in the northeast and California as you could expect those rents are generally a lot more than than the rents in the south of where we started.
So.
The classes the class of this finishes can do but it is going to be a fantastic class a class of openings is going to be a fantastic class. So.
The new store return metrics are just great.
That's helpful. Thank you and then my follow up question was just on.
Inventory levels I know you mentioned with the prepared comments. Thank you Nathan.
Right.
Just how should we expect the inventory build.
Look over.
And are there any categories, where all of them.
You got our inventory.
All of them.
Yeah, I'll start shy of our need to talk about the bill.
Our in stock continues to be the challenge I mean, when you're chasing these types of comps keeping up with the inventory.
It is not easy I would say that it is one of the benefits of our model of having then you have of store that has 250 plus options of tile when you're out of five titles you can usually find something to put into our customers hands. So while we're while we're never happy and we're never satisfied and the it feels like we're always.
It's like the whack a mole we're always chasing something.
We're able to overcome that because of our broad assortments across every category that we sell so I don't know chairman for my talk about the cadence of yes, I think Tom mentioned this business has been accelerated number since we opened back up in the P&L and so even though we have had certain stocks out of stocks in certain categories because of the breadth of the assortment and maybe just the great.
<unk> team of the website, we've been able to accelerate ourselves again ever since we've opened back up I think of as you think about this year. Our expectation is debt will be growing inventory of the slower rate themselves.
Thank you.
Next question Liz Suzuki Bank of America. Please go ahead.
Great. Thanks, Dan could you just talk about Capex guidance pretty meaningfully in understanding some of the cost of the 2021 stores occurred in 2020, but are there. Some other factors. Besides just the lack of number of stores going into the Capex guidance for 2020 the line at some banks the other per store.
Given the location of day in New York.
And the West Coast. So just wanted to think about how at that $450 million at the midpoint is likely to at the unit base level of spending off of 2022 and beyond will for our income that is going to be a little elevated for 2021.
Definitely 2021 is going to be a little bit elevated so our capex is going for just over 200 million for.
Turning to the mid point, you said, there's probably close to $450 million a couple of few things I'd call out.
<unk>, our capex per store is not going up all that much at kind of a little bit higher and really the only reason for the higher Capex is part of the reason of our rents are coming down as we're taking on more of the capex burden.
Actually going to one of few stores this year kind of Dallas and one in Connecticut.
We are doing more of what we call self development, where we will go get a piece of dirt and.
Build the store and so our capex is going to be a little bit higher but on a personal basis. Its not all of that higher but there is a mixed component, where we're taking a more of the development yourself any of the benefit of that as we can get materially lower rents for that to a few of the things I would like to call out on Capex is we're going to do two relocations. This year, yeah, that's probably $15 million that we otherwise wouldn't.
The spend we've done three locate the three relocations in the past.
All three cases has been a homerun, where the sales go up a lot in the profit square velocity of just got fueled stores that were going to relocate so that's a little bit unique the.
The distribution center.
As you buy the floor is we're actually going the one that distribution center in Houston, We've bought the land of started construction on that $1 5 million square foot. So, we're we're spending $72 million to $76 million in capex for their normally RBC capex is very small well less than $1 million. So that's a bit unique we won't have the whole can do that for another at least another 18 months of maybe two years.
And then.
We're getting smarter at the company.
Our adjacent categories as you kind of as you look at our 10-K youre going to see the sales are up massively in adjacent categories are still small, but it's up a lot.
We will leave flowing the stores at for a more logical fashion for the works better with the consumer.
And that's going to be some capex to spend some money on that.
We've got a couple of our Super high volume stores that we're expanding because of the volumes are so high and that's for.
And it cost us a little bit of money.
But I think as you think beyond this year.
Both of these numbers in the 10 carrying for $7 million to $9 million of Capex per store, we still think thats, probably about the right number.
We won't have as many.
Reloads, possibly per.
Per year.
And then I think the bigger end, probably the DC and some of the adjacent category expansion, but that's.
The things that will go up.
Okay, great. Thank you.
For the remainder of today's Q&A. Please limit yourself to one question. Our next question comes from Greg <unk> with Evercore. Please go ahead.
Hi, Thanks, I guess I love the focused on inflation.
And how that may have been influencing.
The growth.
Ticket if there wasn't I don't know what all of the.
The tariff impact.
Yes.
Any way of asking for what inflation was on the quarter of last year.
I don't think we saw a lot of inflation.
We just don't what we sell doesn't tend to be a lot of employment in the southern wood.
Furthermore, the woods for six or 7% of our sales and the addition of ourselves. So we haven't seen a lot of two points of 25% tariffs that's going to happen to either I think thats now maybe 13% of our sales.
So theres going to be some higher costs that are going to come across there. We think again, that's going to be more of kind of back half of the.
The fiscal 2021 of those can affect us and then the the bigger one that we and everybody else. We're talking about is the higher international container costs. The higher domestic trucking costs, we are expecting the planning for those to be at the higher.
But I just want to reiterate again I think the benefit for us is the.
The difference between the retails and us and our competitors is as good as it's ever been and when you think about the smaller competitors out there that we continue to compete with us putting at close to 60% of of the industry. The home centers for probably 28 29 versus the industry, but the bulk of those are prices are really good. So is there cost growth theyre going to raise the result.
We didn't have the reserves a bit too, but I think the pricing difference is going to be.
It's been it's as strong as we've seen at.
Thank you.
Next question comes from Steven Forbes with for Forbes with Guggenheim Securities. Please go ahead.
Good evening guys.
I wanted to focus on the CRM learnings maybe at a two part question here.
At the first one Tom you mentioned.
The gaming learnings writer of understanding why you don't get the sale.
During the prepared remarks, the so curious if you could expand on those.
Those learnings and then the second part is just on the pro.
A lot of helpful detail, there, but curious if you could sort of update us on wallet share capture rate, which obviously do the math.
<unk>.
Behind the average spend here of a pro I was curious what the CRM, Michelle and yet we're telling you in terms of the wallet share of trajectory end.
Maybe where it can go.
Yes, let me sort of take the CRM question. She is leading our Sam at facility for sure.
Hi, so.
Back to your first question for some of the learnings that we have gotten at least I think to our customers.
We did start to understand that there are some things at play that are within our control of them longer term for instance, convenience for the bank one liter of only half of 135 stores that we may not be the closest store tests online. So it's possible that we could lose the sales just because we're not close to half.
We do hear that there is also a in.
In essence of familiarity, which I think also cans of being of young brand and if we continue to get bigger and as we continue to get our message out there the people that shop US we have an extremely high conversion rate basically if we can get them in the store or we can sell them. So for us the volume is really to make sure that keep all the cuts.
To understand the value proposition that we have and why we believe at the best business model at that.
Place for them to shop, I'll, let Trevor speak to the pro wallet share PCP, probably a lot closer than that.
Yes.
With the CRM down to the at least I mentioned, we've had improved for a lot longer than we've had is the total business and with the PPR program part of the reason for that was to get more data on those pros and what we're learning is we have a small amount of pros, where we have a massive amount of market share of these are big pros people that are spending 40 to $50000 a year or more with us.
Some of these people are spending six figures with this year, but thats, a small number of pros, but they obviously spend a lot more learning why that is and we're obviously going to take those learnings and expand at the next set of pros.
Another kind of small set of pros that are spending kind of 15% to $40000 a year, which again is at those big pros with the wallet share.
Small overall percentage of our number of pros, but a big part of the law and then we have.
A substantial amount of pros, where our share is very small with them and with the loyalty program. What we're working on is figuring out how do we tier that structured loyalty program and add the other benefits like credit like Tom talked about home advisor, which is of great way to get them leads.
Making sure the desk is taking good care of them and so now that we sort of how all of these learnings over the next year or so within the rollout CRM and loyalty strategies to help move people three of those tiers.
And we think that.
If you look at a lot of bigger companies than us that of <unk>.
Executing CRM and loyalty strategies, that's the <unk>.
Platelet they've executed look at some really good advisers, helping us think about that as well. So I would say in total if you sort of more of that down though.
We still have a very small percentage of.
The catchment area or a trade areas pro wallet share is in the very big opportunity for us.
Got a small team of people here at the corporate office as well as all of our stores very focused on continuing to grow that wallet share.
Next question Karen short Barclays. Please go ahead.
Alright, thanks very much.
Just a question on the newer markets.
I'm wondering if you could talk a little bit about the.
The next day.
And the structure the NAFTA.
And as a percent of sales.
David denser markets like the northeast.
The West Coast and then wondering if you could just give a little color on what you think the expected waterfall would be for the 2021 minutes.
Sure.
Yes. This is Trevor so if you look in total.
Our stores kind of over five or six years, there SG&A kind of in the low twenties.
Total is around 27% total company at around 27 for store level SG&A, our more mature stores are kind of in the low twenty's and our newer stores of the first year. The open they run about 50% higher so the kind of in the low to mid 30% of SG&A.
If you then to your question to bifurcate that even further.
As you would expect our new stores in existing markets are generally lower because we'd be higher volumes of those.
And then our new stores in brand new markets is generally higher than that but the simple way to think about it is our new store of SG&A as a percent runs at about 50% higher in the first year and then over that five year period of goes from kind of the mid to low 30% down to the world <unk> is how we think about it and the second question was.
One of the protocol yet.
<unk> been pleasantly surprised we have been here 10 years now.
And we've been running the 300 to 400 basis points of incremental comp from from new stores.
Including the last year has been the case.
The only model of the come down for the trees don't grow the sky.
But I've been pleasantly wrong on that and our new stores continue to comp at a much higher rate and our new store volumes when I got here of new stores might be seven or 8 million now as we've disclosed in our 10-K and our new stores were ending from $13 million to $15 million. So at some point that waterfall will come down because of our new stores are opening up at such a higher rate, but to date, we have not really seen net.
Waterfall slow.
Next question Seth Sigman with credit Suisse. Please go ahead.
Hey, everybody.
I wanted to talk a little of the operating expenses can you give us the banks.
Kind of think about SG&A headwind or tailwind in 'twenty, one based on what happened in 'twenty. So there was a period, where you're kind of lot and had limited operations and then there were some bigger increases in expenses in the back half of the year I am not sure worried at all netted out but is there a way to frame SG&A into 'twenty one.
Good day for gross margin and help us think about your ability to leverage expenses. This year. Thank you.
Yes.
The very difficult question, because obviously you've got to have the.
The sales component the answer that question.
We're not comfortable in giving the sales number.
I would say, though based on the last comment we just stayed with new stores.
Operating at 50% higher SG&A than the more mature stores and more than doubling our new store count going from 13, new stores for 27 new stores.
We're not expecting a lot of leverage in store level SG&A only because of the new stores. We are absolutely again other than the 10 years, we've got leverage which is incredible but we've got leverage I think every year in our in our company stores and we intend to do that again, we'll get a little bit of leverage out of our corporate expense. We think this year, but we're not really expecting to get much leverage.
And store level of share again, only because we're going from 13, new stores 27, new stores.
Next question, Chuck Grom with Gordon Haskett. Please go ahead.
Hey, Good afternoon, guys John Park on for Chuck.
You guys have your second design for now open can you guys came out a little bit how we should think about the sales productivity from adding my thanks to a market average.
The ramp over the next few years.
So we've got.
We opened one design studio in Dallas, So far we're getting ready to open another one will open two more of this year.
It's just too early to tell.
We need to get a few of them open to understand kind of of the dynamics of how the work, but we like what we're seeing so far but it's just way too early to really talk about it but as we learn more and it becomes meaningful we will share more.
Next question comes from Seth Basham with Wedbush Securities. Please go ahead.
Thanks, a lot of demand. Good afternoon. My question is around the gross margin just coming back for the quarter. Excluding the current refund comparison, how much share of the permanent key in gross margins from leveraging supply chain versus other factors at chegg merchandising pricing and mix and how do we expect growth factors at play out over the next two quarters before you start hitting.
The back half comparisons.
Yes, we exited the quarter at 42, 5%, which is where we started the year.
And I think as we think about this last quarter. The majority of the better gross margin was pure product margins. Both from a mix perspective is our decorative business continues to do well and then also as our consumers are choosing the better and best products. Those generally carry a higher gross margin.
As we as we get into next year again, we would expect that we're going to at a little bit of debt in the first half of the year as I said, we probably expect to get a little bit of the margin a little bit of that will probably bring in product margin and some of that would come from the from the supply chain as well.
Next question Simon Gutman with Morgan Stanley. Please go ahead.
Hi, this is actually Hannah per Panther.
Thanks for taking the question. My question is on the top line, obviously, you've seen pretty strong trend so far in the App.
For the sales guidance could you give us some color on how youre thinking about broader home improvement industry trends during the year I think you could specifically touch on what you're building into your internal planning around housing demand and interest rates.
And for what expense the topline outcomes are dependent on how COVID-19 progressive than at the timing of the vaccines in the year.
Yes, I think this is Trevor I think the backdrop is good as it's ever been if you think about people are spending more time in their home they are having to repurpose their home. It's work that's play.
Everything at.
Size.
We're at $6 7 million of existing home sales turnover, which I think at the highest on record at close to at interest rates are going up a little bit now, but they are still at record lows.
Of the $123 million.
Housing units out there at 80% of them for over 20 years old. So all of those things lead us to believe we are very strong macro backdrop.
And that leaves us the.
He has historically been good for our business.
The second part of the question please.
And that will make sense for which <unk> is.
It's going to be of driver and the way Youre looking at the timing of vaccine.
I think again, that's hard to say, that's why we're not giving guidance.
My sense is.
Based on recent information.
Things are getting a lot better out there and.
The per the needed to really has taken on and we're going to be a lot better than people will start to travel again and they will start to go to Walgreens.
Some of that discretionary spending has been directed towards us wood wood wood could possibly go back the other leisure activities.
As of as of.
As Tom mentioned, the your comp in <unk> 'twenty for that number would have been higher without those storms in Texas.
So the backdrop remains very strong.
I would add to that.
Do you think about us.
Our unaided brand awareness still hovers around 10%. So people are still find out who we are the 40% of our stores are less than three years old. So we get some tailwind from the stores.
We're we're a share taker, we've been taking share we think our model is better so and we've got just a lot of initiatives in place to continue to drive top line.
Next question.
<unk> of David Bellinger with Wolfe Research. Please go ahead.
Okay, great. Thanks for taking the question, maybe a follow up on an earlier topic here, but.
I think looking at mature stores at the point, where sales per square foot priming now versus some of the younger stores in the fleet.
And what does that inform you about the potential of productivity of our some of these newer units sort of any of that carry the only thing for trucks on the way of our forward looking at at the same level of productivity.
Yes, Im just put them to try and find some notes here I mean, our sales productivity for our older stores.
And 10 years old I think they are north of $300 of 329 of them.
At the Senate today, yes.
So I think at over $300.
The sales per square foot.
And I think that does lead us to feel.
Strong about those at those stores I mean, as you look at our stores. The older. They are generally speaking the higher volume and the much higher profit they are.
And so I'm just I'm looking at our stores over 10 years old is well over $300 per sales per square foot are newer stores for obviously a lot lower than that so.
It was like a fine line to all of the stores get the higher the volume and the more profitable debt and.
And so that does bode well with you really simplify our business I gave you the new store economics, we want new stores to be $13 million to $15 million in sales in the first year in the tune of ethylene for four wall EBITDA.
The at the five and 10 years old they're going to get closer to 'twenty, two 'twenty $324 million in sales and getting close to 25% EBITDA margins.
It's a great business.
Tom said.
Like we've done here for the period almost 10 years, we've all been here, we've got a substantial amount of initiatives with commercial and design and pro we still don't have the majority of the wallet share of mind share sort of low so as we kind of ended with my comments, our best days lie in the future.
Our last question comes from Chris <unk> with Exane BNP. Please go ahead.
Hey, guys, Steve Mcmanus on for Chris Thanks for squeezing the Sydney here.
I wanted to circle back to the freight.
I think last quarter, you guys mentioned, you werent really seeing an uptick for spot spot rate increases.
At the time, but we've seen ocean freight rates really step up the last couple of months. So just curious if there was.
More meaningful impact.
You guys saw in the fourth quarter.
No not in the floor, we are almost all of our containers contracted out again, our supply chain team did a very thoughtful and those contracts kind of come over time and I think our first one comes up in May.
And so we don't we don't have to do a lot with the spark spot we'd have some just because our volumes have been at the higher so we are doing a little bit, but it's been pretty insignificant.
Looking at the Rearview mirror, we really didn't see much in the way of.
Higher cost as we as I mentioned, we started with the.
New contracts in our inventory turns just over two times of year. So we don't feel it's probably much in the first half of the year, but as we did for the second half of the year, we will likely see higher cost just because of the overall market is growing up.
Thank you I would like to turn the floor over to Tom Taylor for closing comments.
But I want to thank everyone.
Everyone is staying safe and healthy.
We thank you all for joining the call I know a lot of our associates listen and we appreciate everything that Theyre doing in these trying times.
Thank you for your interest and we look forward to talking to you at the next quarter. Thanks, everyone.
Concludes today's teleconference. You may disconnect your lines at this time at thank you for your participation.